China launches free trade zone in Shanghai

30 September 2013 11:47 am

AFP: China launched a free trade zone in its commercial hub Shanghai yesterday, state-media reported, with the project seen as a testing ground for much-needed reforms in the world’s second largest economy.

The zone, which covers 29 square kilometres (11 square miles), “started operating Sunday”, the official Xinhua news agency said, adding that it was “a test bed for the Chinese leadership’s drive of deepening market-oriented reforms and boosting economic vigour”.

Reforms in the zone will be closely-watched as a key test of China’s ability to make long-pledged structural changes as it attempts to shift its economic model in the face of slowing growth.

The government will allow free yuan convertibility under the capital account on a trial basis, according to a statement released by China’s State Council cabinet on Friday.

Market-set interest rates, seen by analysts as a key reform for China’s economy, will also be trialled, according to the statement.

Restrictions on foreign investment will be eased inside the area, which will also loosen controls on 18 service sectors ranging from finance and shipping to culture services.

Excitement over the launch has boosted stocks of Shanghai-based firms and spurred a rally in home prices and land costs in areas neighbouring the zone in the past few weeks, state media have reported. But analysts interviewed by AFP adopted a cautious approach.