Will China’s door finally open wider?

On the last morning of my trip to China, I attend a presentation about Shanghai’s recently announced Free Trade Zone and the opportunities it will offer foreign banks. The presentation takes place during a breakfast meeting of European bank country managers represented in the European Chamber of Commerce in China.

At this moment it is unfortunately still unclear what the exact goal of the Shanghai FTZ is. Is it about further nationalising the Chinese currency, the renminbi? Attracting foreign companies? Facilitating the export of Chinese companies? Or a combination of all three?

Feedback

On the same day, the FTZ is also being discussed during our conversations with the subsidiaries of several American clients. Here too the feedback is that the exact plans and regulations are still unclear. However, we agree that the spectacular growth of the Chinese economy is behind us and this growth is set to stabilise at around 6 to 7% in the medium to long term. During the transition to a new phase in economic development one of the reasons for the FTZ would indeed be managing the exchange rate, alongside further opening up the Chinese market.

More clarity is expected during the upcoming congress of the Communist Party which starts on 9 November. Personally, I believe that despite further announcements, the FTZ is a next step in the right direction of further opening the Chinese economy. Although it happens at the pace determined by the bureaucrats in Beijing, the introduced reforms are being pushed through.

Jeroen Plag, head of International Corporate Clients ING, reports again from Shanghai, where the government recently announced the opening of a Free Trade Zone. He comments on the reasons behind the FTZ, its implications and recent developments in China.

Well anchored

Looking at the rise in the number of skyscrapers in Pudong – the growth phase is over. Although the Jinmao and Shanghai World Financial Centre towers in the Lujiazui district will soon be accompanied by the largest skyscraper in China – the Shanghai Tower, which will reach a height of 632 meters in 2014. It appears that the ground under Pudong is sinking several millimetres per year, but my local ING colleagues assure me that the current towers are well anchored. They also told me that there are only two(!) fire trucks with ladders able to reach the 29th floor in the whole of Shanghai. I might stay a few floors down next time, although the view from the 84th floor is magnificent in the morning.

The development of Pudong only started in 1990. Back then, the area was made up of rice fields and a few buildings east of the Huangpu river, looking over the city Shanghai on the other side. Now, 23 years later, the district has one of the most impressive skylines in the world. The developments around the FTZ have led to strong price increases and according to several real estate agents this is set to continue for a while. Nevertheless, several studies praise Shanghai for its regulations which at least ensure an orderly increase, even though that was around 100% for land prices near the FTZ!

 

Maglev

The journey continues to Hong Kong where there is also plenty to do around the property market. In the back of the taxi on the way to the airport I realise that I should take the Maglev again next time, that’s a lot faster. The Maglev is the magnetic levitation train between the airport and Pudong, which covers the 30-kilometre track in 7.5 minutes. Even though my taxi driver is stepping on it, a top speed of 430 km/h is not an option!

As the Chinese Communist Party announced economic reforms this week, in his next blog Plag will share his views on these developments and what opportunities they can offer ING’s clients doing business in China.

 

Initially published by Dutch daily 'Het Financieele Dagblad', re-published with permission by ING.