China’s reform agenda

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The absence of senior officials at the opening of China’s first FTZ doesn’t mean it’s not a priority.

On September 29, Beijing officially opened the country’s first free-trade zone. The FTZ, packed into less than 29 square kilometres in four districts of Shanghai, will act as a test bed for economic and financial reform and opening-up in China. If successful, the FTZ might be replicated throughout the country.

Even though much more detail is needed on the exact policy that will be adopted in the zone, it offers big potential for Shanghai and the rest of China.

China’s leaders have resolved to push through reforms to the country’s notoriously closed economy – changes that the international community has pressured the government into pursuing for years. The FTZ is concrete evidence that China is forging a path to a liberalized economy, and having the first zone in China’s recognized financial hub, known for its innovation and political strength, sends an important message to the international community.

Although the free trade zone is an important step in China’s growth, commentators were stunned to see that on the day of the official opening no senior party members were present, fuelling speculation that conservatives and reformists were split on the shape and speed of changes adopted in the country.

There might be some truth in this, but it is not the whole story. There’s a lot going on in China right now.

Equally vague and lacking in detail was this year’s Third Plenum of the Communist Party of China, held over four days from November 9. And although lacking in specifics, one factor that resonated with people on the ground in China was that Beijing seemed to show equal focus – perhaps for the first time – on social as on economic change.

Revision of the outdated hukou system, which registers households and denies benefits to rural migrants to the cities, is high on the agenda; there are moves to improve the legal system, reduce the number of crimes punishable by death and close down harsh labour camps once and for all. Even China’s controversial one-child policy will be loosened.

And in any case, it is not like Beijing to make a big noise about this sort of change. Indeed, there are special zones throughout the country already. Xinjiang, the autonomous Uyghur province in the northwest, receives subsidies and tax incentives to promote business in the region; Qianhai in Shenzhen, which was developed into a special economic zone last summer, has started to allow new methods of foreign exchange settlement of capital funds, investment and fund management. Both were implemented without much of a fanfare.

While the financial community focuses on the opening of the capital account, renminbi internationalization and cross-border trade, China’s authorities are keen to stress that this time around, economic and financial reform are not the sole attraction.