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Prof Xu Bin: Next Step for Shanghai Free Trade Zone

Volume 1, 2014

By June Zhu

CEIBS Professor of Economics and Finance & Associate Dean (Research) Prof Xu Bin addressed about 200 CEIBS alumni on the fascinating topic of “Shanghai Free Trade Zone: New Opportunities and New Challenges” on January 18.  His presentation covered the establishment, development, current status and his expectations for the future of the pilot Shanghai Free Trade Zone (SHFTZ).

It was the first CEIBS Master Forum held since the year began. General Manager of Shanghai Waigaoqiao Free Trade Zone United Development Company Ltd, Mr Weng Wei (EMBA 2011), was the moderator.

Prof Xu began by providing an overview of The Business in China Survey he led along with his colleagues Professors Juan Antonio Fernandez and Zhou Dongsheng. The latest survey, conducted last November, included questions that gauge respondents' attitude towards policy related to the SHFTZ. While almost all the respondents – senior executives from companies both in and outside of China – said they have heard about the SHFTZ, 50% of those polled from foreign companies said they did not have access to enough information and are therefore unable to assess whether or not they are interested in the Zone.  In contrast, 59% of those polled from Chinese SOEs are extremely interested, especially those in the financial sector. The survey also revealed that the most highly anticipated aspect of the SHFTZ is access to preferential tax rates.

Feature, Volume 1, 2014

Prof Xu then guided the audience through a close examination of three of the Zone’s most important policy documents: Special Management Measures (Negative List) for Foreign Investment in China (Shanghai) Pilot Free Trade Zone (2013); Measures to Expand Openness of the Service Sector Attached to The Overall Planning of China (Shanghai) Pilot Free Trade Zone; and Opinions of the People’s Bank of China on Financial Support in China (Shanghai) Pilot Free Trade Zone.

Regarding the Negative List, Prof Xu made the following points: the list is too long, and has too many restrictions, especially as it relates to the service sector; the prohibitions are quite clear, but the restrictions leave a great deal of room for interpretation; there is no difference between the Negative List and the previous Catalogue for the Guidance of Foreign Investment Industries.

He added that though the Negative List will simplify the complicated administrative approval procedures, which will be a remarkable breakthrough, he still hopes the list will be shortened in the future, in line with existing practices in developed countries.

After sharing his views on each of the measures established to improve openness within the service sector, as outlined in the second policy document, Prof Xu moved on to the third policy paper that covers the role of the Central Bank. According to the document, companies operating within the Zone will be allowed to open a free trade account, giving them the option of making payments from banks outside of mainland China and even to freely purchase stocks on US exchanges. Prof Xu pointed out that finance sectors in developed countries are open to the outside, and China is now on its way to offering the same level of access. He cautioned, however, that the law of economics has shown that crises are unavoidable on the road towards financial openness; China will not be an exception. 

Feature, Volume 1, 2014

Turning his attention to the future development of the Shanghai Free Trade Zone, Prof Xu explained that the Zone plays two roles: to the outside world it showcases China’s substantial progress in opening up in trade and investment, while internally it deepens the country’s reform of its administrative management system. For the Shanghai Municipal Government, he added, the Free Trade Zone is an engine to accelerate the city’s construction of “four centres” – financial, economic, trade, and shipping.

He predicted that within the next three years, the first breakthrough will happen in the area of trade and this will lead to benefits in many other sectors. Shipping, Prof Xu said, would be the second area to see a breakthrough because of Shanghai’s favourable geographical conditions. He’s also very optimistic about the financial sector, and gave a three-year estimate for when it will see a major breakthrough. He noted, however, that this would not be led by the Zone but result from a countrywide step forward, which will include the Zone.  

Wrapping up his address, Prof Xu stressed that he believes the Negative List will be shortened, the key points are not the preferential but the future administrative reform, and the experimental Shanghai Free Trade Zone should be expanded nationally. He is convinced that the Shanghai Municipal Government has dedicated extensive effort to the project, and the city should take advantage of the overall countrywide financial reform to stride forward. He also stressed, again, that with opening up there is the potential for a financial crisis and efforts must be made to prepare for this eventuality.