ASIA BRIEFING: THEY SAY IN China that change always comes from the south, and nowhere is this truer than in Shenzhen, that bastion of socialism with Chinese characteristics which has expanded in the past 30 years from a fishing village to a megalopolis with a population of 10 million.
So it was not surprising that China’s national development and reform commission said last week that Qianhai, part of the Shenzhen economic zone, which lies just across the border from Hong Kong, will be a testing ground for freer yuan usage and capital account convertibility.
The “mini-Hong Kong” project is part of plans to kickstart growth in the area, and ultimately to develop a financial market to rival London or New York, by combining the strengths of Hong Kong and Shenzhen.
“Qianhai should pioneer capital account convertibility,” Zhang Xiaoqiang, deputy minister in charge of the national development and reform commission, told a news conference last week.
China’s state council, or cabinet, has agreed to build a pilot zone in Qianhai and eight specific measures will be adopted to prop up the plan. These include encouraging companies to sell yuan-denominated bonds in Hong Kong and to experiment with cross-border loans in the Chinese currency.
Qianhai is a 15sq km special zone on the west side of Shenzhen, in Guangdong province, that officials are seeking to develop into a financial services hub.
China has often pledged that the yuan will achieve “full convertibility” by 2015, but working out how this will happen has always been a challenge.
The Qianhai project was first introduced in 2010, and its laws are based on Hong Kong-style administrative structures.
The plans don’t lack for ambition. There are 21 firms registered and 170 projects ready to start in the zone, Xu Qin, mayor of Shenzhen, said. The government aims for 150 billion yuan (€18.8 billion) worth of gross domestic product by 2020 in Qianhai.
The government will also ease entry rules for Hong Kong companies, and offer 15 per cent corporate income tax to some firms, encouraging the city’s services sector to operate in Qianhai, Zhang said.
Part of the plan is also to smooth over the differences between Hong Kong and Shenzhen. For example, China wants to lure talent from Hong Kong to work in Qianhai, so it will offer income tax concessions, and also allow companies from Hong Kong to build international schools and hospitals without the need to seek a partner. Telcos and other logistics firms are encouraged to start joint ventures in Qianhai, Zhang said.
