The decision to increase the number of free trade zones (FTZ) will help open up the economy and invigorate growth, experts say.
A landmark policy document the Communist Party of China (CPC) released on Friday shows the importance of the Shanghai pilot FTZ. The document was approved by the Third Plenary Session of the 18th CPC Central Committee, a four day meeting that ended on Nov. 12.
"On the basis of pushing forward development of the existing pilot FTZ, qualified regions will be selected to build free trade zones or ports," the document said. This decision means more free trade zones, and they will be brought online quickly.
FTZs EPITOMIZE REFORM
The Shanghai FTZ covers approximately 29 square kilometers in four areas of Shanghai, China's financial hub. It got the nod from the central government in August and was officially unveiled on Sept. 29. It opens the Chinese market wider for foreign investors, including in the service and financial sectors.
By the end of October, over 200 companies have flocked into the zone. Their enthusiasm underscores the sad fact that regulations and management styles outside the FTZ constrain development, said Long Guoqiang, a senior researcher with the State Council's Development Research Center, a government think tank.
"It also shows investor confidence in China's future, as well as the prospects that Shanghai FTZ will step up reform and opening up," Long added.
Other local governments have followed suit and applied for similar zones to help their own economic growth. Applications come from costal cities like Guangzhou, Tianjin and Dalian and inland cities like Chongqing.
Long believes the FTZ has perfectly integrated central government reform with local government hopes for stable growth. "It has bred initiatives on all sides."
Accelerating FTZ construction will help detect weaknesses in traditional development patterns, which will in turn bring further reform, said Zhuang Jian, an economist at the Asian Development Bank.
Song Li, deputy director of the Institute of Economic Research at the National Development and Reform Commission, said the latest policy sent a clear signal that central government attaches great significant to FTZs.
China must rely on innovation in mechanisms and development patterns to bring new life to economic growth, as the labor advantage is waning while technological superiority needs more time, Song said.
OPPORTUNITIES & RISKS
The document discusses opening up of China's hinterland and border areas. Local governments should take the opportunity and develop industries compatible with their own characteristics and make the most of whatever advantages they have. Past policy has favored coastal cities, which enjoy more resources than their inland counterparts, said Zhuang, but the tables are turning in terms of development opportunities.
Zhuang said the economy was relatively closed due to restrictions on various production factors, such as labor and capital. Upgrading the economy will change it by putting emphasis on science and technology, innovation and emerging industries.
Kuang Xianming, head of the economic research center at Hainan's China Institute for Reform and Development, agrees, saying that as situations differ from place to place, there should be no uniform model for FTZ development.
Kuang warns that applications for FTZs may be driven by desire for preferential policies like those in Shanghai. "If the FTZ concept becomes mere policy, it will be a far cry from its original purpose," he said.