Shanghai Pilot Free Trade Zone: A Look into the Future or a Snapshot of the Past
Any visit to China is striking. The size of everything is overwhelming. The contrast of old and new is striking. If you’re revisiting, the obvious growth is a shock. If, as was the case for me, the time span between visits is over 10 years, the change can be almost impossible to fathom.
In the interim between my visits, China created the Shanghai Pilot Free Trade Zone. This 11 square mile industrial/international trade park located outside of the city and adjacent to the airport opened in 2013 to experiment in financial and foreign investment changes designed to make the Chinese economy more open and accommodating. It is impressive. From the ornate entryway reminiscent of gateways into Chinese communities to massive warehouses for imports and exports to high rise headquarters for multinationals and Chinese administrative offices, this is obviously a new and different China. My group saw everything from a wine importer with a cellar to rival almost any in the world to a retail store that was a mini Wal-Mart. The names on the outside of buildings were a virtual "who’s who" of multinationals.
The most interesting part of the Zone to me, however, was a visit to the trade administration building. This is the comprehensive service center for the Zone—the place where you go to fill out all of the paper work that lets you conduct business. The building is the tallest in the Zone, and it was hopping with activity. Imagine a Department of Motor Vehicles office in any U.S. state and you’ll get the picture. But this is China—we’re talking about the DMV on steroids. We were only allowed to enter in groups of five, and what we saw were lines after lines of individuals. The individuals not standing in lines were sitting waiting to stand in lines. And, of course, our guide pointed out the line that you stood in to find out which of the other lines you needed to stand in. Our guide talked exclusively about rules, regulations and bureaucracy while assuring us that the strategy was to make doing business easy and convenient. I had my doubts.
My research upon returning home confirmed my observations—“all that glitters is not gold” in the Shanghai Free Trade Zone. Let me direct you to three articles that I found informative.
- One year into the operation of the FTZ, MacKenzie Sigalos argued that the FTZ was a “dud” noting that trade reform was slow and that there was significant confusion about what can and cannot be accomplished in the zone. http://money.cnn.com/2014/10/06/news/economy/shanghai-free-trade-zone/)
- A year later, an article in Worldwide Financier (http://www.financierworldwide.com/impact-of-chinas-free-trade-zones/#.V8LptPkrLX5) noted that the impact of the FTZ on both foreign and domestic trade had been negligible. Government reforms had been limited and impact on the Chinese economy in general had not been significant.
- Reporting from Shanghai, Gabriel Wildau argued last September that the FTZ “lacked relevance” http://www.ft.com/cms/s/0/8cec0faa-6364-11e5-9846-de406ccb37f2.html. While he notes that clearing goods through customs has now fallen from weeks to days, progress in market liberalization has been slow.
None of this should be surprising. Even getting goods across the US-Canadian border can be complicated and unreasonably slow. And everything about the Free-Trade Zone is not negative--moving clearances from weeks to days is significant. It does emphasize, however, that there are no easy solutions to any problems. Infrastructure enhancements like the Shanghai Free-Trade Zone are important steps to more open trade. Cultural impediments cannot be ignored. Truly free trade will come at the end of long negotiations and even longer experience with trade relationships.