ASIA NEWS NETWORK

WE KNOW ASIA BETTER

» News

Qianhai test bed for change in China

Publication Date : 28-09-2012

 

First, think of financial metropolis Shanghai as the pulsating heart of China.

Then, imagine Qianhai, a barren piece of reclaimed land in western Shenzhen, as a donor heart. Daring experiments - at least, by Chinese standards - can be performed on it and, if successful, these experiments can be replicated elsewhere.

Such is the role that the new zone will play, said Tse Yung Hoi, who sits on the committee advising the authorities on Qianhai. Dubbed "mini-Hong Kong", the city will embark on financial and service sector reforms to emulate its southern neighbour.

The 15 sq km piece of land - a "special zone inside a special economic zone" - was earmarked in 2010 by China's Cabinet for experimentation. Plans to develop it were announced in late June, ahead of Chinese President Hu Jintao's visit here.

Ambitious targets - including the gross domestic product reaching 150 billion yuan (US$24 billion) by 2020 - have been set. Details, however, have been scant.

In an interview with The Straits Times, the Shanghai-born Tse, who is based in Hong Kong as deputy chief executive of Bank of China International, said the waterfront city will be an "important laboratory" for two things.

One is to create a hub of "modern services" - finance, law, IT and accountancy - within which an open system of integrity, or cheng xin zhi du, flourishes. This is not just about bringing in companies - he pointed to, for instance, the suicides at the Foxconn plants that make iPhones - but also about creating "software" with the necessary ethics and culture for a modern Chinese economy.

Two, to be a test ground for freer yuan usage and capital account convertibility, as China looks at internationalising the yuan.

China retains strict control on the circulation of its currency outside the mainland to keep its exports cheap and pre-empt huge foreign capital inflows. So while offshore yuan centres Hong Kong, Singapore and London have accumulated 650 billion yuan in deposits, these cannot flow back freely to the mainland.

Now, the financial firewall will be extended from Hong Kong to Qianhai, which will allow Hong Kong banks to lend yuan directly to businesses in the zone.

There has been some scepticism. Some wonder at the value of an experiment that merely extends the borders of Hong Kong as an offshore centre.

An idea under consideration is to allow companies inside Qianhai to maintain two separate accounts - one to process offshore yuan from Hong Kong, and the other for transactions with the rest of the mainland, said Tse.

There could also be some leeway for offshore yuan in Qianhai to stream into the mainland.

"Qianhai institutions could lend these offshore yuan to mainland companies for certain purposes - for instance, foreign direct investments, small remittances or payment to service vendors," said Tse, calling it a calibrated approach.

Another area of gentle experimentation is in the regulations governing the zone. Dashing the hopes of those who want Qianhai to replicate wholesale Hong Kong's legal and anti-corruption systems, Tse said mainland laws will prevail. But a small step forward is that business disputes can be resolved under Hong Kong laws.

The authorities are also careful not to let Qianhai become a speculators' haven, Mr Tse said, noting how investors have driven up property prices around the zone. He hinted that land within Qianhai may be only for rent and not for sale.

The Qianhai experiment, if it proves successful by 2020, could extend first to the rest of Shenzhen, and then Guangdong province, before being replicated throughout the country, he said.

Tse dismissed reports that the yuan could be fully convertible by 2015, saying he does not think it will happen even in the next decade.

Looking at the challenges that China faces, he said the same low-cost manufacturing formula that propelled it to become the world's No. 2 economy will not make it No. 1.

Millions of Chinese people will be looking for work. "They can't all be opening small eateries or provision stores. China can no longer be about traditional industries like textiles," Tse said.

"Instead, we need to develop modern services. And Qianhai is an important step for us to get there."

 

Mobile Apps Newsletters ANN on You Tube