China’s cabinet urges Shanghai Lingang free-trade zone to deepen reforms

“The Shanghai FTZ will be developed into a demonstration area to promote the nation’s economic reforms.”

Beijing allowed Shanghai, dubbed the “dragon head” of China’s economy, to create the FTZ in 2013, envisioning a Hong Kong-style territory where free cross-border capital and commodity flows would be allowed.

Technically, the yuan would be fully convertible inside the zone, where foreign investors could also set up businesses such as telecoms and entertainment services providers without investment restrictions.

Shanghai ‘doubles down’ on efforts to develop Lingang free-trade zone

Customs authorities were also supposed to allow the flow of goods unhindered, with zero tariffs on imports.

But the leadership backed down on its original plan because of concerns about financial and economic risks. To date, the yuan has not been convertible under capital accounts, while goods are still subject to oversight by customs authorities.

President Xi last week made his first trip to Shanghai since 2020, and ordered local officials to step up efforts to revive the country’s economic growth. He stressed the importance of cutting red tape and simplifying customs processes at the FTZ to facilitate exports and imports, according to Xinhua.

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“The FTZ serves as a strategic window for Shanghai to better connect with the global economy,” said Xie Yiqing, a researcher at the Shanghai Academy of Social Sciences. “It is still an important territory for further economic reforms. Obviously, reform measures designed for a high degree of openness are required.”

In October, Shanghai opened an expansive industrial park focusing on the data industry at the FTZ, as the city pushed forward with its ambitious three-year digital economy blueprint.

Shanghai backs China’s AI push with new industrial park for data

The International Data Economy Industrial Park is tasked with “implementing safe and orderly cross-border flows of international online data”, according to a policy document unveiled by Lingang officials.

China is poised to become the first major economy to launch a sovereign digital currency, with the central bank conducting digital yuan trials in several cities, including Shanghai.