IF PRESS reports are to be believed, Shanghai's dreams of surpassing Hong Kong to become the region's leading financial centre may have a powerful supporter in Beijing. According to Xinhua, the official government newswire, the ruling State Council has approved plans championed by Li Keqiang, the newish premier, for an ambitious free-trade zone in the mainland's second city. The idea has set the country's press and local wags alight with speculation about how far such an idea could go. Take the conservative view, and the project is a useful albeit limited boost to trade and regional integration. On this view, the new free-trade zone would integrate modern transportation and communications infrastructure with a tax-free framework for domestic and foreign firms. This would help boost China's efforts to become a pan-Asian supply chain hub. Allowing the free movement and warehousing of metals, for example, could also allow Shanghai to develop world-leading commodities exchanges.

But if you listen to the plan's more enthusiastic boosters, this idea represents nothing less than a crucible for all of the liberal economic reforms that the new administration hopes will eventually take off across the country. Those dreaming of faster financial liberalisation say that the new zone will allow foreign banks, currently inhibited by red tape from achieving scale or much profitability, to expand rapidly and easily. Domestic banks, currently restricted in their overseas activities, are supposedly going to be allowed to experiment in the new zone with products and services currently banned at home. Technology enthusiasts are claiming that the long-standing ban on video game consoles will be lifted—if consoles are themselves manufactured in the Shanghai free-trade zone.

What to make of all this? It is not yet clear what the government really intends to do. However, one problem that officials will confront is that of leakage: since innovations are sure to produce price differences inside and outside the zone, how exactly will they keep enterprising locals from finding ways to arbitrage the difference? The more ambitious the scheme, the more likely it is to fail; the more conservative it is, the less relevant it becomes. That is why the only serious and sustainable way forward for China is to liberalise the entire economy, not just a tiny sliver of it.

(Picture credit: Wikimedia Commons)