1979 In the spring, Deng Xiaoping drew a circle on the South China Sea in China. In the summer of 20 13, China municipal government drew another circle on the East China Sea-China (Shanghai) Pilot Free Trade Zone. Three Backgrounds of Free Trade Zone The establishment of Shanghai Free Trade Zone has the following three backgrounds: The first background is global trade competition. At present, the three major economies of the United States, Europe and Japan are trying to replace the WTO through TPP (Trans-Pacific Partnership Agreement), TTIP (Transatlantic Trade and Investment Agreement) and PSA (Multilateral Service Agreement) to form a new generation of high-standard global trade and service rules. For the new round of rules of the game, if it is difficult for the whole country to enter, the free trade zone can be opened first, so that countries can invest and trade freely and be a small window for docking. Some high commercial standards can be appropriately mapped to the entire domestic manufacturing and service industries. If the experiment fails, its scope and impact are limited, but once it is successful, it can be further expanded and fully connected with the whole economy of China. The second background is China's own reform needs. It cannot be said that the rules of the game formulated by developed countries are all wrong, because many rules conform to the inherent laws of market development and economic upgrading. Therefore, China should adopt a positive attitude, and some reasonable rules are suitable for China's own reform direction. Therefore, we still have to adopt the principle of least common divisor to find the intersection and promote our own transformation and development. At the same time, we should use this rule to eliminate most vested interests and interest groups, and finally establish internationally accepted rules to avoid more unreasonable solidification of interests and path dependence. Similar to joining the WTO that year, it is the so-called "opening up and promoting reform". If the main contradiction now is that we can't change it, it's better to be more open and bigger. Therefore, the establishment of Shanghai Free Trade Zone is an important measure for the current government to create an "upgraded version" of China's economy. The third background is the internationalization of RMB. Since 2009, the cross-border use of RMB seems to be on a large scale. At present, Hong Kong's official caliber is 800 billion, but it may actually be 1 trillion, and Taiwan Province Province also has 400 billion. However, the proportion of RMB released due to trade demand in the total global currency is still very small. China really hopes that these RMB will fly overseas for a long time. However, objectively speaking, if these motives of capital return for profit are not satisfied, the overseas total amount of RMB currency cannot be enlarged, and the construction of the return closed loop needs a huge, in-depth and extensive financial market (basic and derivative) to accommodate and throughput. At present, the biggest advantage of Shanghai is that it has the most comprehensive exchange, interbank market and factor market in China, so Shanghai will definitely become the largest destination and distribution center for RMB return. In the past, there was no free trade zone, and the leading players who came in with funds had to directly receive the mainland asset market, and needed to obtain RMB assets through QFII pipelines or trade channels. With the free trade zone, we can first establish a huge financial asset buffer and reservoir, improve the global circulation path of RMB, and finally open the capital account under the condition of controllable risks, carry out two-way investment and mutual penetration, realize the global optimal allocation of financial resources, and enhance the international status of RMB. Four Missions of FTZ In short, Shanghai FTZ shoulders four missions. 1. Trade liberalization: goods are freely imported, manufactured and re-exported without customs supervision, prohibition and tariff intervention. The purpose of Shanghai is not to be the port with the largest container throughput, but to do entrepot trade and offshore trade. There are two core components, one is to attract the headquarters of multinational companies, and the other is to build a commodity trading platform. The core of offshore trade is to solve the capital control problem of multinational companies. Enterprises in the free trade zone are allowed to set up international fund pools and domestic fund pools, in which interconnection pipelines are designed. This kind of trade means that both the order and the capital link are completed in Shanghai, and the goods may not pass through the port of Shanghai. The free trade zone will not be made into a container yard, and we will explore dislocation competition and cooperation with the surrounding areas of the Yangtze River Delta. More importantly, promote the development of service trade related to free trade in goods, especially support international commodity trading platforms and shipping financial trading platforms, and allow domestic and foreign enterprises to participate in commodity futures and shipping forward transactions. In FTZ, overseas futures exchanges will be allowed to designate or set up commodity futures delivery warehouses. Once completed, they will replace some functions of LME warehouses in Busan, South Korea and Singapore. These designs will not only promote the development of related service trade and service outsourcing industries (including financial leasing, inspection and maintenance, auditing and accounting). ), it also reduces the threshold and cost of global resource allocation and commodity price risk management for multinational enterprises and contributes to the prosperity of free trade ports. 2. Investment liberalization: full implementation of pre-entry national treatment and negative list management. If it is not prohibited, anything can be done except what the negative list stipulates cannot be done. This is especially for the service industry: financial services, shipping services, commercial services, professional services, social services and cultural services. All six areas are open. Practice has proved that manufacturing and service industries will develop well and become more competitive in all areas that are relatively thorough in opening to the outside world and actively participate in global resource competition and cooperation. Therefore, most investment associations in the free trade zone will implement the filing system, and many restrictions such as foreign shareholding ratio or business scope will be cancelled. It is expected to take the lead in reforming investment project management, establishment and change management of foreign-invested enterprises, and industrial and commercial registration in the pilot area. Shipping, credit reporting, financial leasing, inspection and maintenance, performance brokerage, entertainment culture, education and training, medical care and many other modern production and life services. , will implement fair access standards for domestic and foreign capital, and welcome domestic private capital and overseas direct investment. In fact, this should also be a preview of the ongoing BIT negotiations between China and the United States. China agreed to hold substantive consultations with the US on the basis of pre-entry national treatment and negative list. For the first time, the "national treatment" of foreign investment was extended to "before entry", instead of relying on the current Catalogue for the Guidance of Foreign Investment Industries for administrative control, it was exchanged for the equivalent and more transparent foreign investment access review process in the United States. This is also meaningful for the institutional reform of China government, aiming at eliminating the examination and approval power of existing government departments and the corresponding rent-seeking ability. In addition, investment is also two-way, and China capital is encouraged to invest overseas directly from FTZ. Perhaps in the free trade zone in the future, foreign investment only needs to be filed. Encourage the establishment of overseas equity investment funds and provide corresponding intermediary services, so as to make the FTZ a platform for China's capital to go global and vigorously promote the "going global" strategy. Three. Financial internationalization: Its ultimate goal is to promote the internationalization of RMB. One obstacle that must be overcome is the liberalization of capital account control. It is expected that in the free trade zone, investment and trade-related funds can be freely exchanged, and the interest rate and exchange rate are determined by the market. Actively explore international foreign exchange management reform pilots and establish a foreign exchange management system suitable for free trade zones. At the same time, qualified foreign-funded financial institutions are allowed to set up foreign banks, and private capital and foreign-funded financial institutions are allowed to set up Sino-foreign joint venture banks (with limited licenses). Encourage them to establish a comprehensive trading platform and fully liberalize product innovation. Financial institutions in the free trade zone can also issue bonds overseas, and they can borrow from enterprises in the free trade zone after recovering their funds, thus breaking through the existing loan-to-deposit ratio limit. At the same time, change the foreign debt management mode of enterprises in the free trade zone, and strive to realize centralized operation of foreign exchange funds in order to establish a global fund management center for multinational enterprises. The financial development vision of the future free trade zone is great. First, the functions of free trade and offshore finance in Hong Kong, Singapore, Macau, Switzerland, Cayman Islands and Virgin Islands will be initially realized, and qualified Chinese banks in the region will be allowed to engage in offshore business. At the same time, it is considered to cultivate an onshore and offshore financial center (international board) with the help of the design of international banking facilities (IBF) similar to new york and JOM in Tokyo, and then partially open up the offshore and onshore markets by establishing appropriate channels and pipelines (which can be lines, regions, account types, transaction types, etc.). ), so as to achieve limited interconnection, allow funds to penetrate each other within a certain range or limit, and establish a separate infiltration type (one-way first and then two-way) on the premise of risk control and efficiency improvement, and finally form a real global financial center similar to London, with all-round penetration and internal and external integration. 4. Administrative simplification: FTZ will implement a new innovative regulatory service model of "full opening of the first line, safe and efficient management of the second line, and free flow of goods in the region". "First line" refers to national boundaries, and "thoroughness" is constantly emphasized. Therefore, an important task in the construction of free trade zone is to simplify the complexity and reduce the administrative cost in the existing opening pilot, and to provide an effective way to integrate the existing special customs supervision zones. It can be predicted that in the future, all the market administrative functions such as quality inspection, industry and commerce will be integrated into one institution, and the financial supervision scattered in one line and three meetings may be merged with only one HKMA, and the real reform of the Ministry system can be completely realized in the pilot area. Its ultimate goal is to establish a centralized and unified market supervision system, transform government functions, improve administrative transparency, conduct local legislative experiments, and fulfill the function of protecting investors' rights and interests. This is a brand-new ruling idea of "small government" and the latest attempt to clarify the optimal boundary between market and government. Expansibility and future prospect of free trade zone. What is the scalability and replicability of the free trade zone? This involves two issues. First, does the FTZ itself have room for expansion? 28 square kilometers is very small, and now many of them are actually outside 28 square kilometers. Therefore, there is still room for expansion in the future, mainly depending on the effect of the pilot. It is not ruled out that the free trade zone will expand to Pudong or even Shanghai in the future. Second, will free trade zones in other places keep up? It is possible for the management to let go of other horse races for balance and competition. There are also rumors that several regions have submitted plans, but there may still be some difficulties in the short term, mainly because the institutional innovation in the free trade zone is so powerful and difficult, which will be a process of digestion and adaptation for the existing administrative agencies. If they are copied many times in a short period of time, their work may be overloaded and they cannot cope effectively. As the top-level design of the seven major reforms, the core of the new troika is pulled from top to bottom, and the overall positive test and response from bottom to top, the significance of the Shanghai Free Trade Zone experiment is comparable to or even exceeds that of the Shenzhen Special Economic Zone established in the first round of opening up and promoting reform. This is a microcosm of China's reform. It is not one or two tax incentives, nor is it attracting one or two key enterprises, but the real comprehensive innovation and upgrading of mechanisms and systems. This is a complete and comprehensive experimental area from economic system to supervision system to administrative system reform, which will create a market economy environment that conforms to international practice, is free and open, and encourages innovation. Yu Shao is a doctor of finance, a John Swire scholar at Oxford University, a researcher at the Institute of Finance at Fudan University, and an adjunct professor at the School of Engineering Management at Nanjing University. He is currently the chief economist, chief strategist and head of fixed income in orient securities, and he is the author of Crisis Trilogy: Global Macroeconomics, Finance and Geopolitics. What is stated in this article only represents his personal views.