SHANGHAI, October 31 – China has specified no deadline for key economic reforms in its new free trade zone including unrestricted currency flows, a government document seen by AFP showed, raising questions over the pace of the moves.
The lack of a firm schedule for some crucial commitments in the Shanghai based FTZ indicates reforms will be step by step instead of a “Big Bang”, and raises the possibility that they could be delayed, potentially for years, unless the government decides to push them forward.
Analysts and business executives say the high expectations created by Chinese authorities and state media around the inauguration of the zone last month have yet to be fulfilled.
“Everyone feels the degree of opening (of the FTZ) is not enough,” Shanghai mayor Yang Xiong admitted on the weekend.
The launch of the FTZ came ahead of an important Communist Party meeting from November 9-12 which will focus on economic reform, Chinese officials and academics say.
Free conversion of the yuan currency, greater cross border use of the yuan and interest rate liberalisation would be “promoted” following establishment of the FTZ, said the document seen by AFP.
The document added Shanghai would “actively strive for relevant state departments to advance a clear route and timetable” for the reforms.
In contrast, the detailed paper showed other moves in the FTZ have a set timetable. For example, the securities regulator would by the first half of next year revise a rule to allow overseas companies to trade commodities futures.
China formally set up the FTZ in Shanghai on September 29. Ahead of the launch the country’s State Council, or cabinet, had pledged sweeping financial reforms in the zone.
Convertibility of the yuan allowing the currency to be freely bought and sold, and with it the movement of funds into and out of China is the main obstacle preventing Shanghai from competing with global financial centres such as New York and London.
The government keeps a tight grip on the capital account investment and financial transactions, rather than those related to trade on worries that unpredictable inflows or outflows could harm the economy and reduce its control over it.
China currently sets deposit rates by administrative order, but the central bank began allowing banks to decide their own lending rates in July in a long-awaited move.
The People’s Bank of China, the country’s central bank, is the ultimate authority for approving currency and interest rate policies, according to the FTZ document.
Investors said the pace of reforms needs to be speeded up.
“Despite joining the WTO (World Trade Organisation) more than a decade ago, China’s financial sector is still very much closed to foreign investors,” Baudouin Prot, chairman of French financial services company BNP Paribas, said in a paper presented to the Shanghai government earlier this week.
“Reviewing developments over the past decades, we believe there has been too much administrative intervention and that capital markets have been subject to too much policy control.
“We wish China would steadily push ahead with the process of financial liberalisation and, with it, financial liberation.”
Analysts described China’s approach to the FTZ as “prudent”, a hallmark of the country’s economic reforms.
“It’s very clear that things are still being discussed, being elaborated and being thought through,” said Orit Gadiesh, chair of management consulting firm Bain.
But she added: “It’s an impressive beginning and I think it will have a huge impact on Shanghai and China in total.”
Nonetheless Shanghai mayor Yang, speaking at a rare news conference, declined to give a schedule for financial reforms in the FTZ.
“For specific measures, we will discuss them and await the proper moment to introduce them step by step,” he said.
Yang acknowledged that a so called “negative list” of restrictions “may still have many aspects that everyone feels are not too satisfactory” and that another version could be issued next year.
The list, originally hailed by Chinese media as a breakthrough in looser control, includes nearly 200 restrictions across 18 sectors.
They include bans on foreign investment in online news portals and maintain a rule that domestic firms must hold at least 50 percent in auto joint ventures.
“The negative list was longer than expected,” said China based commentator Bill Bishop “There hasn’t been what we’ve been hoping for in the financial industry. But it’s a little too early to write it off.”