Since Shanghai is China's financial centre and there is little room for local FTZs to deviate from the national regulatory framework that governs banking, securities and insurance, Shanghai's FTZ will continue to lead the financial liberalisation and define the maximum level of capital account openness.
The new FTZs will help expand the scale of RMB internationalisation and cross-border transactions. The increasing cross-border flows will promote the convergence of onshore and the offshore RMB markets.
China's policy reforms often take a gradual approach, testing new ideas or initiatives via a pilot program in selected sites.
While this approach may work well for traditional industries such as trade and manufacturing, its application to financial services has not been straightforward because capital flows are not easily tractable.
Unlike other reforms which cover physical goods and people's flows, capital-account liberalisation requires careful control. We reiterate our view that policy sequencing is required for capital-account liberalisation in order to contain and mitigate financial risks.
To achieve this, policymakers need to hasten domestic financial-sector reform to support the FTZ initiative.
Data source: Source: China’s State Council, ANZ Research.