Shanghai FTZ has inbuilt advantages

After the US lifted its embargo following former president Richard Nixon's visit to Beijing in 1972, China began learning from Western examples. The establishment of a series of special economic zones was part of the lesson China learned, which has now prompted it to set up the Shanghai free trade zone (FTZ).

The FTZ demonstrates China's determination to build Shanghai into a global economic hub. The FTZ is aimed at helping develop industries by promoting free and convenient trade, and acting as a transit point for trade. The zone is also expected to liberalize the service sector, including financial innovations like offshore financial services. In short, the Shanghai FTZ is expected to set an example for other Chinese cities on how to facilitate free, unfettered trade.

An enterprise representative shows the business registration he just received at the service lobby of Shanghai Free Trade Zone (FTZ) in Shanghai, east China, Oct 14, 2013. The newly-launched Shanghai pilot free trade zone (FTZ) started offering enterprise registration service recently. [Photo/Xinhua]

But people have to realize that the FTZ is not aimed at yielding short-term gains. This is important because after Premier Li Keqiang talked about the dividends of reform, many investors, especially in the financial and realty sectors, started speculating about making easy money thanks to the changes in regulations. Their dream of making easy money was even echoed by some media outlets, which construed that capital programs would be thrown open and the yuan would float freely in the FTZ.

Anybody with even a basic knowledge of economics would know how ridiculous these speculations are. Free flow and exchange of the yuan is impossible unless the Shanghai FTZ has its own currency, which China will never consider because it's akin to the country committing economic suicide.

Instead of changing rules frequently, as many speculators have dreamt, the FTZ should concentrate on building a firm base for the real economy and offer entrepreneurs a stable, promising environment. The biggest advantage of the Shanghai FTZ, as well as the key to its success, lies in transit trade of goods.