EDITOR’S note:

THIS year marks the 25th anniversary of Pudong New Area’s takeoff since opening-up of the area as an economic zone started in 1990. Pudong, literally the east bank of Huangpu River, has realized a drastic change from an impoverished swampy farmland into a prosperous modern urban and economic area. Sea changes are happening as Pudong is always at the forefront of reform and opening-up. Shanghai Daily is running a series of stories to record the area’s 25 years of development and new growth opportunities ahead.

AFTER 25 years as a pathfinder of China’s strategy to reform and open up, the Pudong New Area is about to embark on a new round of development following the construction of a pilot free trade zone in the area.

Pudong, literally the east bank of Huangpu River, has realized a drastic change from an impoverished swampy farmland into a prosperous modern urban area packed with skyscrapers and multinational company headquarters since the opening-up of the area as an economic zone in 1990.

In 2005, Pudong got a further boost after China approved its role as the country’s first pilot area for comprehensive reforms to transform government functions, change economic growth model and narrow the socio-economic gap between urban and rural areas.

Pudong achieved a 117-fold growth in gross domestic product from 6 billion yuan (US$969 million) in 1990 to 711 billion yuan in 2014 while fiscal revenue increased 289-fold from 1 billion yuan to 290 billion yuan during the same period. It’s now home to 229 multinational headquarters, 308 companies named in the Fortune Global 500 and 143 headquarters of local companies.

“Pudong’s overall strength has improved significantly over the past 25 years. With a strong capability in resource allocation, it has cultivated an internationally competitive industrial system,” Shen Xiaoming, the Party secretary of Pudong New Area, told a conference last Friday.

Biggest opportunity

“The building of Shanghai pilot free trade zone will be the biggest opportunity for Pudong’s next decade,” Shen said.

China has approved a plan to expand the geographic extent of China (Shanghai) Pilot Free Trade Zone to cover more areas in Pudong as part of an effort to deepen reforms and opening-up.

After the expansion, Shanghai free trade zone includes Lujiazui Finance and Trade Zone, Zhangjiang High-Tech Park and Jinqiao Export Processing Zone, increasing its area more than four-fold to 120.27 square kilometers.

“The expansion will allow Shanghai to give full play to Pudong’s advantage in innovation and higher degree of opening-up, enabling the Shanghai zone to test foreign investment management reform, service sector opening and reform of government administration system in a broader scope,” Xiao Lin, director of the Shanghai Development Research Center, a think tank serving the Shanghai city government, said at a forum at Shanghai University of Finance and Economics earlier this month.

The Shanghai FTZ also includes Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone.

Since its establishment in 2013 as a testing ground for some of China’s more aggressive reforms, the Shanghai zone has introduced a raft of policies to reduce red tape, simplify customs procedures, limit government interference, widen market access across service sectors and deregulate financial markets.

“These special zones with distinctive features are full of potential and will provide a platform for the free trade zone’s future development,” Xiao said.

Lujiazui, the only finance and trade zone among the state-level development zones, is set to be the core of a prospective international financial hub in Shanghai. Covering 31.78 square kilometers, it has a concentration of financial institutions as well as sound market components and capital distribution functions.

Financial liberalization

The inclusion of Lujiazui is expected to push forward financial liberalization, one of the top priorities of the FTZ’s reform agenda aiming to boost yuan convertibility under the capital account, cross-border use of the yuan and liberalizing interest rates.

“With abundant financial resources, multi-layer financial markets and an integrated management system and by integrating the construction of a world-level financial hub with the financial innovations provided by the free trade zone trial, Lujiazui will play a key role in promoting yuan internationalization,” said Jian Danian, deputy head of Pudong and deputy director of the FTZ’s administration.

Zhangjiang park’s inclusion in the free trade zone will help Shanghai’s goal to build an international scientific and technological innovation center, industry insiders said.

Located in northern Pudong, Zhangjiang has attracted 685 high-technology enterprises and became a vibrant cluster of integrated circuit, bio-pharmaceuticals, software and cultural industries.

“To build an innovation center brings not only resources but also needs to enhance liquidity of the resources,” said Wang Weigang, deputy director of the management committee of the Zhangjiang High-Tech Park.

“The free trade zone trial will create a low-barrier environment in Zhangjiang that will allow freer flows of scientific and technological innovation resources such as knowledge, information, technologies, talents and capital,” said Wang.

Jinqiao zone, a cluster of advanced manufacturing industry and producer services, is poised to become an icon of China’s modern manufacturing through the upcoming FTZ reform.

“We will grab the opportunity of the free trade zone construction to facilitate investment in manufacturing, boost trade of services and cultivate incubators for entrepreneurship and innovation,” said Shen Neng, deputy director of Jinqiao’s management committee.

The zone has formed automobile, electronic information, modern household appliance, food processing and bio-pharmaceutical clusters. In the future, it will focus on developing emerging industries such as information and communication technology as well as cultural industry.

SIGNIFICANT events of the FTZ

APRIL 20 China unveils a plan to deepen reform and opening-up in the zone, setting out 25 guidelines for Shanghai to build the zone with the highest degree of openness, full convertibility of currencies, a highly efficient regulatory system and a normal legal environment.

March 24 China approves the FTZ to be expanded to include the Lujiazui financial area, Jinqiao development zone and Zhangjiang High-Tech Park, increasing its area more than fourfold to 120.27 square kilometers.

February 12 China’s central bank allows companies and financial institutions in the zone to borrow from overseas in both Chinese and foreign currencies with greater flexibility.

January 21 China approves foreign banks to open free trade accounts.

September 18 Shanghai Gold Exchange launches its international gold trading board in the zone.

June 27 China’s central bank deregulates interest rates on smaller foreign-currency deposits across Shanghai, the first reform policy in the zone to be extended beyond the zone.

March 1 China’s central bank removes interest rate ceilings on smaller foreign-currency deposits in the zone.

February 21 The Shanghai headquarters of the People’s Bank of China releases operational details for cross-border use of yuan.

February 18 Cross-border yuan payment services are initiated in the zone.

December 28 The zone launches a cross-border e-commerce platform at kuajingtong.com.

November 22 The Shanghai Futures Exchange unveils its energy trading platform that will be used for proposed trading of crude oil futures.

September 30 Shanghai releases the first version of its “negative list,” specifying which commercial activities are off-limits to foreign investors in the FTZ.

September 29 China inaugurates the China (Shanghai) Pilot Free Trade Zone.

August 22 China gives the green light to set up a free trade zone in Shanghai.