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TRADE WARS
A year on, foreign firms still await FTZ reform bonanza
by Staff Writers
Shanghai (AFP) Sept 29, 2014


Japan PM Abe presses campaign for meeting with China's Xi
Tokyo (AFP) Sept 29, 2014 - Japanese Prime Minister Shinzo Abe on Monday pressed on with a diplomatic offensive aimed at securing his first-ever summit with Chinese President Xi Jinping.

A recent flurry of activity has thawed relations that had been in deep freeze for two years, and Abe has embarked on a concerted effort to get face time with the Chinese leader on the sidelines of a regional summit in November.

"I wish to realise summit talks (with Xi) at an early time... in order to build stable and friendly relations between Japan and China, both of which share responsibility for the region's peace and prosperity," he said in a policy speech to parliament.

"Japan and China are an inseparable pair. China's peaceful development means a big opportunity for our nation," Abe said.

The remark came as Beijing prepares to host a gathering of leaders of countries that are part of the Asia-Pacific Economic Cooperation (APEC) forum.

Abe and Xi have not held a summit since the Japanese leader came to power in December 2012, followed by the Chinese leader's appointment as president in March 2013.

Efforts to improve soured ties have accelerated in recent months, with tentative public high-level contacts.

Japanese foreign minister Fumio Kishida has met his Chinese counterpart Wang Yi, a veteran Japan-handler who speaks fluent Japanese and had served as an ambassador to Tokyo.

A former Japanese prime minister and a major business delegation also visited China recently to meet senior officials, a move seen as helping Tokyo's efforts.

The Japanese business community is watching with keen interest whether Beijing and Tokyo can use APEC as an opportunity to ease tensions, if not to reset relations.

Japan and China have a tumultuous relationship that is particularly bitter on the subject of uninhabited islands in the East China Sea, which Tokyo controls as the Senkakus but which Beijing claims as the Diaoyus.

China has also voiced its distrust of Abe. It portrays him as a historical revisionist whose conservative beliefs are seen as symbolised by his visit to a controversial Tokyo war shrine.

China on Monday hailed the first anniversary of its first free-trade zone (FTZ), but foreign companies expressed disappointment over the pace of pledged reforms as they await real business opportunities.

The FTZ was set up in China's commercial hub Shanghai with the promise of a range of financial reforms, including full convertibility of the yuan currency and freer interest rates -- both of which remain unfulfilled.

But just two weeks ago authorities shook up the zone's management, removing Communist Party chief and executive deputy director Dai Haibo without giving a reason, after media reports he was facing allegations of corruption.

In recent days, a flurry of activity has surrounded the zone.

Earlier in September, China launched a gold market in the FTZ and Premier Li Keqiang gave his stamp of approval during a visit.

And on Monday Microsoft launched its Xbox One in China -- made possible by a new policy for the FTZ.

"The results of the reforms in the pilot FTZ in the first year are better than expected," Shanghai's Communist Party chief Han Zheng told state media in a lengthy interview carried by major newspapers Monday.

"It's a major step to further promote reform and opening-up under the new scenario."

On Sunday, China's cabinet approved further opening to 27 sectors, plans for which had been announced by Shanghai in July.

The policies include allowing foreign investors to set up wholly owned companies to design yachts and manufacture aviation engine components. They would also be allowed to process green tea through joint ventures with Chinese partners.

- Foreign firms 'still watching' -

Foreign company executives say privately they are disappointed, while publicly many say they are still waiting to see what opportunities might arise.

"It's (the FTZ) part of the ecosystem to encourage new things, out-of-box thinking, which nowhere else has. So we're still watching," said Frank Jiang, head of R&D in Asia-Pacific for French pharmaceutical giant Sanofi.

About 12,266 companies had registered in the zone by mid-September but only 13.7 percent, or 1,677, were overseas firms, according to official figures.

Chinese investors still cheered the one-year anniversary on Monday, chasing stocks of companies related to the zone.

Shanghai Waigaoqiao Free Trade Zone Development rose 1.39 percent while import and export firm Shanghai Material Trading gained 3.14 percent.

The launch of an international board for gold trading was the first major reform aimed at establishing more open financial markets in the FTZ by allowing more foreign investors.

"The establishment of the international board is creating an offshore market in China with which they can pilot a lot of measures to internationalise the financial markets," said Albert Cheng, Far East managing director for industry group the World Gold Council.

Chinese officials have made clear that eagerly anticipated financial reforms will be incremental while risk management remains a priority.

"The opening of the capital markets and renminbi (yuan) 'going out' will depend on the completion of the supervision system and strengthening risk prevention measures," said Zheng Yang, head of Shanghai's financial services office.

The government keeps a tight grip on the yuan, also known as the renminbi, fearing unpredictable inflows or outflows of funds could harm the economy and reduce its control over it.

"We will continuously move forward with renminbi internationalisation, interest rate liberalisation, financial market opening and capital account convertibility," Zheng said.

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