CRI听力:Shanghai Pioneers in Free Finance Trade Reforms, With Initial Success

With the ongoing celebration of Chinese lunar New Year, we're continuing our series of special reports highlighting some of the significant changes which have taken place in China through 2014.

Today we will take a look at the Shanghai Pilot Free Trade Zone, the first of its kind in China. It serves as a test bed for vital economic reforms and innovation in the financial sector that could help propel China's growth even further. Established in 2013, the zone has been successful in attracting global financial players and foreign direct investment.
Cao Yuwei reports.

Reporter: The Shanghai pilot free trade zone sent a strong signal that the Chinese government is willing to further loosen its grip on business activities and create a space for new ideas.

But how free is free financial trade for this zone in Shanghai first, and later elsewhere?
One year on, the Shanghai FTZ reports tremendous changes, as witnessed by Wang You, a local administrative official.

"Before the Free Trade Zone was founded, there was virtually no financial industry here. I counted myself - there were only 11 banks, with 19 service points - that's all. But now we have more than 100 licensed financial service providers. So the financial industry here has seen exceptional growth. And I am now working in the newly established Fiscal and Financial Services Bureau, which was brought into being because of this new industry."

22,000 firms have been established here, including more than 3000 financial centers.

Citibank was the first foreign bank to enter the Chinese market. It was also one of the first banks approved by the regulators to set up a branch in the Free Trade Zone.
Cline Zhang, the head of Citi's Shanghai Free Trade Zone Sub-Branch, says that due to the wide range of policy reforms introduced here, they are now able to provide access to cheaper finance for their corporate clients.

"We already offer a very wide range of financial services and products for our corporate clients in the Shanghai FTZ. For example, we offer like the RMB cross-border lending which means we allow our client companies to borrow from Citi's off-shore banks, like Citi Hong Kong and Citi Singapore. Because the off-shore cost of funds are still cheaper, so the cost of funds are reduced, which means, from the clients point of view, they can get cheaper financing from offshore."

Another example of ground breaking reforms is the the launch of the Shanghai Gold Exchange in September. This gives foreigners access to China's tightly controlled gold market for the first time. It's one of the most important reforms introduced by the Free Trade Zone.
Cline Zhang from Citibank says that since the Shanghai pilot zone serves as a test bed for China's financial innovations, Citi has already taken the lead in introducing many new financial products.

"We do a lot of firsts in the Shanghai FTZ sub-branch, for example, the first RMB cross-border pooling from China to London. In the past, the RMB cross-border pooling was within Asia, like from China (Chinese mainland) to Hong Kong or China to Singapore. And we were also the first in RMB cross-border pay on behalf of and to receive on behalf of our clients and to help Chinese entities to be included in their global in-house banks. So that they can reduce their finance cost. And we also had the first foreign currency cross-border pooling service in the Shanghai FTZ."

Foreign financial companies that operate here are governed by the same set of regulations as local firms, as long as their services or products fall off the "negative list" that has defined a list of taboo areas like investing in private news agencies.

The pilot zone has also made it easier to set up a new business. Foreign investors just need to fill in a set of forms and register, instead of waiting for approval from regulators.

Zhang Hong, director of the Fiscal and Financial Services Bureau, says cutting down red-tape has helped attract new investment.

"Foreign businessmen who want to invest in areas that fall outside of the negative list will receive the same treatment as that for domestic investors. This means, officially, investment in areas which are not on the list is allowed."

But a sound regulatory mechanism is needed to mitigate the risks associated with financial sector reforms and innovation.

"Each step in the financial sector innovation process involves risk control and stress tests. There is no one we can learn from to set up a new mechanism for financial regulations. Innovation for other sectors is like learning from tried and tested examples. But financial sector reforms and innovation might entail bigger risks, for it is without much precedent."

Due to its impressive progress, the State Council has just approved a plan to expand the Shanghai Pilot Free Trade Zone by four times its current size. China's Minister of Commerce Gao Hucheng has promised that if the economic reforms in Shanghai proves to be successful, they can be rolled out nationwide.

In fact, Shanghai's success story is now being emulated by others. Local governments in Tianjin, Guangdong and Fujian have already approved plans to set up their own free trade zones.

For CRI, I'm Cao Yuwei.