Is Shanghai FTZ Just Smoke & Mirrors

A very interesting piece in China Law Blog .. suggesting that the new Shanghai FTZ seems to exist more in imagination than in reality.. we suggest anybody about to pump their money into Ali Baba US float look at this as a cautionary tale about the gulf between pronouncements and reality in China..


Shanghai Free Trade Zone. Still A Yawn.

By Dan Harris on September 6th, 2014
Even those who have gone into the zone seem unable to extol its benefits and discuss it in terms of “hype” not benefits:

Even US ecommerce group Amazon, which last month announced plans to open a logistics warehouse in the zone, was vague about the benefits of operating in the zone beyond geographical proximity to consumers.

Few people expected immediate breakthroughs on financial reform. However, the near total lack of substantive changes has led to cynicism among bankers.

“It’s been mostly hype so far,” said a loan banker in Shanghai who works with small and medium-sized companies in the zone. “Nothing has really changed.”

*   *   *   *

Investors deserve some blame for buying into the hype. Chinese policy makers have maintained a resolutely cautious approach over the past two decades to any financial reforms that could potentially destabilize the economy.

This very much corresponds with what we wrote about the Shanghai FTZ in The Shanghai Free Trade Zone. Yawn. In that post, we had this to say about the Zone:
I was talking with a China lawyer based in Beijing the other day and at one point he mentioned that he had recently been to a talk on Shanghai’s Free Trade Zone. When I asked what he had learned from that talk, he said something like the following:

Three people talked about the FTZ. One person from a big accounting firm, one from a big law firm, and one from the FTZ itself. They all essentially talked about how great it was and about how great it would be but really, neither I nor anyone else there with whom I talked could figure out one concrete reason why to bother with it.

I thought of that today after receiving a link to a [previous] Financial Times article that pretty much says the same thing. The article is entitled, Benefits of Shanghai free-trade zone still shrouded in mystery, and it pretty much says exactly what my lawyer-friend said. That a bunch of people with an interest in seeing the Shanghai FTZ become something important are out there proclaiming its importance, but when pressed on why it is important, they have no answer.

I am also reminded of a friend of mine who is in-house counsel at a very large tech company in China who is always getting calls from people at his company complaining that their company isn’t doing more with the Shanghai FTZ, especially in comparison to other foreign companies. My friend says he responds by asking what more they should be doing and what exactly other companies are doing that is leaving his own company in the dust. He says that these questions produce either stammering or silence and he has yet to receive a real answer.