Shanghai Free Trade Zone Generates Cautious Excitement Ahead Of Launch

Chinese Premier Li Keqiang is reportedly slated to preside over an opening ceremony for an experimental Shanghai free-trade zone this month. The ceremony -- expected to take place on Sept. 29, although some reports say the date is not final -- heralds the launch of a zone that will allow for China’s long-awaited economic reforms to be played out in a real-world environment, according to the Shanghai Daily.

The zone has been eagerly anticipated by business leaders and analysts in China who want to see how Li’s growth-focused reforms will work in practice, with Bloomberg News reporting that the zone may provide for “freer yuan convertibility, liberalize[d] interest rates and relax[ed] restrictions on foreign investment.”

Shanghai has been ascendant during the past couple of decades, as the Pudong special economic zone has gone from a fallow area east of the Bund to a massive center for business, tech and finance that features a modern skyline, top companies, high rents and three of the tallest buildings in the world. The Shanghai free-trade zone is an effort to further China’s stated goal of turning Shanghai into a leading global financial hub by 2020.

The move to institute the free-trade zone comes as China’s annualized growth in real gross domestic product hovers near a two-decade low below 8.0 percent, down from the double digits of several years ago. As a result, the zone will be closely watched to see how instituting it and associated reforms might affect the nation’s economic future.

Understandably, the 29-square-kilometer zone is generating much chatter by and interest from investors who want to get in on the action there by buying into companies that could benefit from it, but the Wall Street Journal reported it will likely take years for the zone to really make a major impact on the Chinese economy.

Still, Li continues to tout economic reforms as key to China’s economic future. “An important part of economic-system reform is financial reform,” Bloomberg cited Li as saying at a World Economic Forum meeting on Sept. 11. “It is because it is such a complicated systematic project, it indicates China’s reform has entered a deep-water zone, or the most difficult phase.”

Excitement about the zone is high, but some analysts warn it may not be the transformative boon it is being touted as. “This is an experiment worth watching, but not the game-changer some believe,” the Wall Street Journal quoted Capital Economics as writing.