An inspector calls

“I’ll drink to that”

While the world refers to it as Shanghai’s Free Trade Zone (or FTZ), the project’s official name is the China (Shanghai) Pilot Free-Trade Zone. The name is important because it underlines how the zone is an experiment. Support from the central government will be crucial for its success.

Fortunately for the zone’s champions, it has finally got some high-level endorsement, albeit 10 months after it was inaugurated.

On Friday none other than President Xi Jinping became the first senior leader to visit the 29 square kilometre enclave. Xi toured the zone together with Shanghai Communist Party chief Han Zheng and mayor Yang Xiong last Friday. Xi’s inspection trip may have been fleeting but it was a stamp of approval nonetheless. “The decision to build the zone was an important step in China’s reform and opening up in modern times,” Xinhua quoted him as saying.

Initially the FTZ was regarded as Premier Li Keqiang’s baby. Apparently he fought tenaciously to get the State Council to approve the project last summer and he has hinted regularly that the zone will serve as a showcase for the next round of economic reforms in China. But Li was nowhere to be seen at the zone’s launch in September last year (Commerce Minister Gao Hucheng was the most senior official to attend the ceremony) and no other member of the Politburo Standing Committee has been seen there either.

That led to speculation that the zone wasn’t fully endorsed by some of China’s most senior decisionmakers and some of the excitement surrounding its launch began to evaporate. Businesses seemed to be holding back on investing until there was more clarity on what would be permitted there, with rumours that progress had stalled while different factions championed rival visions for the project.

But something seems to have shifted last week. Not only did Xi visit the zone, he also delivered a number of speeches on market reform, including one to the Politburo on Monday night. “Although economic reform has made progress in recent decades, market vitality is still shackled by many institutional flaws,” Xi told the 25-person body. “Straightening out the relationship between the two will continue to let market forces play a decisive role in allocating resources while making sure the government functions better,” he added.

“Xi’s inspection of the FTZ sends a strong signal to the outside world that China is properly committed to the idea of deeper reform and opening,” Zhang Jun, director of Economic Studies at Fudan University, told CBN.

“People used to ask why Li Keqiang didn’t come to the zone [for the launch ceremony]. Now Mr Xi has come, so I guess there’s nothing to worry about any more over whether the central government supports the free trade zone or not,” an unnamed source told the South China Morning Post.

The day before Xi’s visit officials released long-awaited details on ‘Free Trade’ accounts in the zoneand how currency can be transferred between the FTZ and the rest of China. Beneficiaries will be able to move renminbi into their ‘free trade’ accounts from offshore, although they won’t be allowed to transfer funds into their standardised domestic bank accounts.

In a report on the new rules, HSBC analysts said that the boundary would “maintain a firewall for China’s financial system” but that the new regulations were an important step in emphasising a “firm commitment to capital account opening”.

There was another vote of confidence in the zone’s future from Sony on Monday, when the Japanese company announced two joint ventures with the Shanghai Oriental Pearl Group to make PlayStation consoles inside the FTZ. Last month Microsoft also announced plans for a joint venture in the zone. It is pairing up with BesTV and hopes to start making the Xbox in China as soon as September.

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