FTZ a test ground for reform

The free trade zone (FTZ) set up in Shanghai is expected to be a testing ground for new policies, with focus on liberalizing China's service sector, financial services in particular. Successful innovations will ultimately be rolled out nationwide, but probably only after many years. As such, this is an experiment worth watching but probably not the game-changer some believe it to be.

The imminent establishment of FTZ, covering 29 square kilometers in eastern Shanghai, has been welcomed as an important step forward in China's economic liberalization. The details of how the FTZ to operate remain sketchy and many details will probably remain so for some time. But the overall plan and general rules, which have been released, as well as comments in the official media have given a broad outline of what to expect.

The FTZ amalgamates four existing trade areas in Shanghai that are home to many trading companies. The key new development will be wide-ranging liberalization of the zone's service sector, including opening it up to foreign companies. This focus on liberalization of services marks a key difference with the special economic zones (SEZs) set up in the 1980s, which targeted manufacturing.