3 biggest impacts of Shanghai Free Trade Zone on Singapore

Are Singaporean traders in danger?

According to OCBC Treasury Research, the establishment of Shanghai Free Trade Zone marks another important step for Shanghai to fulfill its ambition to become a major international financial, trading and shipping centre by 2020. Hong Kong is likely to face long term competition from Shanghai as a financial, trading and shipping hub.

However, analyst thinks the impact on Singapore also cannot be ignored, which comes mainly from three aspects in its view.

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First, The London Metal Exchange (LME) is likely to be allowed to establish future delivery warehouses in Shanghai FTZ.

Currently Chinese commodity buyers have to receive the metals from the nearest locations such as Singapore and Busan. The move, which will reduce the transaction costs, is likely to challenge the commodity business in Singapore.

Second, the financial reform in the FTZ is likely to remove a key barrier for MNCs to conduct their treasury business in Shanghai.

The capital account liberalization may attract more MNCs to set up their regional treasury centre in additional to administration centre in Shanghai.

However, given Shanghai has no plan to offer preferential tax to corporate and individual in the near term, the imminent challenge to Singapore as a regional treasury centre could still be limited.

Third, the establishment of Shanghai FTZ may help speed up Shanghai’s efforts to become an international shipping centre.

Although Shanghai port has taken over Singapore port to become the world’s busiest container port since 2010, Shanghai is still lagging behind Singapore and Hong Kong due to weak legal structure and less developed service standard.

The pilot program in Shanghai FTZ is designed to enhance service standard including the legal service.