Wei Jianguo: Three Missions of the New Area of Shanghai FTZ: Global Support, High-Quality Development Engine and New Horizon of Financial opening-up
On August 6, the State Council of China agreed to establish the new Lingang area of the China (Shanghai) Pilot Free Trade Zone, and has issued an overall Plan for the new Lingang area, with the aim of creating the most competitive international free trade zone and a special economic function zone with global influence and competitiveness.
What kind of historical missions will the new areas have? How will the new areas lead a new round of reform and opening-up in the Yangtze River Delta? To answer these questions, the 21st Century Business Herald (hereinafter referred to as “21st CBH”) interviewed Wei Jianguo, Vice Chairman of the China Center for International Economic Exchanges and former Vice Minister of the Ministry of Commerce.
China’s new initiatives to support globalization
21st CBH: The original positioning of the Shanghai Pilot Free Trade Zone is to create a free trade zone with a high international standard, but the positioning of the new Lingang area is to create a special economic function zone with global influence and competitiveness, how to understand the difference?
Wei Jianguo: Lingang will aim at the world’s most competitive free trade zone and implement opening-up policies and systems with great international competitiveness. The so-called “special economic function zone” means that it should be more open and enjoy more freedom than other free trade zones, and it must make breakthroughs.
Shanghai has fallen behind in some way since the reform and opening-up, and the establishment of the new Lingang area can be regarded as the “re-start” of Shanghai in the new round of reform and opening-up.
The core of the special economic function zone is to realize the liberalization of investment trade and the key is that Shanghai will have to make complete institutional changes. For example, can we achieve zero tariffs, barriers, and subsidies in the entire free trade zone in the short term? Shanghai should come up with something new in the areas of customs, finance, taxation and other regulatory areas to further reduce taxes and relax supervision.
21st CBH: What are the new missions of the new Lingang area?
Wei Jianguo: I believe that the new area of Lingang has three historical missions.
The first one is to support globalization. China actively supports globalization and the improvement of a rule-based multilateral system. However, the current world protectionism and unilateralism are on the rise, and globalization faces enormous challenges, which requires China to further expand its openness and integrate itself deeply into globalization. The establishment of the new area can be seen as an important oath for China’s further opening-up.
Secondly, the new area will become an engine for high-quality development of China’s economy, which requires changes in quality, efficiency and dynamics of the economy. China is practicing new development concepts, promoting supply-side structural reform continuously, and pushing high-level development forward. For the first time, the Lingang New Area has made an overall deployment of industrial development in a free trade zone.
The third mission is to expand a new horizon for financial opening-up. If we consider the free trade zone as a big engine, then the finance will be the fuel. The existing 12 free trade zones have already had some explorations in the financial sector, but there is still a big gap if compared with world-class financial centers such as the financial city in London. Shanghai needs to make more efforts in building global financial centers and the new Lingang area provides an important platform for this aim.
Creating a world-class cluster for high-end manufacturing
21st CBH: Previously, the free trade zone mainly focused on reform and opening-up in the fields of trade, investment, finance, etc., but Lingang obviously focuses more on manufacturing, especially the development of high-end manufacturing, what do you think of this?
Wei Jianguo: At present, China still belongs to the middle and low end of the global industrial chain and thus, we need to upgrade the industrial structure. The overall plan for Lingang area proposes to gather key links and technologies for China’s high-quality development, such as integrated circuits, biomedicine, artificial intelligence and aerospace. From the perspective of the global industrial chain, the emphasis here is not on the general industry, but on certain key links and core technologies, which will move China’s labor-intensive industries to the higher end of the industrial chain.
In the future, it is possible to introduce better measures in terms of tax and fees reduction, land supply, and talents attraction in the new area. Shanghai is likely to create a huge cluster for high-end manufacturing with well-developed industries and excellent investment and trade facilitation.
21st CBH: Why is it possible for Lingang to form a modern cluster for high-end manufacturing?
Wei Jianguo: Many people say that the future science and technology innovation center will be in Shenzhen. I think that Lingang has great potential as well because Shanghai has a larger economy and a stronger effect of radiation.
Lingang has a strong foundation in high-end manufacturing and great potential to meet the development needs of national strategic and emerging industries. The transportation in Lingang is well-developed, such as the Yangshan deep-water port, Pudong International Airport, railway, highways, and high-grade inland waterways, which is very competitive even if compared with the highest world standard.
21st Century: the size of Lingang is 119.5 square kilometers, which is roughly the same as the area of other free trade zones, how do you view the choice of the size?
Wei Jianguo: the area of the existing free trade zones is about 120 square kilometers, there are two reasons for the choice of the size:
The first reason is for better supervision. As a special regulatory area, the free trade zone will generally set up a physical fence and it will also be divided into different areas so that innovative policies can be implemented boldly while making sure that all the risks are under good control.
The other reason is to attract more industries to the new area. From a global perspective, 120 square kilometers is not small at all. In the next two or three decades, Lingang may become the foundation of China’s high-quality development, just like the role played by Shanghai’s industrial base after the liberation.
120 square kilometers is the pioneering area and more land will be granted in the future if needed. The Lingang area focuses on high-end manufacturing and the real economy, which is different from processing trade and finance, therefore, it requires more flexibility in land supply.
It should be noted that the establishment of the new Lingang area will take a gradual approach. The new area is not a simple expansion of the existing free trade pilot zone, nor a simple transfer of existing policies, but an all-round, deep and fundamental institutional innovation.
Leading the integration of the Yangtze River Delta
21st CBH: How to understand the all-round, deep and fundamental institutional innovations in the new area of Lingang?
Wei Jianguo: This fundamental institutional change must achieve five “freedoms”, namely, freedom of investment, freedom of movement of goods, freedom of movement of people, freedom of financial flow, and freedom of information flow.
In terms of investment, Lingang should not only attract foreign investment, but also attract more private enterprises, companies like Tencent, Alibaba, Google, Amazon, should be treated equally.
The flow of goods requires further deregulation in the customs and other fields. For example, many countries in the Expo hope to set up a factory in Lingang for product processing. Can we allow a Portuguese company to carry out the packaging of olive oil in Lingang? There are many other examples, from French red wine, Spanish ham to Swiss watches, China’s growing consumption capacity of more than 400 million middle-class markets is an opportunity that cannot be missed. The flow of goods will not only meet people’s pursuit of a better life, but also promote the upgrading and high-quality development of the industry.
In terms of funds, Lingang should consider implementing further reforms in the financial sector. For example, liberalizing deposit rates, further relaxing the access of foreign financial institutions, optimizing foreign exchange management, and relaxing foreign investment approvals.
Information flow is also the focus of further openness. Information asymmetry still exists, and the free flow of information will help foreign-oriented enterprises to find their way.
In terms of human resource, Lingang must also gather the best talents in the world.
21st CBH: After the press conference held for Lingang, people are very concerned about the relaxed restrictions on home-buying policy for talents without local household registration, what do you think of this?
Wei Jianguo: The main purpose of relaxing house purchase restrictions is to attract domestic and foreign talents. The Lingang area has a relatively low population density and the current population is only a few hundred thousand. Its high level of openness and industrial development need to gather more high-end talents. In order to do so, Shanghai will come up with better policies and special funds to improve housing, transportation, education, and hospitals.
Apart from attracting Chinese entrepreneurs and investors, Lingang should also attract more inventors, scientists, engineers and technicians from other countries. This requires further improvement of the green card system, the development of a special plan for attracting talents. More importantly, the authorities of Lingang should create good employment opportunities and substantially reduce personal income tax.
21st CBH: The overall plan for Lingang emphasizes the coordinated development of the Yangtze River Delta for several times, is that mean the new area of Lingang will drive a new round of reform and opening-up in the Yangtze River Delta?
Wei Jianguo: Suzhou, Wuxi and other places in the Yangtze River Delta have great advantages in attracting foreign investment, such as the Sino-Singapore Suzhou Industrial Park. Recently, however, I have seen many problems in these places and some of them have begun to fall behind.
Many labor-intensive industries and processing trade industries face problems such as rising costs and falling profits. In the new round of globalization, their competitiveness has declined, and the industrial structure needs to be transformed and upgraded. The development of low-end processing trades such as laptops and mobile phones are no longer sustainable, but there are still many difficulties in turning these industries into high-end chip design and manufacturing.
It is a common problem for many companies in these areas to keep up with the latest trend and find the right paths and thus, promoting integrated development of the Yangtze River Delta with Shanghai as the leader has become a more realistic choice. At the Expo, the integration of the Yangtze River Delta has become a national strategy, and the establishment of a new area of the Shanghai Free Trade Zone was also proposed. Since the very beginning, the Shanghai Free Trade Zone has shouldered the mission of coordinated development of the Yangtze River Delta.
In the future, global competition is not about the competition between individual cities but urban agglomerations, and the urban agglomerations need a leader, such as the San Francisco Bay Area, the Tokyo Bay Area of Japan, and the London Bay Area. These are the most competitive free trade zones in the world. Lingang should use them as a benchmark to lead the high-quality development in the Yangtze River Delta region and actively embrace a new round of globalization.