世界自由贸易区协会主席 格兰姆•马瑟(graham mather)
【亚太日报 周玲娜】We meet when the global economy is still recovering from the financial crash. Seven years later the search for sustainable growth preoccupies governments around the world.
Where better than Shenzhen to examine the important next steps in building a sustainable growth path and to examine the implementation of structural reforms which will help China to develop advanced currency and capital markets building upon the already phenomenal achievements of her free trade zones?
For academic experts agree that the study of Shenzhen offers many insights into an array of processes and outcomes that have seen its dazzling economic performance.
As we look forward to the next stages in Shenzhen’s development through the free trade zone we should also look back at the lessons to be learnt. As one academic study has noted, the advances in Shenzhen came from a bold strategy tempered by cautious, tactical steps.
“Although an unprecedented move to introduce market practice and foreign investment to post reform China, it was implemented with the state’s unfettered ability to control the experiment in a confined environment and restrict any negative effects. This coupling of audacity and caution made it possible to replicate success and reduce risks” said the authors Xiang Ming Chen and Tomas Demedici.
As China’s reforming leader Deng Xiaoping said “the open policy will not be changed; if changed, it will only become more open”. This is a good model for the current phase of development of China’s free trade zones, beginning with the China Shanghai pilot free trade zone and its expansion, and continuing with the three new zones including Shenzhen Qianhai.
The process by which China’s free trade zones are established, the use of the technique of the negative list, and the careful evaluation of results provide a world class model for the benefits of the free trade zone concept.
In China the technique is being used to its full theoretical extent. Zones in many other parts of the world have been established and are thriving as parts of an economic development and foreign direct investment initiative.
Frequently however, they are static: in the sense that once they are established with a particular package of attributes and benefits these remain broadly unchanged. To a limited degree there is an international “compare and contrast” by which countries and zones learn from each other and new generations of zones learn from some of these strengths and weaknesses of their comparators around the world.
This approach has yielded massive economic benefits for many countries. Zones help economies to grow. This applies in many continents and in many circumstances. One of the encouraging aspects of the establishment of a World Free Zone Organisation in Dubai is that it hopes to build systematic learning systems through which free zones can benefit from a knowledge hub, an observatory, an economic outlook, an open university, a network and accredited certifications. These if successful will mark a profound development in this dynamic zone learning process globally, which is to be welcomed.
In China however the development of zones has been taken a step further to make explicit the incremental and experimental pilot nature of its zone program. When the pilot zone was established in Shanghai it was clear that its mission to liberalise trade, ease rules for investment, streamline its administration and restructure its financial system in line with international standards was a matter of national interest for China.
As Prime Minister Li-Keqiang reminded officials in Shanghai “the scope of the free trade zone is limited, but the potential for reform is limitless”.
So it is highly encouraging that recent academic research suggests that the very important financial innovation aspect of the Shanghai pilot zone has proved positive so far.
The Canadian expert Professor John Whalley and colleagues have examined what has happened to China’s capital flows since the start of the Shanghai pilot zone. Before it opened the inflow and outflow volumes were about $300400 billion per quarter. From the fourth quarter of 2013 overall capital outflows increased gradually to $620 billion with capital inflows a more rapid increase from $402 billion to $636 billion more than a 50% increase in three quarters.
Secondly the experts compared the price spread between CNY and CNH-the onshore and offshore exchange rate of the RMB. The academics conclude that generally speaking the price spread of CNY and CNH is now closer. Before the zone opened the price had reached 300 basis points since it opened the price spread seldom reached 100 basis points.
Let me quote from the authors’ conclusions. They say that “all these tests given consistent results that the impact of capital controls in China is less since the Shanghai zone was established. With the further successful practice of the zone and more pilot policies replicated in China as a whole, the impacts of China’s capital controls will diminish further.”
Looking forward Professor Walley and his colleagues consider “that it is likely that China will choose a floating exchange rate, free capital account and independent monetary policy, just as other developed economies do and the policy changes stemming from the Shanghai zone will have played a key role.”
I believe it is highly important to build on these achievements and use our discussions in the Forum to calibrate the next steps in financial services liberalisationfacilitating new developments in financial services provision while maintaining suitable prudential safeguards.
One of the most important aspects of this work is to prepare for the emergence of the RMB as a global reserve currency. I see this happening in the relatively near future. The fact that in January 2015 the RMB broke into the top five global payment currencies by value is a really encouraging development and a clear sign of the dramatic rise in the use of the currency.
Of course, eventually everyone hopes to see full convertibility under capital account and the end of the spilt between onshore and offshore markets.
It seems to me that this process will be begin in Asia and that we will see China, Hong Kong, Singapore, Taiwan and South Korea at the head of the list with the Eurozone and UK thereafter and I see no blockage to the eventual true globalisation of the currency building on this base.
In my opinion it is important to link the liberalisation of financial services closely to the development of the main economy. The United States and Europe have learned painfully since the financial crash that an unbalanced, inadequately- regulated financial services sector does little to help the real economy and can indeed pose a life-threatening challenge to it.
I notice that when Prime Minister Li Keqiang visited Shanghai he encouraged those in the zone to attract multinational companies to move their research and development, investment and sales departments to Shanghai. His message is a wise one. The close integration of banking and insurance services with trade and business development is of profound importance.
In the same way it is wise to examine post-crisis understanding of best practice in prudential regulation. Here China has a well-established and commendable approach to the use of reserve ratios to ensure that the banking sector does not become excessively leveraged and maintains adequate capital buffers. I would not expect to see this approach change as the sector liberalises.
By contrast the gradual opening up of greater flexibility in foreign ownership of financial services institutions within the zones seems a natural development, against the background of this stable regulatory regime.
Here there are global opportunities at a high policy level-to strengthen the compatibility of financial services regulatory regimes in the context of the global market. It would seem desirable to me, for example, for TTIP to have a financial services dimension, something which the United States is unfortunately not yet prepared to see. In bodies like IOSCO there are very encouraging developments where regulators are looking at the way in which they improve their ability to handle cross border activity.
And in Europe there is an encouraging development I would like to share with you-the proposal to create a Capital Markets Union which will help to shift from an excessive reliance on bank finance to a wider array of sources of investment capital for business.
Harnessing savings effectively whether through life insurance, pension funds, hedge funds and private equity has much to offer. I am sure that China’s experts will pay close attention to this promising opportunity to make effective use of savings and to capture long term capital for productive use.
Maximising China’s role in these global financial development discussions is of profound importance and it is understandable that there is some impatience in China with the pace of development in some international bodies.
To ensure that international financial flows are opened as speedily as possible and international regulatory norms are aligned as closely as possible is of fundamental importance to global economic growth.
In this context the development of the Asian Infrastructure Investment Bank is a welcome development in which the United Kingdom intends to play a full part, welcoming as it does cooperation on the development of infrastructure through investment, technology and expertise.
Harnessing the world’s talent to the renewal and development of essential infrastructure must be right at the heart of the world’s growth agenda and The Bank will be able to apply capital at the same time as some of the measures in broadening capital supply which I mentioned earlier, especially in the insurance sector, are developed. The new Bank will also be able to draw upon the prudent and cautious approaches which have characterised China’s financial liberalisation.
Ladies and gentlemen
As we can see the concept of the free trade zone has, having proved itself globally, now become on the critical path to the next stages of China’s economic liberalisation and reform. It is right that this bold initiative be accompanied by cautious implementation and evaluation.
I am absolutely confident that the foundations which are being laid in the new generation of China’s free trade zones will yield valuable and enduring changes which will make a major contribution to the opening up of her capital markets, the internationalisation of the RMB; and her further advances as a major and powerful player in the world economy and in its institutions.