China tests major reforms in new Shanghai FTZ


China today launched a new ‘Pilot Free Trade Zone’ (FTZ) in Shanghai which introduces a number of major reforms not least financial reforms which will see the financial control over the Yuan take a more flexible approach.

A total of 36 companies have been awarded licences to operate in the 28.78 square kilometre zone on the outskirts of Shanghai. Eleven financial institutions will also operate in the zone including the Industrial and Commercial Bank of China, Bank of China, Citi (China) and DBS (China) says a report in the Shanghai Daily.

The Chinese government’s official news agency Xinhua reports that “Under the precondition that risk can be controlled, China will create conditions to test yuan convertibility under the capital account, market-set interest rates and cross-border use of the Chinese currency in the zone.”

The report goes on “The FTZ will allow the market to decide prices of financial institutions’ assets, a process known as the securitization of those assets, as policymakers hope to catalyse further reforms in the world’s second-largest economy through such an experiment”.

“Chinese banks in the zone will be permitted to conduct offshore business on the condition of effective oversight, under the plan. It means Chinese banks will be allowed to provide services to depositors who are residents in other countries.

The Shanghai FTZ will also allow eligible foreign-funded financial institutions to set up banks, and to team up with qualified private banks to establish joint-ventures.

The plan also pledged to establish a foreign exchange management mechanism adaptable to trade and investment reforms in the zone.

Enterprises can try the free cross-border financing while multinationals are encouraged to establish regional or global capital management centers in the zone.

The FTZ will also push for “a full-scale opening” of the financial service sector to eligible private capital and foreign financial institutions.

Foreign companies are permitted to gradually participate in commodities futures trading in the zone”.

You can read the full report in Xinhua here.

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