Shanghai FTZ may emerge winner

After nine years of intractable negotiations, the failure to secure a free trade pact between China and Australia looks likely to become a big win for the three- month-old Shanghai Free Trade Zone, with major Australian bank Westpac the latest to urge Australian business back to China.

Andrew Whitford, Westpac's head of China, told local media last week that Australian companies seeking genuine access in China would enjoy enormous benefits from establishing a foothold in the Shanghai FTZ.

"I see companies that are involved in agriculture or companies that are involved in hard commodities that set up in the free trade zone would have enormous opportunities," Whitford told the Australian Financial Review on Thursday.

The Shanghai FTZ opened in late September and 18 service-based industries such as financial, shipping, business, professional, cultural and social are set to benefit from trials on ground-breaking measures ranging from liberal interest rates, yuan convertibility and freer foreign investment criteria.

However, it was the December announcement that foreign companies in the FTZ will be empowered to issue yuan-denominated bonds for repatriation that really ignited local interest.

"As a foreign company setting up in the free trade zone, it is going to be a lot easier to be able to raise funds,'' Whitford said. ''Foreign companies will be able to issue RMB (yuan) bonds and repatriate the funds back offshore or put the funds onshore into China.

He said that ''is a major concession and a major change. That is a significant step forward."

Westpac, Australia's second-biggest bank by market value, and one of the country's big four banks, has a long presence in China, having established itself in Hong Kong in 1997 with branches in Shanghai and Beijing as well.

Sydney-based entrepreneur David Thomas said the full convertibility of the yuan in the FTZ will allow foreign companies to raise capital through derivatives trading or private share placements.