Vaporware 3.0? Shanghai Free Trade Zone

In technology-related industries, the term "vaporware" is used for hardware or software that is all hype and no substance. Either the announced products do not even materialize, or if they do, their features are far less impressive than promised. For our purposes, consider them as "vaporware 1.0" and "vaporware 2.0" respectively.

Today, let us consider yet another overhyped entity that is somewhat larger in scale. Try the largest city in the world's largest country--Shanghai, People's Republic of China--boasting a population of an astonishing 23 million. Just yesterday, a 29 square mile chunk of it formally became the Shanghai Free Trade Zone, but no one is entirely sure what this means. Hong Kong billionaire Li Ka-Shing said it may in time overtake Hong Kong as its economic openness--in banking and other services as well as with a more freely traded yuan--would attract more FDI from elsewhere. Yet, for something so highly touted, how Shanghai will achieve this "world capital" status remain unclear even now after its official launch date:

Well, that’s the plan, at least. The government has so far been clear in its intention to introduce financial reforms in the zone, but not as clear on how they will actually take place. The details on what can and cannot be done there, and when certain reforms will be implemented, remain sketchy. The reforms planned for this Shanghai zone will be much more difficult than those that took place in the trade- and manufacturing-focused zones of yesteryear. Factories, and the shirts, shoes and TV sets they make, are easy to monitor and control; not so financial flows, which could surge in and out of the zone with destabilizing speed. Financial firms could also take advantage of different interest rates and currency values inside and outside the zone to turn a quick buck.

In other words, the Chinese authorities need to ensure that arbitrage opportunities are limited. So the rules are not yet finalized, but there was a grand opening, right? Er, no--it was the softest of soft launches, actually:

Officials at the launch of the zone on Sunday promised a far more open and streamlined environment for foreign firms to do business in China, along with the relaxation of policies for a raft of service sectors, including banking.

However, the absence of senior Beijing leaders at the launch and few specifics on bolder reforms such as a more convertible yuan and liberalised interest rates left some disappointed, while officials stressed the zone remains a work in progress.

Vagueness and a lack of Beijing bigwigs does not make for a promising start. How about promises of greater Internet freedom, then? Well...they turned out to be unsubstantiated rumors after all that you could go tweeting and Facebooking to your heart's content:

The People's Daily, the official mouthpiece of China's ruling Communist Party, denied a recent report in the South China Morning Post saying that people would be allowed to access Facebook, Twitter, the New York Times and other politically sensitive, banned websites within a groundbreaking free trade zone set to launch this month in the country's financial hub, Shanghai. "Today (our) journalists obtained the information from a very powerful channel that these reports are wrong," said the People's Daily.

Let us consider what we have learned so far, then. Unspecified promises for greater economic liberalization at a later date, no bigwig apparatchiks on hand to lend support, and no new freedoms of expression. It doesn't sound so promising to me. However, us gweilo (foreign devils) may be thoroughly mistaken as Chinese themselves are speculating by buying up land there at a fearsome clip:

The property market near the soon-to-be free trade zone is also on a roll. Housing prices have soared 20-30 per cent in one month in the area just outside the Waigaoqiao gates, according to Shanghai Yuexin Real Estate “It seems crazy to me. Nobody knows the exact situation about the zone and they didn’t even take a look at the homes before buying them,” said Xi Xinlei, a Shanghai Yuexin agent.

What is the relevant principle here: A sucker is born every minute, or are some people smarter than you and me? If it's the former, perhaps PC World will in the near future consider the Shanghai Free Trade Zone as the top vaporware product of all time. Stay tuned; some folks have already made fairly large bets that Shanghai is entering a new golden age.