CRI听力:Shanghai Free-trade Zone Puts HK's Future in Spotlight

While a front-page story here on mainland, the go-ahead from the State Council to officially launch the Shanghai free-trade zone hardly make a splash in the media in Hong Kong.

Still, CRI's Hong Kong correspondent Xu Weiyi says those "in the know" in Hong Kong are paying attention to what's happening in Shanghai.

"The official approval served as a wake-up call to Hong Kong. It means it can no longer acclaim itself as the primal contender over competition of the offshore yuan trading center. Although Hong Kong's advantages lie in its direct financing capacity, in a long term, as Shanghai has gradually loosened the door to oversea capitals, Hong Kong if it doesn't want to be substituted, it should get a preemptive plan."

The Shanghai free-trade zone, championed by Premier Li Keqiang, is part of a larger plan for more financial liberalization here on the mainland, and in Shanghai in particular.

As part of its 10 years blueprint, authorities are hoping the new free-trade zone will turn Shanghai into a major international trade center by 2020.

Although the exact details of the plan are yet available, Foreign exchange regulations in the Shanghai FTZ are expected to be relaxed from their current standards.
It's also expected the municipal government in Shanghai will loosen its capital account controls and promote the yuan as the currency-of-choice for most business transactions.

Zuo Xiaolei, chief economist at China Galaxy Securities, says Hong Kong doesn't need to be threatened by any of the moves underway in Shanghai.

"Shanghai will be at a competing position to Hong Kong only on conditions that the city has gained the status of fully convertible yuan. At present, it doesn't strike a threat to Hong Kong's offshore RMB trading business. Actually I think to have this topic of two rival cities now is a bit of 'worrying too much". Even if there are overlaps, they should be regarded as healthy competitions. And Hong Kong needs a promising follower to spur its innovation."

The latest data shows the daily trading volume of the yuan in Hong Kong has jumped to a record high since May.

May was the first time the trading volume of the Renminbi surpassed local Hong Kong Dollars.

Offshore yuan market growth in Hong Kong has gathered momentum since it was launched in mid 2010.

Yuan deposits have grown from less than 1 percent of total deposits to around 10 percent in Hong Kong's banking system.

One concern being raised in Hong Kong about the FTZ in Shanghai is the potential loss of business through transiant trade.

Many overseas firms looking to expand onto the mainland use Hong Kong as a 3rd party transit route.

Trade and logistics has helped Hong Kong's economy grow by 3-percent through the past quarter.

The sector accounts for nearly 25 percent of Hong Kong's economic output.

Mei Xinyu, a trade researcher with the Chinese Ministry of Commerce, says that business in Hong Kong is likely to face fierce competition from Shanghai as the harbor becomes fully active.

"Shanghai Free Trade Zone includes free tax zones such as the Waigaoqiao Port and the Yangshan Deep Water Port that provides the city some inheritance for developing the transit trade business."

It is being reported that customs procedures in the Shanghai FTZ will be greatly simplified to allow goods to move freely in and out of the city.

Other plans for the Shanghai FTZ are expected to include a variety of incentives, such as tax breaks and reduced regulatory requirements for foreign and domestic businesses.

That may include lowering the restrictions for establishing foreign bank branches and insurance companies.

For CRI, I'm Hu Jia.