The State Council’s decision to approve the expansion of the China (Shanghai) Pilot Free Trade Zone (FTZ)on Dec 28, 2014 — by incorporating Lujiazui Financial Area, Jinqiao Export Processing Zone, and Zhangjiang High Tech Park — can be seen as a sign of steady progress achieved by the Zone. The FTZ now has a greater capacity for reform trials and has the capability to speed up the comprehensive development of the space in the long-term.

Now into its second year of operations, the FTZ will no doubt continue to cover new ground. In the past year, the reforms introduced have allowed the Zone to meet the global standard of economic and trade cooperation, gain a breakthrough on certain unreasonable restrictions and establish new economic related regulations.

Reforms in the FTZ have been mainly geared toward four areas — the transformation of government functions, simplified foreign trade supervision procedures and innovative trade methods, opening-up of the financial system, and standardized regulations.

The FTZ has positively transformed government functions by releasing an administrative rights list and administrative responsibilities list, while the supervision method has also been changed from the prior approval system to a more efficient post-filing system. The launch of these two administrative lists have helped prevent possible rent-seeking and over-intervention of the government in the market.

The dozens of measures that have been implemented by Shanghai Customs to simplify the customs clearance process and improve efficiency in the Zone has been one of the most notable achievements by the FTZ, which is certainly growing in stature in the international trade scene. Since the launch of the new fast track policy, it now only takes six hours for imported fresh fruits to pass the customs clearance checks before entering the domestic market.

The pilot project within the FTZ to open up the service trade has also been another commendable effort. With the arrivals of German healthcare operator and medical product provider Artemed Group and e-commerce giant Amazon.com Inc in the Zone, local service-oriented enterprises now have world standard role models to learn from. This can also greatly help domestic companies to adapt to future competition.

Financial reform has obviously been the top priority in the FTZ, seeing how it has implemented a series of measures such as allowing cross-border renminbi payment for e-commerce companies, managing cross-border renminbi cash pooling, easing cross-border investment and fundraising, and introducing the liberalization of interest rates for the saving deposits of small amounts of foreign currencies and large amounts of renminbi.

Among these measures, I believe the one that the financial markets are most eager about would be the launch of the free trade accounting unit (FTU), which lays out the systemic arrangement for the free trade account, enabling capitals to move between the FTZ and offshore destinations with less restrictions. Since its trial operations on May 22, 2014 till the end of the year, nearly 10,000 enterprises have set up their FTU accounts and agreed on the offshore use of 19.7 billion yuan with an average refinancing rate of 4.2 percent, much lower than the financing costs in domestic financial market.

The further relaxing of rules regarding the FTU, established on Feb 12, allows qualified enterprises in the Zone to apply the accounts for direct overseas investments and loan lending or borrowing with higher leveraged rates for both renminbi and foreign currencies. This will further boost innovative investment and financing and continue to aid development in the Zone.

The negative lists, which have been revised and shortened three times within the past two years, is also a good attempt by the government to display their willingness to be transparent. This move has been met with positive reactions from foreign investors that benefit from the convenience it affords on foreign capital management.

As the pioneer and explorer of the modern market economy system in China, the impact of the FTZ is certainly not limited to just the 120 square kilometers it is located within, but to the whole nation. It will be an integral part in leading China to successful economic reform.

The author is the executive director of the Research Center on FTZ.