State Council gives go-ahead to expand bonded area in the mainland's largest city, undermining efforts by Hong Kong and Taiwan to become the vital gateways for foreign capital into mainland markets.

Beijing (AsiaNews) - China's state council (cabinet) gave the green light to the country's first free-trade zone. Home to mainland China's main stock exchange, Shanghai will now have a 'free port' to rival Hong Kong and Taiwan in attracting foreign investment. Like a handful of Chinese cities (Beijing, Guangzhou and Hong Kong), China's largest city will not require a visa from businessmen who stay less than two days.

In a press release, the State Council said after a meeting chaired by Prime Minister Li Keqiang that the free-trade zone would be a snapshot of an "upgraded Chinese economy".

Economists said the plan, aimed at eventually creating a "mini-Hong Kong" in the mainland's commercial hub, would benefit Shanghai as the city sought new engines to revive its slowing economic growth.

Initially, Shanghai will upgrade and expand its existing four bonded areas, set up under Deng Xiaoping to free China from Maoist economics. Here, goods will be imported, processed and re-exported without the intervention of customs authorities.

At a later stage, the four areas could form a single region to benefit from further financial liberalisation.

Shanghai is the only major Chinese province or municipality to grow at a slower pace since 2008. In part, this might be due to political enmity by the "Fourth Generation", i.e. Hu Jintao and Wen Jiabao, who took over from Jiang Zemin, a major backer of the city.

The city's ambition to become a global financial centre by 2020 remained a dream for many years, one that now might become reality but at the expense of Hong Kong and Taiwan.

The former British crown colony has always been considered "the" entry point for foreign capital into Chinese markets. Its stock exchange, greater freedom and the rule of law effectively made it one of the best places in the world to do business.

Taiwan just signed a free trade agreement with mainland China to attract investors through lower taxes, "convinced" that it could be the pathway to the mainland.

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