Sunday Sept. 29 2013, is a new day for China as it marks the official launch of the much anticipated Shanghai Free Trade Zone. Sunday is also International Coffee Day. Just as UK coffee houses in an earlier age were the places where people from all over the world freely exchanged ideas about the exciting events of the day, so too, it is hoped that this newest of China's Free Trade Zones will provide a powerful 'pilot' for China to trial important economic changes as restructures its economy to meet the demands of an information age. This will bring greater liberalization of the economy, more competition, and an increased flow of ideas, capital, innovation and more
Sunday Sept. 29 2013, is a new day for China as it marks the official launch of the much anticipated Shanghai Free Trade Zone. [Xinhua]
Free Trade Zones of course are not new and have been successfully trialed in China since the late 1970s. They have also been utilized, with mixed results, in other regions of the world.
I think that the establishment of the Shanghai Free Trade Zone is a great idea for China. Clearly China needs to continue its economic reforms, but it is highly risky to try to do this across the whole country all at once. A Free Trade Zone is a sensible and practical way to ''test' various strategies and assess on a smaller scale how they work. Then, China will be able to make necessary adjustments and roll out the most significant and useful reforms across the country as a whole.
When they work well, free trade zones are also utilized by local companies as a jumping off point for foreign ventures by Chinese firms. They are also utilized by big and small businesses.
It makes sense to establish a Free Trade Zone in Shanghai, which is China's financial centre. Many of the needed reforms relate to internationalizing China's currency and promoting the free movement of capital between countries. Given that China is the number one exporter in the world and number two importer, such moves will welcomed internationally. To achieve a trade balance, China needs to take such moves as its economic importance becomes increasingly central to a global economy.
China must also gradually transform its economy to focus on domestic growth to meet the needs and aspirations of its people. This will be best achieved by gradual steps to liberalize trade in the services sector especially. It will mean opening up local markets to greater foreign competition and thus achieving efficiencies that will lead to an improved and more competitive services sector. For example, in this new zone, local Chinese citizens are likely to get enhanced access to foreign insurance and other financial products that are presently unavailable. As local service providers learn from and respond to this new international competition, the resulting improvements will in turn make China more competitive overall.
Free flow of capital is not in itself enough to promote economic development. China also needs innovation-new ideas, new people, foreign experts and the exchange of information. A Free Trade Zone will attract members of what economist Richard Florida termed 'the creative class' to Shanghai and then eventually to other parts of China. This group of talented people bring new ideas, start new businesses and create the industries and jobs of the future.
In the long term, it will be important that the lessons learned from the Shanghai Free Trade Zone experience be extended to the country as a whole. This will be a challenge at all levels of government and industry. Change is never easy and no doubt there will be divergent views about what changes should be extended to the rest of the country, how this should be done and at what speed.
So, be sure to get up early on Sunday. If you are in Shanghai, especially look for a restaurant that is celebrating International Coffee Day by offering discounted cups of coffee. Take in the wonderful aroma of freshly brewed coffee beans and enjoy a great conversation and soak in the atmosphere and excitement of new economic times ahead. And remember: 'Life is too short for a bad cup of coffee.'
