Yuan Convertibility, Liberal Rates to Be Put on Trial at FTZ

China officially unveiled a detailed plan for the pilot free trade zone in Shanghai on Friday, a trial run for groundbreaking changes to free up cross-border commodity and capital flows.

China will allow free yuan convertibility under the capital account, interest rates liberalization and cross-border use of yuan in its first free trade zone on a trial basis as long as the risk is controlled, according to a statement posted on the website of the central government.

The government said it will also establish a suitable foreign exchange management system for the zone to facilitate trade and investment.

The FTZ will allow the market to decide prices of financial institutions’ assets, a process known as the securitization of those assets, as policy-makers hope to catalyze further reforms in the world’s second-largest economy through such an experiment.

“The zone is part of the national strategy to accelerate transformation of government function, explore innovation of management mechanism, and promote trade and investment facilitation,” the statement said. “The zone should function as a test field for reforms and an open economy that would provide experience that can be duplicated and promoted nationwide.”

The free trade zone, to be launched tomorrow, integrates four existing bonded zones — Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone.