China inaugurated an 11 square mile free trade zone in Shanghai on Sept. 29 as an experiment in relaxing trade restrictions and financial regulations. The idea to open the market in Shanghai more than it ever has under communist Chinese rule is the brainchild of Commerce Minister Gao Hucheng with backing by both Premier Li and President Xi Jinping.
Specific reforms that apply to the Shanghai trade zone include allowing financial institutions to not be bound by the government’s tight control of interest rate and allowing for the full convertibility of the nations currency, the renminbi.
There are also going to be faster turn around times for the granting of business licenses for approved companies and allowing for easier cash flows with managed risk. Should this experiment prove to be a success in Shanghai, China will begin to opening up more free trade zones across the country.
For the good of both China’s and the world’s population, this experiment cannot fail. Economic freedom is the foundation for which all other freedoms are built upon. Without the ability for men to trade freely and to claim their property, there cannot be civil liberties.
A more economically and socially vibrant China will be born from a free market. DBS Bank (China) Limited Chief Executive Officer Neil Ge says of the free trade zone, “it is an important milestone in China’s efforts to build an international financial center and to reform and reinvigorate it’s economy for longer term viability.”
While free markets have historically been proven to be beneficial to all people despite their income level or net worth, things are not all so smooth in the implementation of the free trade zone. There has been some major push back by the old guard communist regime who do not want to loosen up their reigns on the economy which put Premier Li in a position to skip the inauguration ceremony, putting some fear amongst the free trade proponents that the zone will not be as expansive as first thought. There has also been some restriction on foreign participation in the free trade zone only allowing for certain approved companies to invest.
Despite these push backs and restrictions on the free trade zone, the act of opening the market even a crack will result in such positive growth that the people of China will be quoting Huey Lewis and the News in arguing that “you can’t fight an idea who’s time has come.”
With so much manufacturing and now financial investment coming through Shanghai, there may be a boom in international Mandarin Chinese speakers and international investment coming. Yao Wei, a Hong Kong based economist notes that “The over reaching theme of the reforms of the 1980’s and 1990’s were the same as they are now (with the Shanghai free trade zone), liberalization.”
Economic freedom via open markets has been the path to prosperity throughout the course of human history. It’s been written about from Adam Smith’s “Wealth of Nations” to F.A. Hayek’s “The Road to Serfdom.” The free trade zone in Shanghai is a positive step for China’s economy and freedom for the people.