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Economic stability and investment opportunity in Shanghai Pilot free trade zone of 2020s

Economic Stability and Investment Opportunity in Shanghai Pilot Free Trade Zone of 2020

Abstract

In 2013, the State Council of China approved launching of the first Free Trade Zone (FTZ) in Shanghai, the main aim of which is the attraction of foreign investors. The deep investigation of the investment opportunities proposed by China and its economic stability is necessary to identify whether it would be profitable for the foreign companies to invest into the development of new businesses. The FTZ also focuses on the intention of the government to continue pushing ahead the reforms that touch upon financial and service sectors. All six areas represented in the guidance of reform were determined in September 2013 and concerned the definite sectors for further investment. Besides, it was identified that further the zone will allow the implementation of the pilot reforms regarding the interest rate, financial deregulations, and RBM convertibility. The attractive and efficient proposal should raise the interest of the number of investors, but the main question is whether the goal will be achieved by 2020.

Keywords: Free Trade Zone, investment, pilot reforms, RBM convertibility.

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Introduction

Today, one of the main goals of China is to make Shanghai an international financial center of the country, similar to Hong Kong by 2020. To reach the aim, China accelerates the implementation of the numerous necessary reforms. Of cause, this situation will not allow avoiding the bureaucratic resistance but the number of the elaborated plans and specific strategy will help to overcome the possible problems easier. Such confidence is supported by the previous positive experience of China that proved the ability of the country to make significant improvements and reach prosperity during only several decades. The country seriously intends to achieve the best results, which is ensured by the number of reforms and huge range of spheres for realization of the plans that it proposes to the future investors. Besides, the government paid significant attention to the items that will simplify the process of cooperation. Consequently, Shanghai FTZ is a crucial project that is grounded on the involvement of the number of prosperous foreign companies to invest into the financial and service sectors of the country that will further contribute not only to the development of Shanghai but will also bring significant profits to the investors.

Establishment of FTZ

The main aim of the Premier Li Keqiangs visit to Shanghai in 2013 was approving the first Free Trade Zone of the country. Officially, it was launched on 29th September 2013. Initially, the development of the FTZ was planned during the Chinas Third Plenum of the 18th Communist Party Central Committee that was regarded as one of the most important meetings for the elaboration of the economic agenda of the next ten years. The FTZ of Shanghai occupies more than 25 square kilometers and comprises four areas that spread along the East coast of the city. The main goal of the zone is expanding the economic and financial reforms of China, focusing more on opening the service industry.

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The experts are sure that the elaborated policies will be quickly and successfully implemented in the other FTZs that are situated around China. The Shanghai FTZ comprises 18 industries, which encompass six areas. All these aspects concern the service sector, including the professional, shipping, financial, social, commercial, and cultural services. The other crucial part of FTZ is prohibiting the participation of foreign investors in the business in case it is included into the negative list. The new approach is a great step directed towards the improvement of the regular environment for foreign investments.

The Perspective Plans and Economic Stability

Numerous experts state that the announcement of the FTZ is equal to Chinas joining the WTO in 2001. The main aim of the WTO in that period was the reduction of restrictions for the foreign businesses in the trading and manufacturing zones. The FTZ is going to be developed in the similar way but orienting more on the financial and service sectors. Such approach is very beneficial for foreign investors because the country had previous positive experience in the introduction of the similar initiatives and can be proud of their effective implementations. The formerly used model resulted in the significant influx of foreign investments and development of the manufacturing sector. Consequently, both investors and China got a number of benefits. The foreign investors earned money and China, especially Shanghai, became the attractive location for the numerous companies, the majority of which established headquarters in this area. Such success and further great perspectives of the performance of foreign trading and manufacturing companies caused the increase of new offices in Shanghai. The new reforms of China have a similar core and the economists consider that they will have the same positive results.

Of cause, numerous foreign companies are afraid to invest waiting for the more solid financial infrastructure. However, the most popular tendency is investing into the small or medium-size companies that need the influx of the capital. In that case, the positive aspect is high possibility of further easy reinvestment. One of the crucial aspects that will help to support the firm ground for the growth of the revenues of the investors is a considerable number of financial professionals who will help to implement the key items of the pilot. Besides, the country has one of the best-equipped ports in the world. The crucial aspect is that the government is planning to liberalize interest rates in the regarded zone. The success of the reform significantly encourages such innovations. The companies that will be ready to invest into the business should not get an approval from the relevant government department that simplifies the procedure. The foreign-invested companies are only required to complete the recordfilling process. Besides, the foreign financial institutions are allowed to set up the banks with external investments in the FTZ. The private capital enterprises can build joint venture banks with the foreign financial institutions. The credit organizations invested from abroad are also allowed to be established in the FTZ, but such companies should be created under the form of joint ventures.

Additional Active Industries

The expansion of the Shanghais financial sector will definitely create the great additional demand for the consulting, accounting, marketing, and legal services to support the businesses. Such aspect can cause the transformation of the Shanghai FTZ into the global financial center that will open more doors to the foreign investors and will definitely bring serious benefits for the professional services. The crucial aspect is that the development of the service sector in the area will induce demand in such sectors as healthcare, manufacturing, IT, and retail that will widen the area for the effective cooperation as well. The economists predict that healthcare and retail will be the most demanding sectors. The national healthcare spending is expected to increase from more than $300 billion to $1 trillion by 2020 that will comprise 12 percent of CAGR. The swelling of foreign investments will cause raise in the quantity of international companies that further induce additional demands for the extensions of healthcare and pharmacologic businesses. Thus, a great number of foreign companies will be able to attract the investment in their existing projects adding more business lines including medical devices development, drugs discovery, sales, marketing, and manufacturing.

The additional attractive sector is retail. Today, the retailers occupy approximately eight percent of space in Shanghai. The growth within the service sector anticipates a very fast expansion of the population that will increase by 22 percent until 2020s. Consequently, the consumer class will increase by 50 percent during the next 5 years. Such calculations prove the raise of opportunities for the retailers that will induce building the strong ground for the development of new foreign businesses and will attract numerous investors. Today, such brands as Yum and Pizza Hut are standing in the top of the list and half of their global revenues are coming from China. Such aspect should encourage the owners of the other brands to pursue aggressively the invasion into the China market.

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The city government is also aiming to create the basic framework of the scientific innovations center by 2020. The core of the plan is establishing the Zhangjiang Comprehensive national Science Center that will attract the number of world-leading research organizations and innovation groups. To reach the goal, the government of Shanghai is going to establish the Zhangjiang Science City that will cover more than 90 square kilometers. Ying noticed that the city government elaborated the guidance to support the foreign development and research centers that will base in Shanghai. Such approach will help to contribute significantly to the scientific innovation center ambitions of the city. The government is going to attract numerous talents that will also require appropriate investments for their scientific investigations that will further result in the growth of profits for foreign investors and for the country. According to the governmental report, more than 600 regional and global headquarters of the multinational companies were established in Shanghai together with the more than 400 development and research centers. Some foreign companies can be also attracted by the intension of the government to improve the city air quality through the reduction of the density of hazardous fine particles that currently comprise PM2, 5 and will be shortened until 40 micrograms that is also an efficient sphere for investment and development of the foreign businesses on the territory of China.

Conclusion

The investigation of the numerous reforms and plans of the Chinese government concerning the occupation of the leading position of Shanghai as a business center until 2020 helped to identify numerous positive aspects that will help the country to achieve its main goal. However, the crucial aspect is whether such haste will not induce the occurrence of numerous obstacles. The previous positive experience showed that China successfully coped with the similar issues. Besides, the country had a close practice of entering the WTO. At that time, the government oriented more on the development of financial and service sectors instead of manufacturing. The great positive aspect is that the development of financial and service sectors opens a number of other perspective spheres for investment, including retail, marketing, healthcare, and commercial trade. Consequently, there are numerous positive factors that will help the country to reach its aim.

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