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One year on from its establishment, how is Shanghai's free trade zone doing thus far?
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UPDATED: October 13, 2014 NO. 42 OCTOBER 16, 2014
Reflections on the Free Trade Zone

The achievement of the Shanghai Free Trade Zone (FTZ) during the past year is not only shown through the numbers—from how many companies have been set up there to how big the trade volume is. Rather, as the first pilot FTZ in China, it should be judged on whether its management system is complete and applicable to other locations.

The FTZ was established as an experimental field for China's next round of reform and opening up. In its approval letter for the establishment of the zone, the Central Government stressed the need to transform government functions, improve the registration and approval procedures for foreign investors, and explore ways of managing the "negative list" system, under which foreign investment is barred only from listed areas, as opposed to the previous system where investment was limited to approved industries. It must also try to coordinate law enforcement between different supervision departments. All these explorations have been unprecedented and need new rules to facilitate them.

The Shanghai FTZ has not only established a series of new rules and regulations in the past year but also improved existent rules in investment management, trade supervision and financial opening up. From this perspective, the development of the FTZ in the past year is satisfactory.

Although China has made remarkable economic achievements since reform and opening up began in the late 1970s, it has not fully adjusted to the free market system. At present, the United States is building the Trans-Pacific Partnership in a bid to construct a new set of global trade and investment rules. Some rules are beneficial to China while some may not be so. It is imperative that China try to adapt to a wider and profounder level of opening up. The FTZ therefore assumes the mission of attempting to further open up the service sector and improve the management of the negative list.

The FTZ still has many problems. The most criticized is the negative list being too long. It is understandable that Chinese administrators are cautious in opening up domestic industries out of concerns for the country's economic security. However, in order to shorten the list, more efforts need to be made to improve the list's management.

The FTZ is a test field for China's next round of reform and opening up. As the new round of development is faced with multiple challenges, the next step should be carried out steadily and not rushed.

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