If China’s much-ballyhooed Shanghai Free Trade Zone (SFTZ) is the centrepiece of new premier Li Keqiang’s determination to liberalize the country’s economy, it’s reasonable to suppose he would turn up to preside over the announcement.
He didn’t.
And it was not only Li who was conspicuous by his absence at the end of last month at the SFTZ launch.
There was no significant turnout of senior government or Chinese Communist Party officials to signify that the SFTZ is, as billed, the next step in China’s opening up that began 30 years ago in the southern manufacturing centre of Shenzhen.
Also absent were the heads of the country’s top regulatory agencies, though as potential victims if there is real liberalization, their non-appearance is perhaps understandable.
So it was left to junior officials to present some details of the liberalized business – including foreign investment – in professional services, financial services, banking and telecommunications that will be allowed in the nearly 30-square-kilometre site in Shanghai’s Pudong district.
Beijing’s apparent lack of commitment to the SFTZ, and all it symbolizes for China’s necessary next step from a manufacturing to an innovative and service-based economy, has inspired cynicism.
Some commentators have mused in print that the whole thing has the smell of a real estate promotion scheme by the municipal leaders of Shanghai in order to boost revenue.
If it’s not a real estate scam, some have asked, why designate a 29-square-kilometre greenfield site for the SFTZ when the objective of liberalization could be accomplished more easily by licensing existing banks, companies and institutions to operate under the relaxed regime.
Others have noted that there are already three designated free trade financial zones in southern Guangdong province bordering Hong Kong that have yet to achieve liftoff for lack of government attention.
However, despite the discouraging body language, the future of the SFTZ should not be dismissed out of hand.
As the story of Shenzhen shows, Beijing leaders take a highly conservative and cautious approach to introducing radical reforms.
They much prefer to “cross the river by feeling the stones,” as former paramount leader Deng Xiaoping said of the Shenzhen experiment.
So it may well be that in a decade or so it will be possible to look back and see that the SFTZ has fulfilled all that officials now say they hope for it.
Officials expect the SFTZ to make the political case for further liberalization and reform of China’s increasingly underperforming economy. That would be more convincing if Premier Li had shown political commitment to the project by appearing at the launch.
Officials also think the SFTZ will have an osmotic effect on the ground, inevitably allowing liberalized business practices to seep out of the zone and into the mainstream of China’s commercial world.
For the moment, at least, the Beijing authorities seem determined to ensure there is as little leakage as possible. A particular fear is that the SFTZ could become a highway for flight of capital by China’s rich who have little faith in the survival of the current system.
Estimates of the amount fleeing China last year range from over $200 billion to about $600 billion.
In its early years, Shenzhen was ringed by a heavily defended wall of rules and regulations, excluding all but the favoured inhabitants. The same model is being applied to the SFTZ.
In addition, officials have touted their “negative list” approach.
Everything not specifically banned will be allowed.
But this would be more impressive if the list of banned activities were not so long.
The list, published last week, covers 10,000 restricted activities and includes 190 areas where no foreign investment will be allowed. •
Asia’s richest man bullish on China free trade zone
There are many people in Hong Kong and elsewhere who have made a lot of money by listening to every word and following every move of Asia’s richest man, Li Ka-shing.
The 85-year-old Tai Pan of Cheung Kong Holdings Ltd. and Hutchinson Whampoa Ltd. demonstrated yet again a few days ago his ability to move markets, send shudders of anxiety through entire communities and give politicians splitting migraines.
Li launched his shock wave by announcing during an interview with Radio Television Hong Kong that Shanghai’s Free Trade Zone will have a major impact on Hong Kong.
The Shanghai Free Trade Zone (SFTZ) “will affect Hong Kong heavily,” Li said.
Asked if Shanghai would surpass Hong Kong in the next five or 10 years as the favoured outpost for business and investment in China, Li said: “ I don’t want to predict. But it will be faster than most people think.”
For over 150 years Hong Kong has prided itself on being the most trustworthy gateway for doing business with China because of the entrenched British-style rule of law, which the territory retained after being returned to Chinese sovereignty in 1997.
Li’s musings sent Hong Kong government officials and Chief Executive Leung Chun-ying scurrying to defend the territory and its continuing long-term advantages.
Several officials made the argument that if the SFTZ succeeds in liberalizing China’s financial services and investment sectors, it will only increase the size of the pie, and thus Hong Kong’s slice.
However, Li’s thoughts were expressed at a time when he is showing decided bearishness about investments in Hong Kong and China.
Li is in the process of unloading nearly $7 billion worth of assets in Hong Kong and China.
These include his supermarket chain ParknShop, for which he is reported to have received at least eight offers, and a majority holding in the Hongkong Electric Company, which he now controls.
Li insists he is not abandoning Hong Kong.
Speaking to reporters in his headquarters in the Cheung Kong Centre, Li said: “if I sell this building, you should start to worry.”
