Establishment of the new free trade zone in Shanghai potentially challenges Hong Kong’s reputation as the premier renminbi clearing hub.
Since its inception in July 2013 to establishment on 29th September, the Shanghai Free Trade Zone (FTZ) has attracted global attention. Through its launch, the Chinese government aims to further liberalise convertability of the renminbi and free market-oriented interest rates. "Under the pre-condition that risk can be controlled, convertibility of the Renminbi on the capital account will be conducted in the zone, the first to carry out and test (it)," an internal Chinese government document about the FTZ launch read.
According to the State Council's overall plan, the free trade zone covers five major missions and policies, including 1) speeding up government function transition, 2) expanding investment areas, 3) promoting trade development, 4) deepening financial innovation and 5) improving legal system protection.
The first Hong Kong-like free trade zone in mainland China, Shanghai FTZ was personally endorsed by premier Li Keqiang. Pointing out that further reforms were necessary to stimulate domestic demand, Li opined that Shanghai was the perfect venue to conduct such a project, given that the trade volume of Shanghai's tariff-free zones represented more than $100 billion in 2012, or 3% of China's overall trade volume.
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