China Market Watch: Seven New FTZs Launched, Financial Markets to be Further Opened

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China Market Watch bannerChina launches seven new free trade zones

China’s seven new free trade zones (FTZs) officially came into effect on April 1. The new FTZs were first announced in August 2016, and are located in Chongqing, Henan, Hubei, Liaoning, Shaanxi, Sichuan, and Zhejiang.

The State Council issued guidelines on March 31 regarding the new FTZs, offering new details about how the FTZs were chosen and what steps they should take to develop.

Cities that already have export-reliant economies and state-level industrial parks were selected to establish FTZs, such as Hubei province’s Wuhan, Xiangyang, and Yichang. The FTZs will concentrate on the strengths of each city’s local economy, like the logistics sector in Zhengzhou and e-commerce in Ningbo-Zhoushan.

The new FTZs, which are concentrated around the developed areas of the Bohai Economic Rim, the Pearl River Delta, and the Yangtze River Delta, represent the third and largest round of FTZ openings. Shanghai was the first city in China to open an FTZ in 2013, followed by Fujian, Guangdong, and Tianjin in 2014.

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Financial markets to be further opened to foreign investment

China’s central bank, the People’s Bank of China (PBOC), has pledged to further open the country’s financial markets to foreign investors this year. The PBOC said in a statement that it will further improve the RMB’s role for investment, financial transactions, and as a reserve currency, and promote the opening of the domestic market.

Some of these efforts can already be detected in China’s bonds market. In February, the government allowed foreign investors to use derivatives to hedge risk on investments in the interbank bond market.

Premier Li Keqiang previously said that authorities were preparing a trial of a bond connect program between mainland China and Hong Kong.

In a press conference on April 1 about deepening the reform and opening of the Shanghai FTZ, authorities also remarked that allowing FIEs to issue bonds would be the first step in opening the domestic financial market.

China’s economy off to a strong start in Q1 2017

China’s manufacturing sector expanded at its fastest pace in nearly five years in March. The National Bureau of Statistics (NBS) announced that the country’s manufacturing purchasing managers’ index (PMI) rose to 51.8, 0.2 points higher than February’s 51.6.

As a reading above 50 points indicates expansion, the boom signals a stabilizing economy.

The sub-index for high-tech manufacturing continued its rapid expansion, topping 54.2 in March. Certain traditional manufacturing industries’ production and management conditions also continued to recover.

Meanwhile, the services sector also picked up in March, reaching 55.1, an increase from the previous month’s 54.2, and the highest record in nearly three years. Emerging industries, including internet and software information technology, finance, and insurance, were among the fastest growing service sectors, while road transport, catering, and property witnessed contractions.

Analysts worry that the recent revival in China’s manufacturing could be jeopardized by a potential trade war with the new US administration. Chinese President Xi Jinping and US President Donald Trump will meet on April 6-7 in Florida for a highly anticipated summit, where they will discuss trade and other bilateral issues.


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