New Strategic Research on China (Shanghai) Pilot Free Trade Zone

The following sections are included:

• Contents
• Preface

Economic globalization has been a hot topic ever since 1985 when it was first raised by Levi. As mentioned in World Economic Outlook 1997 (IMF, 1997), economic globalization refers to the growing integration of commodity, labor, and capital markets worldwide since the end of World War II. The setting up of the world communication system in the 1970s initiated the era of globalization — an era when all human societies are interdependent upon each other. Though there were a lot of cross-border economic activities before 1970s, interdependence and risk sharing had not been an obvious characteristic of the human society. With the development of information technology and the spread of Internet in the 1980s, globalization has become one of the most important characteristics of modern economy, and it now continuously exerts great influences on economic decisions. However, further globalization meets greater barriers since the subprime crisis in 2007. World economy was seriously harmed, and people began to contemplate on the impacts of globalization on countries, firms, and even themselves. More attention is paid to the future trend of globalization. This chapter will unfold with a detailed analysis of the characteristics, influences, and motivations of globalization. Based on this, we will then discuss about the future trend of globalization, and China's strategy of further opening up.

On September 29, 2013, Shanghai Pilot Free Trade Zone (FTZ) was set up formally. This is undoubtedly a new development in China and is becoming a very important topic both for academic research and for policy making. Based on the international experiences and especially that of the US as well as the domestic and international context where China is located, this chapter attempts to discuss how Shanghai Pilot FTZ will develop next.

China (Shanghai) Pilot Free Trade Zone (FTZ) has been established on September 29, 2013; however, discussion about its functional positioning and future development is still ongoing. Though with great many disputations, a consensus has been arrived between the government and scholars that Shanghai Pilot FTZ should further expand the development space for and enhance the quality of foreign trade. Currently, China is in the critical stage of structural transformation, making the topic of how to take advantage of Shanghai Pilot FTZ to upgrade international trade more important than any other time. Therefore, we make a preliminary analysis about the current situations and future development of international trade in China, which aims to provide intellectual support for coming up with effective policies in constructing Shanghai Pilot FTZ. The following section of this chapter contains clarification of five facts, coordination of four kinds of trade, exploitation of three modes as well as focus on two tasks.

The China (Shanghai) Pilot Free Trade Zone (CSPFTZ) is a very powerful development strategy featuring “opening-up driving reform in turn”. This had been initiated by the new government led by General Secretary Xi Jinping and Premier Li Keqiang, when China's economy was in a highly volatile and complicated domestic and international economic environment. In the recent years, we have become accustomed to the development model depending on “preferential policies” in tough times. In other words, we are used to asking the government to offer more ideas (industrial policy), launch more projects (financial policy), issue more capital (monetary policy) and grant more subsidies (trade policy) to maintain stable economic indicators including a growth target, employment level and tax surplus in the high cost context. However, are we all fully prepared to leverage the strong “system preferences” of the free trade zone demonstration by means of mechanism design of “negative list management” and pre-access equal national treatment to enable the “opening environment” in the Chinese market? This is to bring irreplaceable “win-win” results created by “market segmentation” in the international value chain to all participants in the free trade zone, which enjoy high-efficiency services and system supervision by the Chinese government. We are aware of the consequent serious sequelae, such as “over-capacity”, “nationalization of private enterprises”, “bribe and corruption”, “imbalance” and “blind optimism”. Moreover, we cannot be indifferent to the environmental problem, since more and more provinces and municipalities are engulfed by haze with high frequency nowadays. Are we fully prepared to give full play to the unique and due initiative of “enterprises of various types of ownership” on the stage where China's economy creates value? Are we fully prepared to take the advantage of entrepreneurial “spirit of innovation” to vitalize the Chinese market?…

The following sections are included:

• Introduction
• Shanghai PFTZ — A Boost for China's Financial Market
• Plan for Shanghai PFTZ's Opening Up and Innovation
• Policy Suggestions
• References

The following sections are included:

• Introduction
• Theoretical Analysis
• Capital Flow and the Mechanism of Interest Rate Decision
• The Problems in the Process of Interest Rate Liberalization
• Conclusions and Policy Recommendations
• References

According to 2011 BP Statistical Review of World Energy, China consumes 40% of metal, 20% of energy and 21% of agricultural products worldwide. However, always acting as a price taker because of an unfavorable position in the world commodity pricing system, China has to absorb huge economic losses by buying at a price that is too high, especially in energy and raw materials market. With the aim of safeguarding its economic interests, China must strive for the international pricing power…

The following sections are included:

• Introduction
• Status Quo and Problems in the Business Tax System for China's Financial Sector
• Necessity for Carrying Out the Pilot of “Replacing Business Tax with VAT” in the Financial Sector in PFTZ
• Analysis of the Typical Models of the VAT Systems for the Financial Sector
• Design of the Plan for the Pilot of “Replacing Business Tax with VAT” in the Financial Sector in PFTZ
• References

The following sections are included:

• Reinsurance: A Global Market for Insurance
• Literature Review: Internationalization of Reinsurance
• Bermuda: A Successful Reinsurance Center
• From Bermuda to Shanghai: Some Thoughts on Offshore Reinsurance Center Establishment in the PFTZ
• Conclusion
• References

Trust is the cornerstone of finance. However, in recent years, events of trust crisis in global finance sector occurred constantly. In 2000, Enron financial fraud was exposed and triggered a series of fraud and bankruptcy storm of America enterprise, resulting in the launch of Sarbanes–Oxley Act by U.S. Congress, the strictest act against corporate governance. The global financial crisis of 2007–2009, which led to a credit crunch, large scope of enterprise bankruptcy and serious unemployment, heavily struck the global financial system and economic system and seriously undermined public confidence in financial institutions and government supervision departments. “In the long run, this is more serious than any economic loss” (Zingale, 2011). In 2008, the Ponzi scheme of Bernard Madoff, the financier who had been making waves in Wall Street for decades, crashed and the moment when Madoff was arrested by American Federal Bureau of Investigation, it shocked the world…

Preferential and facilitative policies in free trade zones (FTZs) bring about not only conveniences for business transactions but also risks for money laundering (ML). It has been internationally acknowledged that the anti-money laundering (AML) supervision should be strengthened. The FTZs across the world prove to be extremely attractive to money launderers and terrorist financiers for their loose regulations due to the following reasons: (1) absence or inadequacy of AML and anti-terrorist financing (ATF) framework; (2) loose regulation and low transparency; (3) great difficulty in cross-system/department coordination; and (4) “natural” ML risks brought about by high risk goods. Trade-based money laundering (TBML) is one of the most frequently used ML methods by money launderers. The cases in this chapter show clearly the existence of ML/TF risks and vulnerabilities of FTZs. Besides, FTZs have also been used to predict crimes of money laundering (smuggling and drug trafficking) and the cleaning of relevant illegal gains. Based on its experience in international AML practice, Financial Action Task Force (FATF) has proposed risk indicators concerning money laundering in FTZs and six AML principles; and Caribbean Financial Action Task Force (CFATF) has made AML suggestions for FTZs from various aspects. In this context, AML supervision in Shanghai FTZ must be based on the existing AML laws and regulations and rely on relevant financial institutions; and advantages of the Shanghai headquarters in AML monitoring, analysis and supervision must be made full use of to construct an effective AML mechanism in China (Shanghai) FTZ. To this end, first, financial institutions should take the main responsibilities in AML actions in the FTZ; second, efforts should be made to develop a reporting system for suspicious transactions based on the principle of “reasonable doubt”; third, targeted strengthening of AML supervision in the FTZ should be implemented accordingly; fourth, a coordination mechanism should be built between AML competent authority and other departments in charge of customs, taxation, industry and trade; fifth, AML training and education need to be strengthened; sixth, more researches on TBML types and distinctive characteristics should be done and Internet technology and instruments should be developed and applied; and seventh, financial and trade data should be integrated to build a secondary AML monitoring analysis system in PBC Shanghai Head Office (complementing the monitoring center in the PBC Beijing Head Office).

The following sections is included:

• Index