China’s Financial Reforms

14 Mar

The Shanghai Free Trade Zone is a crucial testing ground for Chinese financial reforms, to come into effect outside of the zone should they be successful (Rabinovitch, 2013). These reforms are an attempt to overcome the bottleneck currently experienced in China’s economic growth, which has slowed down.

Immediately popular, more than 1400 companies registered to operate in Shanghai’s free trade zone within 2 months of its launch – allowing officials to really test whether these reforms are indeed worth considering further (Rabinovitch, 2013).

Foreign companies can obtain business licences in 4 days, down from an average of 29 days outside the zone whilst Chinese companies investing in projects have won approval within 5 days, down from the multi-month wait which is usually the norm (Rabinovitch, 2013).

Rather than preferential policies such as lower taxes, the main purpose of the free trade zone is to experiment with administrative innovations, and Shanghai vice-mayor Ai Baojun is expecting to see results within 2 – 3 years or even less than that (Rabinovitch, 2013).

While there is a negative list for foreign companies with 190 industries, Mr Ai said next year’s list will be shorter, especially if the results from its first year trial are successful (Rabinovitch, 2013).

Companies within the Shanghai Trading Zone are still waiting for more details about financial reforms – the central bank has yet to issue detailed rules governing the zone (Rabinovitch, 2013).

Bankers in Shanghai expect that the rules will make it easier for companies to take renminbi out of the country but there are likely to be extensive controls in place to limit the inbound flow of foreign currencies. This shows that China is slowly opening its ‘financial’ doors but there is still a long way to go…

Currently, Hong Kong is the biggest offshore trading centre for renminbi, acting as a gateway for the onshore market in mainland China. This allows for better trading prospects. A trading centre outside of Asia exists in London, allowing direct trading between renminbi and pound sterling.

References:      

Rabinovitch, S. (2013). “Shanghai free trade zone attracts 1,400 companies”, Financial Times [online] Available at: http://www.ft.com/cms/s/0/20b7714c-57fb-11e3-82fc-00144feabdc0.html#axzz2vxrlWH4I [Accessed 13/03/14]

Parker, G. (2012). “Renminbi deal aims to boost City trade”, Financial Times [online] Available at: <http://www.ft.com/cms/s/0/71134ed0-3fa8-11e1-ad6a-00144feab49a.html?o=clippings/listnavigationbar#axzz2vxrlWH4I&gt; [Accessed 13/03/14]

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