China's new trade zone opens in Shanghai as officials add details to reform plans

Reuters

* China to eliminate restrictions on individual cross-borderinvestment - official

* Loan-to-deposit ratios, other regs on banks to be eased

* Intl oil futures trading platform to be established

* Implementation of deeper reforms subject to risk controlimplementation - c.banker

SHANGHAI, Sept 29 (Reuters) - China opened a new free tradezone in Shanghai on Sunday in what has been hailed aspotentially the boldest reform move in decades, unveiling freshdetails of plans to liberalise regulations governing finance,investment and trade in the zone.

The Shanghai FTZ, which covers an area of nearly 29 sq km onthe eastern outskirts of the commercial hub, was approved byChina's State Council, or cabinet, in July.

State-run Xinhua news agency quoted Commerce Minister GaoHucheng as saying that the creating FTZ was a crucial decisionmade in the new era of China's reform and opening-up.

"It follows the tendency of global economic developments andreflects a more active strategy of opening-up," Gao said at thelaunch ceremony.

The State Council said on Friday it would open up itslargely sheltered services sector to foreign competition in thezone and use it as a testbed for bold financial reforms,including a convertible yuan and liberalised interest rates.

Economists consider both areas key levers for restructuringthe world's second-largest economy and putting it on a moresustainable growth path.

Some Chinese and foreign firms have already moved to set upsubsidiaries in the zone. A total of 25 companies so far havebeen approved to set up operations in a variety of sectors,alongside 11 financial institutions, most of which are domesticbanks but including the mainland subsidiaries of Citibank andDBS.

Some have trumpeted the FTZ, which integrates three existingzones, as comparable to Deng Xiaoping's creation of a similarzone in Shenzhen in 1978. Many credited that move as beingcrucial to China's economy opening up to foreign trade andinvestment.

HIGH HOPES, OR NOT?

Sceptics, however, point to a similar scheme launched nearShenzhen, in Qianhai, last year, but that has so far failed tolive up to expectations. Qianhai was presented as place forradical experimentation with China's capitalaccount.

Analysts and economists say that the plans for Shanghai, atleast, are more specific and ambitious.

For example, one major planned change officials described onSunday will be in the regulations governing how foreign andChinese individuals can invest across borders.

Previously foreign and Chinese investors were only allowedto invest across the border by buying into funds regulatedthrough either the Qualified Foreign Institutional Investor(QFII) programme or the Qualified Domestic InstitutionalInvestor (QDII) programme, both of which are restricted byquotas.

But Dai Haibo, deputy director of the zone administrativecommittee, said on Sunday that this requirement would be waivedfor foreign and Chinese individuals within the zone, who will beallowed to invest funds directly for the first time. He did notsay whether they would also be subject to a quota.

He also said that foreign banks in the zone would be allowedto issue bonds in the domestic market.

Officials also said that China will develop aninternational oil futures trading platform in the zone andencourage foreign participation, part of attempts to upgradecommodities markets and hedge risk in the world's largest energyconsumer.

REGULATORY REQUIREMENTS FOR FOREIGN BANKS

Regulations of Chinese and foreign banks will also be eased,said Liao Min, head of the Shanghai branch of the China BankingRegulatory Commission (CBRC), adding the CBRC will adjustloan-to-deposit ratios and other regulatory requirements forbanks in the zone.

He said that the government will consider easing regulatoryrequirements for foreign banks when they apply to upgraderepresentative offices to full-fledged branches in the zone, andit will accelerate the application process for foreign banksapplying for yuan settlement licences.

Both functions are key for foreign banks seeking to dobusiness in China, and the slow pace of approval has been thesubject of frequent complaints from foreign bankers.

He added that China will allow domestic and foreign banks toengage in cross-border business including cross-borderinvestment banking services.

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