More than three decades after Deng Xiaoping launched the Shenzhen SEZ for connecting China to the ‘brave new world’ of global trade, China has launched the Shanghai Free Trade Zone (FTZ). This might well mark China’s foray into the new global turf of business and commerce—many parts of which still remain unconquered by China.
As the Shanghai FTZ was unveiled with great fanfare and in large presence of multinational investors, the historical comparison with Shenzhen was inescapable. In 1980, when Shenzhen was born, China was struggling to discover ways of connecting to world trade. It decided on SEZs for doing so. Allowing export-oriented foreign investment to enter unhindered into a country where ‘capital’ and ‘profit’ were dirty words till a couple of years ago, was a radical and remarkable move. With systems and institutions still geared to serve the state—and only the state—in their full capacities, Shenzhen was to be the window through which non-state capital and entrepreneurship was to come in. It was intended to be the testing lab for what would be modern China’s most critical economic experiment. If doomed, Shenzhen was to be shunned; if not, it was to become history, as it did.
Shenzhen was the first step in China’s becoming the world’s topmost traders in goods. It was also the biggest success among all SEZs that China experimented with. What worked in Shenzhen to perfection did not work as well in the other zones that China set up, particularly Hainan. Several factors contributed to the standalone success of Shenzhen, the most important being proximity to Hong Kong. Shenzhen’s biggest success was in transforming the Pearl river delta into one of the biggest ‘factories’ in the world, producing all varieties of cheap good, ranging from toothpastes to transistors. It also pushed the industrial momentum upward along the coast and made China’s entire eastern region a hub of cheap export-oriented production.
The Shanghai FTZ obviously has a different mandate. It is attempting to open up most of what is still closed in China. And in trying to do so, it is again going to serve as the testing lab, as Shenzhen did.
As Dai Haibo, the deputy secretary of the Shanghai Municipal Government and vice-director of the FTZ mentioned at the zone’s launch, the key function of the FTZ will be to enable the transition of the government’s role in business to supervisory from administrative. What this implies is enterprises located