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Shanghai free trade will spur China reforms: Steinbock

A laborer working on a large sign reading China (Shanghai) Pilot Free Trade Zone on a gate of the Shanghai Waigaoqiao Free Trade Zone.
STR | AFP | Getty Images

In the early 1980s, China introduced an era of reforms and opening up. The next stage began with Sunday's takeoff of Shanghai's free trade zone. If it proves to be a success, it could accelerate reforms across China.

Change was initiated already in March 2009, when the State Council approved Shanghai's plans to forge itself into one of the world's leading financial, trade and shipping centers by 2020.

Only a month later, Shanghai, along with half a dozen other major cities, also got the nod from the central government to use the renminbi in overseas trade settlement.

At the time, I wrote an analytic brief on the history, present and anticipated future of Shanghai's reforms to my Chinese think tank. Nonetheless, the topic was hardly noticed in Asia's financial hubs of Hong Kong and Singapore. Internationally, it was ignored as empty rhetoric.

In the 1920s Shanghai still dominated the Far East's finance and trade. As the "Pearl of the Orient" was crushed by colonialism, Japan's invasion, World War II and the Chinese civil war, Hong Kong began to industrialize and prosper. In Shanghai, Chinese reforms began only in the 1990s. But when the mainland's growth accelerated in the 2000s, Hong Kong still served as China's financial intermediary.

Now Shanghai is at the eve of a new era—and so is China.