Shanghai free-trade zone launched

Sign reading "China (Shanghai) Pilot Free Trade Zone" The sign reads "China (Shanghai) Pilot Free Trade Zone"

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A free-trade zone in Shanghai, China's economic hub, has been launched as the world's second-biggest economy prepares to test long-awaited economic reforms.

Commerce Minister Gao Hucheng attended the opening ceremony for the zone, which covers 29 sq km (11 sq miles).

Mr Gao said the zone would help "implement a more active opening-up strategy".

Restrictions on foreign investment will be eased inside the area and interest rates will be set by markets.

Among other measures to be trialled inside the zone are allowing China's heavily-regulated currency, the yuan, to be swapped freely for other currencies, China's State Council said on Friday.

Analysis

Liberal economists both inside and outside China have long feared that China's three-decade-long experiment in opening up its economy has recently stalled, rolled back even, because of powerful vested interests.

Now the country's premier, Li Keqiang, has signalled that he is preparing to experiment with ways to take on those interests by loosening the government's tight grip on foreign investment, the currency market and the banking system.

It has invited comparisons between Mr Li and China's great architect of economic opening, Deng Xiaoping, who also started small before extending his reforms country-wide. But some observers are urging caution because the detailed rules about exactly what will and won't be permitted inside the zone won't be published until later this year.

Eighteen sectors, ranging from finance to shipping, will have regulations loosened in the zone.

'Significant'

The new zone is being seen as the most important attempt at reform since Communist leader Deng Xiaoping, the architect of China's transformation to a market economy, designated Shenzhen on the border with Hong Kong a special economic zone in 1980.

"The establishment of the Shanghai free-trade zone is a significant move for China to conform to new trends in the global economy and trade," Mr Gao said.

The new zone "shows that the new government is keen on making reforms", said Stefan Sack of the European Chamber of Commerce in China but he added that "a free-trade zone in Shanghai alone will not change how business is done in China".

The new Shanghai zone, which includes four existing bonded zones, has been backed by Prime Minister Li Keqiang, who took office in March.

China's economy expanded 7.7% last year, its slowest pace in 13 years.

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