July 1, 2013 - The package plan for the Shanghai Pudong Free Trade Zone has been submitted to various commissions and offices of the State Council for countersignature. According to the schedule envisaged earlier, the free trade zone will be officially approved in July at the earliest if the commissions and offices have no objections. Sources close to the Shanghai Waigaoqiao Bonded Zone Management Committee disclosed that the Shanghai Free Trade Zone will play a pivotal role in the Trans-Pacific Partnership (TPP) negotiations and has hopes of becoming China's first window for joining the TPP.

The importance attached to the Shanghai Free Trade Zone project far exceeds market expectations. The project includes many financial innovations, such as the early and pilot implementation of Rmb capital account liberalisation and gradual convertibility.

During his inspection tour of the Waigaoqiao Bonded Zone in Shanghai in March this year, Premier Li Keqiang voiced his encouragement and support for Shanghai to actively explore possibilities of setting up a pilot free trade zone on the basis of the comprehensive bonded zone to promote the perfection of the open economy. The planned Shanghai Free Trade Zone will cover an area of 28 sq km and will incorporate the Waigaoqiao Bonded Zone, the Yangshan Port Free Trade Zone and the Pudong Airport Comprehensive Bonded Zone.

Towards the end of May, the plan for the Pudong Free Trade Zone pilot was submitted to the relevant central departments for countersignature after discussion and endorsement by the Shanghai municipal government, said an informed source.

According to an authoritative expert of the Shanghai Free Trade Zone task force, the free trade zone will have trade liberalisation as its central feature and will offer various types of special concessions to companies in terms of tariff and non-tariff barriers (such as capital and foreign exchange controls). Companies doing business in the free trade zone will enjoy more convenient examination and approval procedures and remission of taxes and fees. These, together with the gradual liberalisation of capital accounts, will make it possible for the Shanghai Free Trade Zone to open a window for overseas capital and markets in an all-round way.

The Shanghai Free Trade Zone proposal suggests allowing corporate legal persons in the free trade zone free convertibility of the Rmb in future. The policy will not apply to individuals for the time being.

Shenzhen's Qianhai has all along taken free Rmb convertibility under capital account as one of its important targets of financial innovation. The cross-border Rmb loan programme is an experiment of capital account openness. However, Qianhai has yet to achieve a complete breakthrough in free convertibility. Experts said the Shanghai Free Trade Zone may implement free convertibility by stages, such as promoting overseas investment and financing of domestic capital first.

Sources close to the Shanghai Waigaoqiao Management Committee disclosed that the Shanghai Free Trade Zone will play a crucial role in China's participation in TPP negotiations and is expected to become China's first open window for entry into the TPP.

The TPP, or Trans-Pacific Strategic Economic Partnership Agreement, is a plurilateral free trade agreement first initiated by the four members of the Asia-Pacific Economic Cooperation forum, namely, New Zealand, Singapore, Chile and Brunei Darussalam, in 2002. The US announced its entry in February 2008, followed by Canada, Australia and Japan. Today, the TPP has 12 member states and covers 50% of world GDP.

The US-led TPP is seen as a new form of rules governing international trade and investment in future as it represents a breakthrough in the traditional mode of the free trade agreement (FTA) and is a comprehensive free trade agreement that encompasses all goods and services. The US also positions the TPP as a cutting-edge, 21st-century trade agreement. Recently many Chinese ministries and commissions, including the Ministry of Commerce, have started discussing and arguing the pros and cons and possibility of China's entry into the TPP. The US also takes a positive attitude towards China's entry.