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Beijing underwhelms with Shanghai tax experiment

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Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017.

HONG KONG, July 16 (Reuters Breakingviews) - Shanghai is trying to become the Ireland of China. The finance hub may soon offer tax breaks to lure companies in sectors ranging from chips, life sciences, artificial intelligence and aviation to set up shop in its free trade zone, which was created to much fanfare in 2013 but has disappointed since. The country’s cabinet body said on Thursday it would explore cutting corporate levies to 15% for five years for companies in strategic industries that register in the zone, down from 25%. The document also repeats earlier promises about transforming the area into a centre for offshore yuan trading, a consumption-based service economy, and so on.

Cynicism is advised. The Shanghai FTZ was launched to massive overhype about how it would liberalise the capital account, but largely delivered reductions to red tape. The mooted tax breaks will attract companies, but that will mostly benefit commercial landlords in the wealthy Pudong district at the expense of other parts of the country. As for further offshore yuan reforms, they might cannibalise business from rival financial hub Hong Kong if they are profound. But that’s unlikely too. China’s track record shows most of its free trade zone experiments are shallow. (by Pete Sweeney)

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Editing by Robyn Mak and Sharon Lam

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