The Executive Yuan recently notified the legislature that the draft special act governing proposed free economic pilot zones is to be prioritized once again.
In all of its official announcements on the zones, the government has said that the Shanghai free-trade zone began operations in September last year, and if the cross-strait service-trade agreement does not get passed soon, the nation would fall further behind in competitiveness.
However, Taiwan’s proposed free-trade zones and the one in Shanghai are very different, and not just in terms of background, planning and goals. In addition, the Shanghai zone has had little impact, even one year into operations.
If the government continues to hold the Shanghai zone up as a model of such zones, it is just showing how little it knows about the Shanghai operation.
The Shanghai zone, a pet project of Chinese Premier Li Keqiang (李克強), is centered in the city’s Waigaoqiao free-trade zone, complemented by the Pudong Airport comprehensive free-trade zone and the Yangshan free-trade port area. A series of systemic reforms to governing functions, finance system, services and overseas investment were involved in the Shanghai zone’s establishment.
When the policy was first implemented, there were high expectations for it, naturally fueled by media hype. In addition to the increase in property prices in nearby areas, where increases of two or three-fold were seen, the price of Waigaoqiao Free Trade Zone Development Co shares — the company responsible for developing commercial real estate in the zone — rocketed. Factory rental, logistics and hotel operators also reaped great benefits. When the Chinese State Council approved the pilot free-trade zone policy in the second half of August last year, Waigaoqiao Free Trade Zone Development’s stock was worth 13.5 yuan per share. One month later, when the stock officially began to be traded, it had soared to 64 yuan.
However, the China Europe International Business School Lujiazui Institute of International Finance put it well when it said that, while reform is welcome, it is a complex game involving different interests and must be assessed in an objective manner.
The impact of the policy over the past year has fallen short of expectations. Progress in many areas, from the relaxation of capital restrictions to the liberalization of interest rates, for example, have all been lackluster. Investor interest has started to wane, and there is increasing pressure to sell Waigaoqiao Free Trade Zone Development stock, whose price had fallen to 28 yuan per share as of Sept. 2. The share price can be seen as a barometer for investors’ confidence in the free-trade zones and reflects the end of the honeymoon period as well as observers’ expectations that the prospects of the Shanghai zone have declined.
The halo around the free-trade zone policy has been tarnished. It will take time to see whether the policy ends up a success or a failure.
In Taiwan, the idea behind the proposed free economic pilot zones is poorly conceived. The truth is that the zones are unlikely to drive economic improvement and would almost certainly fail to inject any new life into the nation’s moribund economy.
It is quackery at its worst, and for the government to try to use this dubious concoction to cure the nation’s economic malaise, to shove it down the public’s throat and even suggest that Taiwan’s proposed free-trade zones are in any way linked to the one in Shanghai really betrays a failure to understand the situation.
Lee Ying-yuan is a Democratic Progressive Party legislator.
Translated by Paul Cooper
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