China set to establish more FTZs in a year

Financial experts at the Asian Financial Forum believe China’s government could set up more free trade zones in 12 months, and will accelerate the roll out of broad market reforms in Shanghai.

  • By GlobalCapital
  • 15 Jan 2014
Email a colleague
Request a PDF

Chinese experts believe that the liberalisations being trialled in the Shanghai Free Trade Zone (FTZ) could implemented within a year, with the federal government then approving the establishment of new FTZs.

Speaking at the Asia Financial Forum yesterday (January 14) in Hong Kong, Liu Wentong, director general for the financial affairs office of the Guangdong government, predicted that China’s government could roll out liberalisations within 12 months as opposed to a longer time frame, after which it may add new FTZs.

“In the last month the government has said it wants to accelerate the process, possibly to only one year. I personally believe it could definitely be only one year before approving a new FTZ with local characteristics,” said Liu.

The location of new FTZs is hard to ascertain, particularly given the obscurity of political process in the PRC. However Guangdong has thrown its hat into the ring.

“Guangdong province is applying for FTZ status; when we can get it no one knows. Still, Shanghai is testimony of central government support and determination in establishing reform,” said Liu.

The timetable for developing Shanghai’s FTZ certainly seems to be moving rapidly. Fu Yuning, chairman of China Merchants Group, said the People’s Bank of China should offer more details on how to further the FTZ’s liberalisations in the first quarter. He thinks it needs to offer more detail on renminbi liberalisation.

“Convertibility of RMB is key to the FTZ. It is needed for financial services, for the inflow and outflow of capital,” said Fu. “To facilitate this we need free convertibility of our currency.”

Speaking in a different panel, Tu Guangshao, executive vice mayor of Shanghai, said that the chief goal of the FTZ experiment was to make it easier for capital to be invested into China.

“The strategic goal is to open up Shanghai as a gateway for international investment, to facilitate inflow of capital from overseas and domestic investors,” said Tu.

The FTZ, which launched in September 2013 and covers an area of 28 square kilometers, has switched from a positive to a negative check-list for restricted areas of investment. In practice this means that while specific areas of investment have been restricted, areas outside of this list will be allowed.

Observers consider this approach to be far more liberal than the current practice of China’s authorities, which deny investments outside an approved list of sectors. As such the FTZ has come to be seen by investors and commentators as “a paradise of adventurers, just like Shanghai in the 1920s,” said Niu Zhijing, a member of the editorial board at China Business News.

The ultimate target of the more FTZ’s more liberal regulatory regime, according to Tu, is “to come up with a system that could be implemented throughout China”.

He added: “The FTZ is quite small for now, as a trial project, if we make it a single area and not repeatable would be a pointless exercise. It is indeed a demo, with an eye to repeat it on larger scale.”

Tu believes that is already being made to ease impediments to offshore investment, liberalise trade, and open up the financial services sector, although he offered no concrete examples. The vice mayor was also positive that the FTZ would help ensure convertibility and cross-border currency flows of the RMB.

Jing Ulrich, managing director and vice-chairman for Asia Pacific at J.P. Morgan, said the FTZ’s prospects have investors excited. “We have contact with investors every day and they think highly of FTZ, as the first true attempt at building one such zone in China, and hopefully it will become a key financial and trading centre by 2020.”

However, other speakers believe that the reforms encapsulated in the FTZ should be even broader.

"The FTZ is also important for the institutional development of the financial sector,” said Yuan Zhigang, dean for the faculty of economics at Fudan University. “Customs also need to be deregulated, both inbound and outbound, the taxation system needs optimisation and streamlining, tax exemptions need to be more clearly defined.”

While many speakers were keen to talk up the opportunities of the FTZ, others caution about the potential downfalls of overly rapid liberalisation.

“A phrase keeps being repeated, ‘contain risk’. That is a key word. Shanghai has three years to develop a model; within three years there won’t be more models,” said Liu Wentong, director general for the financial affairs office of the Guangdong government, referring to what he assumed would be the timeline for the rollout of FTZ liberalisations.

“We also need to watch against currency arbitrage and other issues arising from FTZ, we need to be aware of the vulnerabilities,” added on Lin Jiang, deputy director for the Hong Kong-Macao-Pearl River Delta Research Centre, at Sun Yat-Sen University.

Containment of risk, however, seems to be taking a backseat to more rapid development.

  • By GlobalCapital
  • 15 Jan 2014

Panda Bonds Top Arrangers

Rank Arranger Total Volume Rmb (m) No. of Deals Share % by Volume
1 Bank of China (BOC) 7,500 5 22.26
2 Agricultural Bank of China (ABC) 4,000 2 11.87
2 Everbright Securities 4,000 1 11.87
4 Industrial and Commercial Bank of China (ICBC) 3,500 2 10.39
5 HSBC 3,000 2 8.90

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 19 Oct 2016
1 CITIC Securities 14,399.87 54 6.41%
2 Morgan Stanley 11,680.45 48 5.20%
3 GF Securities Co Ltd 11,254.82 44 5.01%
4 Deutsche Bank 8,929.93 36 3.97%
5 China Securities Co Ltd 8,568.28 45 3.81%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 11 Oct 2016
1 HSBC 24,211.67 144 4.82%
2 Citi 23,007.32 123 4.58%
3 Bank of America Merrill Lynch 20,229.47 98 4.03%
4 JPMorgan 18,255.12 103 3.63%
5 Goldman Sachs 11,241.68 45 2.24%