Shanghai plans free trade zone

Pudong to play crucial role in 10-year blueprint

Despite rapid development in the past few years, many die-hard traditionalists in Shanghai still believe in the old adage that a bed in Puxi is preferred to a house in Pudong.

But this "wilderness" has now become the focus of the city's future.

And this isn't just related to Disneyland, which, when it is completed in 2015, will be part of Pudong New Area's attractiveness.

The major driving force is a 10-year plan for Pudong, or the eastern part of Shanghai, that is grander and bolder than anything that has ever been conceived even by overly ambitious Shanghai officials.

The plan encompasses an area of 28 square kilometers, including Waigaoqiao Free Trade Zone, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone.

The area is almost the same size as Macao, and its trade volume topped $100 billion last year, the highest on the mainland.

In this area, a new economic order will be established with its own set of rules for commerce and finance. Indeed, the Shanghai free trade zone, as it is temporarily called, is set to have even more of an impact than other such entities in Shenzhen or Tianjin.

The project, mapped out at the beginning of this year and approved this week, is the first of its kind in China. Ready for submission to the State Council later this month for the official seal of approval, the project is expected to start operation in phases in the second half of this year at the earliest.

"It is a new national strategy that everything should be secured before the plan really gets started," said Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai.

The free trade zone plan is one of Shanghai municipal government's major tasks for 2013, according to a government work report delivered by Yang Xiong, acting mayor of Shanghai, at the first session of the 14th municipal people's congress.

Benefiting from the news about the free trade zone, prices of related stocks rallied while the Shanghai Composite Index dropped 1.11 percent on Tuesday.

Shanghai Pudong Road & Bridge Construction Co Ltd was up 4.59 percent, while Pudong-based real estate developer Golden Bridge rose 4.22 percent.

Zhang Qi, a senior analyst at Haitong Securities Co Ltd in Shanghai, said the performance of stocks related to the free trade zone has remained good since Spring Festival despite an ongoing decline in the Shanghai Composite Index.

"The plan is in accordance with the city's goal of building it into a regional shipping, commercial and trading hub. It will also help promote the city's transit, export and offshore trade," he said.

Wan from the Pudong Academy of Reform and Development in Shanghai said the rapid implementation of the free trade zone plan is closely related to the current economic situation as Premier Li Keqiang reiterated at an economic conference in March in Shanghai "we should use opening up to boost domestic demand and provide a push for reform".

As Shanghai Disneyland is set to open in 2015 and a high-end duty-free center opens around the same time in Waigaoqiao Free Trade Zone, Wan concluded that the free trade zone is "in line with the local government's call for a transformation of economic development, which will focus more on boosting domestic consumption".

"The free trade zone will also help Chinese companies going overseas by helping increase exports," he said.

"The new free trade zone should not simply replicate any other already existing examples either in form or in function," he added.

Much concern has been expressed that the establishment of the Shanghai free trade zone will pose a threat to Hong Kong.

But Wan said Shanghai will not challenge Hong Kong's status as a major global free port, as the latter promises and provides more open policies.

Hong Kong Trade Development Council has been closely monitoring the development of the free trade zone plan. But Jacky Chung, the council's regional director for eastern and central China, said it is probably not yet time to predict the impact of the plan.

Zheng Weimin, a researcher with the Chinese Academy of Social Sciences, said that Shanghai and Hong Kong play different roles in the Chinese economy and their functions are complementary.

Hong Kong's advantages lie in its sound legal system and market openness. Their relationship is more cooperative than competitive.