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Free Trade Zone highlights

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The Shanghai Free Trade Zone is so far China's most important push towards economic reform in more than a decade.

For a more detailed look into what the special zone has promised, my colleague Zhong Shi joins me in the studio with more detailed information.

Q1. Zhong Shi, the expectation from the free trade zone is of beneficial policies in the financial sector and the opening up of the service industry. What more can you tell us about that?

A1. You're right. The zone will be used to experiment with a series of reforms in the financial sector ahead of other parts of China. What are these reforms? The zone will encourage RMB's convertibility, interest rate liberalization and further cross-border usage. The yuan is already convertible for trade but the government still imposes restrictions on its convertibility in the capital account.

What the zone will do is to allow convertibility in the capital account under the condition that risks can be controlled.Then in terms of service sectors, there are six areas of focus for the zone: financial services; shipping and logistics; commercial trade; professional services such as law and engineering; culture and entertainment; and social services including education and healthcare. These sectors will be further opened up to foreign and private capital.

Q2. A lot of attention is now being focused on how the zone will make it easy for foreign investment to enter the country. How exactly will this be done?

A2. Well, the plan is that the zone will suspend or scrap some previous access control concerning investor quality, investors' equity ratio, fields eligible for investment and adopt a "negative list approach". What this means is that foreign investors there will have no need of government approval before setting up as long as they don't operate in any sectors on the negative list.

The zone will also allow eligible foreign-funded financial institutions to set up banks, and to team up with qualified private banks to establish joint-ventures. Also, it will lower the barrier for foreign investors to enter the service industry, including engineering, construction, financial leasing, shipping, cultural services, and professional services. In summary, the highlight of the Shanghai FTZ is to create an open platform where foreign and Chinese companies can compete on a level-playing field. Back to you.





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