¡¡¡¡TIANJIN A GUINEA PIG FOR BOLD NEW EXPERIMENTS

    Back in the 1980s, China set up a group of special economic zones (SEZs) including the Shenzhen, Zhuhai, Shantou and Xiamen SEZs complete with preferential taxation and financial policies to lure foreign investors. These SEZs were China's first windows of economic reform.

    In the 1990s the spectacular Pudong New District in Shanghai --with its towering buildings -- rose to international prominence.

    In 2006, the country began a bold new experiment in the Binhai New Area of Tianjin, just 120 kilometers to the southeast of Beijing.

    The State Administration of Foreign Exchange (SAFE) has authorized a test of foreign exchange reform in the Binhai New Area, said city mayor Dai Xianglong.

    "We will loosen controls over foreign exchange in capital accounts, and explore ways of making Renminbi capital accounts convertible in certain areas and up to a certain amount," said Dai, a former governor of the People's Bank of China, or central bank.

    "The government will improve the management of foreign exchange in current accounts, and gradually allow residents and enterprises to buy and sell foreign exchange on a voluntary basis," Dai said.

    Experts believe that the new policies could herald a revolution in the country's foreign exchange regime. They speculated that China might accelerate efforts to loosen foreign exchange controls and promote free Renminbi convertibility.

    Under the new policies, banks will be able to develop offshore finance facilities in Binhai, which will facilitate exchanges between foreign lenders, borrowers and investors.

    The reforms mean that there will be no limit on the amount of foreign exchange that can be transferred between their headquarters and branches. The minimum threshold for shares held by individuals in foreign listed companies will also be lowered. Experts believe the measures will help ease pressure generated by China's massive 1 trillion U.S. dollar foreign exchange reserves, the largest in the world.

    "With foreign exchange reserves swelling and pressure mounting on the yuan, China will loosen controls on foreign exchange and promote free conversion to the Renminbi," said Dai Jinping, director of the international financial research center at Tianjin-based Nankai University.

    "To avoid risk, China must reform its foreign exchange regime step by step," Dai said. "Tianjin will be the guinea pig for the country's financial reforms."

    The Binhai New Area, situated 120 kilometers to the southeast of Beijing and covering an area of 2,270 sq km, generated 160 billion yuan in gross domestic product in 2005.

    China is endeavoring to turn the area into its third economic engine following Shenzhen and Shanghai's Pudong, the economic powerhouses of the country's southern and eastern coastal areas.

    Three out of every ten Motorola mobile phones are produced in the Binhai New Area where the company has a huge plant.

    Besides the financial reforms, the Binhai New Area will carry out reforms in government administration, deepen company reforms and in the fields of science and technology, land use and foreign-related businesses.

    Pi Qiansheng, head of the management committee of Binhai New Area, is confident about its future. "Now that Binhai New Area is a key part of China's national development strategy, more and more foreign enterprises and banks will come here," Pi said.