China’s Shanghai port zone tests Xi on easing yuan controls

Bloomberg

China is making another attempt at keeping Shanghai at the cutting edge of economic reforms after its latest try in 2013 floundered.
The State Council, the nation’s cabinet, will soon unveil plans for a “free-trade port” in the world’s biggest shipping hub, according to Chen Bo, an adviser on the proposal who researches free trade zones at the Huazhong University of Science and Technology in Wuhan. President Xi Jinping had floated the concept last month as part of the Communist Party’s pledge to “develop new models and new forms of trade.”
The port will feature eased capital controls, no customs duties and minimum clearance procedures compared with the Shanghai Free-Trade Zone, which was established in 2013 as a laboratory to test financial deregulation. It will also be smaller: About 18 square kilometres, or roughly 15 percent the size of the previous area.
“The FTZ has performed below expectations and lagged its lofty objectives,” Chen said.
“The free port needs to carry out capital account liberalisation to emulate the freest ports in the world such as Hong Kong and Singapore. This is crucial.”
The policy will provide another clue as to whether Xi intends to accelerate market-friendly reforms after he became one of China’s most powerful leaders ever at a leadership reshuffle
. Past pledges to open up, particularly on currency flows, have left investors frustrated.
The Shanghai municipal government and Commerce Ministry didn’t reply to faxed queries on the plan’s details and timetable.
The Commerce Ministry in October said it was “actively” coordinating with Shanghai’s municipal government to set up the port. It has gained momentum in recent weeks, with Wang Yang, a member of China’s most powerful political body, touting the concept in the party’s People’s Daily newspaper.
“It’s going to be of a smaller-scale, more specific and freer,” Chen said, adding that he expected the central government to release a final plan early next year.
Despite the terminology, Shanghai’s FTZ was designed more as a free-market zone subject to less regulation and more transparent governmental oversight, rather than an area of zero duties on goods and services. Among other things, it allowed foreign companies to own warehouses, set up health insurance operations and establish joint ventures to handle shipping cargo.
‘Smaller, Nimbler’
The free-trade port would better live up to the designation, said Cao Heping, who advised the government on the original FTZ proposal and saw the new plan. The smaller size within the existing FTZ—including the Yangshan seaport and Pudong airport areas—would allow cargo to be stored and transferred without duties, he said.
The Shanghai FTZ has been among the biggest disappointments of Xi’s first term.