On August 22, 2013, MOFCOM announced that the State Council of China approved the establishment of Shanghai Pilot Free Trade Area (“SHFTA”) to cover four customs supervision zones (Shanghai Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port and Shanghai Pudong Airport Free Trade Zone), with a total area of 28.78 square kilometres. It was reported that SHFTA will be formally established by the end of September, 2013. Early in September, the NPC Standing Committee will determine adjusting some administrative examination and approval measures under some laws to be applied to SHFTA.

The State Council of China is hopeful that SHFTA become an experimental field of promoting economic reform and openness, and play a positive role on forming replicable and sustainable demonstrating model contributing to China as a whole. The features of SHFTA are mainly reflected in the following four aspects.

  • Customs Supervision

As derived from FTA concept, all the goods imported from overseas into SHFTA may be exempted from import duties and VAT and subject to customs filing only. After that, there will be no customs supervision over the goods shipped into SHFTA already. However, it remains to be seen whether and how SHFTA will allow bonded processing manufacturing or logistics businesses within SHFTA. However, import customs clearance will be needed for goods imported from FTA to outside FTZ in China.

  • Foreign Direct Investment

Within SHFTA, the market entry approval for foreign investors will be conditionally abolished and replaced with a “negative list” mechanism. Any foreign direct investment not covered by the negative list, governmental approval will be replaced by simple filing process.

  • Tax Preference

Companies in SHFTA may enjoy corporate income tax at 15% besides the tax exemption on goods imported into SHFTA. It remains to be seen whether SHFTA will have further tax preference on individual income for senior management of regional headquarters office.

  • Finance and Foreign Exchanges

In SHFTA, a package of policies aiming at financial reform will be carried out, including interest rate liberalization, RMB free convertibility, deepening openness of financial business and off-shore banking business and so forth.

  • Consumer Product Retail Center for Transit Passengers

A pilot project of tax rebate policy is anticipated to be established for outbound visitors within the area of Pudong Airport. As for inbound visitors, tax-exemption treatment may be in place so that a consumer product retailing center can be established within SHFTA.

  • Intellectual property Protection

Besides the above policies, SHFTA also might try integrated enforcement of copyright, trademark and patent. A special administrative institution may be set up to replace traditional administrations of patent licensing, trademark registration and copyright filling to centralize and streamline administrative and enforcing powers.

If SHFTA operates well, SHFTA will turn out to be a central hub of trade and logistics services in East Asia, and will attract more advanced manufacturing, off-shore financing, as well as financial leasing businesses. More investment opportunities relevant to intellectual property services, culture and entertainment, education and health, and value-added telecommunication industries may be also made available to foreign investors. SHFTA will create great investment opportunities for foreign investors.