On 3 July 2013, the China State Council formally announced its approval of a plan (“Master Plan”) for a pilot free-trade zone in Shanghai, China (“Experimental Zone”). This Experimental Zone will encompass Shanghai's four (4) existing bonded areas, namely Shanghai Waigaoqiao Bonded Area, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port Area and Shanghai Pudong Airport Comprehensive Bonded Area.

The Master Plan is silent on certain aspects of the Experimental Zone’s activities. Some commentators have speculated that this lack of detail in the Master Plan is due to the fact that detailed rules for this Experimental Zone have yet to be formulated. Other commentators, however, believe that this lack of detail in the Master Plan reflects opposition to financial sector reform in some elements of the Chinese Central Government (“Central Government”), and that this current lack of detail in the Master Plan is a deliberate move designed to circumvent this opposition. Zhang Yansheng (张燕生), the general secretary of National Development and Reform Commission’s Academic Committee, was quoted recently, with respect to the Experimental Zone, as saying:

“It is the Central Government ministries and institutions which shoulder the responsibility for managing the Country’s reform and open door process. This necessarily means that there will be some friction and differences between the Central Government and the regions. Some opposition to the Experimental Zone by some Central Government organs has been argued as reasonable, Those Central Government organs [opposing the Experimental Zone] are not implacably opposed to reform. Rather, they are asking ‘Has Shanghai really thought through and understood what it is going to do with respect to the Experimental Zone?’ Is the Experimental Zone just another small incremental step in our Country’s 35 year history of reform and open door policy? Or does the Experimental Zone reflect a dramatic turning point in this 35 year history, a turning point which will bring about a step- change in the Country’s development? I suspect it is the latter.”

Certain details of the Experimental Zone are, however, clearly set out in the Master Plan, being, in relation to institutions established and operating in the Experimental Zone:

  • RMB convertibility on the capital account within "acceptable risk management parameters".
  • Full interest rate liberalization.
  • A single standardized legal and administrative framework for both domestic and foreign institutions.
  • An anticipated company (and perhaps personal) tax rate of 15%.
  • Creation of a processing center for offshore RMB.
  • Market driven pricing for all financial institution assets.

Aside from some concerns in Beijing, the creation of the Experimental Zone has also given rise to some concerns in Hong Kong.  Hong Kong's South China Morning Post has said: "The creation of Shanghai's Experimental Zone, and associated free trade port, will give a large impetus to the movement of international capital and goods through Shanghai.  This major reform will likely dilute the traditional role that Hong Kong has historically played with respect to China's economic development."

The Experimental Zone is expected to be formally inaugurated on 27 September 2013, with its management committee being headed by current Shanghai Vice-Mayor Ai Baojun (艾宝俊). The Experimental Zone is expected to begin formal operations on 1 October 2013.