2014-15 Canada-China Business Forum Magazine - Page 24

TRADE Triumphs, Lessons & the Way Forward Yet neither structural change nor increased liberalization is new to the Chinese. It takes the Chinese a long time to decide on the “deepwater reforms” under the context of liberalization because the Central government is very concerned about the risks associated with reforms. Therefore, the Central government selected Shanghai, which has a more established trade and financial service industry, as a test site to experiment with the long-awaited reforms. The FTZ is small enough to contain risks if they get out of hand. After three months of fierce debate within the Central government, blueprints for the China (Shanghai) Pilot FTZ were released on September 27, 2013. The blueprint mapped ambitious reforms in the following six areas: • Pre-citizen treatment to foreign investment and negative list • Developing new trade modes to introduce offshore trade and future trade • Financial liberalization, interest rate marketization, exchange rate liberalization, RMB internationalization and relaxing controls on capital accounts • Relaxing restrictions on service sectors involved in professional education, medical care, entertainment and tourism • Building up a transparent and fair legal system to replace the existing instructions from government, which are believed to biased towards SOE’s by/par BO CHEN Photo by Konrad Shek T he decision to establish a pilot free trade zone (FTZ) in Shanghai stems from a number of internal and external problems that China now faces. China’s economic slowdown problem is widely believed to be symptomatic of the middleincome trap. It would require painful structural changes in order to avoid the trap. So-called high-quality international free trade and investment agreements such as Trans-Pacific Partnership (TPP), Trade in Services Agreement (TISA) as well as various Bilateral Investment Treaty (BIT) negotiations have pushed China to become more liberalized toward the rest of the world. 23 can be unloaded immediately into the FTZ while applying for import permits into China. Furthermore, tariffs on imports stored for future deliveries are waived. Together with China’s financial liberalization, administrative reforms are expected to boost China’s offshore trade. Enhancing the efficiency in government administration, from approval system to filing system • hxdbzxy/Shutterstock Shanghai Free Trade Zone: Changes and easing of rules have been made in the service sector. Foreign entertainment companies can either find a Chinese partner or can seek to establish an independent entity in the FTZ. Some of their business activities can be promoted in the whole Shanghai region. The first foreign-owned international school, the London-based Harrow School, is opening a campus in the FTZ. A high-end German hospital has been approved to operate soon. Although located in the Zone, these businesses can serve all of Shanghai. The introduction of an applicable negative list and concrete steps towards financial liberalization are the two most important and attractive reforms found in the Zone. This view has also been confirmed in a recent speech by Han Zheng, Secretary of the Shanghai Municipal Committee of the CPC. Despite public pronouncements, reforms in these two areas have been below the market expectations. In September 2013, China announced its first negative list on foreign entry into the Zone. However, the 2013 list mirrored existing regulations stipulated by the National Development and Reform Committee. There was little to test or to experiment within the 2013 negative list. The Central government quickly announced that they would Although it is still too early to evaluate the whole reform process in full, nevertheless, we can examine some midterm triumphs by checking the progress in the six areas of reform. Important reforms have been made in government administration. For instance, it now takes three to five business days to start up a business in the FTZ compared to three to six months in the past. Chinese customs has also rela ᕐ