By Kelvin Chan and Louise Watt
BEIJING -- Operations formally kicked off Sunday at a new free trade zone in Shanghai that China's government has billed as a major step for financial reforms and economic experimentation, but significant changes look to be years away.
State media reported that a first batch of 25 Chinese and foreign companies were granted licenses to register in the zone.
Eleven financial institutions, including Citibank (C) and Singapore's DBS, were also cleared to operate in the zone.The China Pilot Free Trade Zone is a nearly 11-square-mile district that covers four existing special trade zones in Pudong district, including one at the airport. China's State Council formally announced rules for the new free trade zone on Friday. They outline goals to upgrade financial services, promote trade and improve governance as well as measures to encourage foreign investment in 18 sectors in the country's tightly regulated service industry. There are also plans to experiment with the convertibility of China's tightly controlled currency, the yuan, on the capital account and let market forces rather than regulators set interest rates. The zone is expected to serve as a laboratory for such financial experiments before they are rolled out elsewhere in China. No timeline was given for any changes, but rules in the zone will be introduced over a three-year period, according to the announcement. At a ceremony marking its opening, Commerce Minister Gao Hucheng said the government hoped the zone would act as "an experimental field to conduct economic reform" and promote economic development nationwide. The Shanghai zone has been touted as the most important attempt at economic reform since the establishment of the country's first special economic zone in 1980 in Shenzhen, next door to Hong Kong. That zone allowed in foreign investment aimed at harnessing cheap labor to build a manufacturing industry that became a driving force in helping China eventually become the world's second-biggest economy. The government has pledged to open up 18 service industry sectors to foreign investment, including shipping, law and engineering. Foreign-owned performing arts agencies and medical institutions will be allowed.
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