On 29 September 2013, China officially launched the China (Shanghai) Pilot Free Trade Zone ("Shanghai Free Trade Zone"), which is thought to be one of the largest regulatory reforms since the era of Deng Xiaoping. This update will give you a glimpse of what the Shanghai Free Trade Zone entails.
The Shanghai Free Trade Zone covers an area of 28.78 square kilometres along the eastern coast of Pudong. It includes the four existing customs-supervised areas: (i) Waigaoqiao Free Trade Zone, (ii) Waigaoqiao Bonded Logistics Park, (iii) Yangshan Free Trade Port Area, and (iv) Pudong Airport Comprehensive Free Trade Zone. Its Master Development Plan, covering 6 industries with 18 sub-sectors that are open for investment in the Shanghai Free Trade Zone, outlines a specific guide for how the Shanghai Free Trade Zone will operate.
Foreign investment will be allowed in all sectors in the Shanghai Free Trade Zone, unless prohibited or restricted by a "Negative List". Compared to the previous Catalogue of Industries for Guiding Foreign Investment, the Negative List appears to be more investor-friendly. It covers 8 fields divided into 1,069 sectors. According to the Negative List, foreign investment in media organizations, internet cafes, casinos, as well as the construction of golf courses and theme parks will be still restricted or prohibited in the Shanghai Free Trade Zone.
With a view to accelerating the formation of a market-oriented and investor-friendly environment, starting from 1 October 2013, the relevant administrative examination and approval items stipulated in China's three foreign-invested enterprise laws will be adjusted in the Shanghai Free Trade Zone on a three-year trial basis.
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In the Shanghai Free Trade Zone, the foreign investment approval process will be eased for companies which businesses are outside of the Negative List. Foreign-invested enterprises will only need to make filings with the relevant governmental authorities instead of seeking approvals for the establishment, merger or change in other major matters of foreign-invested enterprises. It will save those companies substantial time and effort.
To expedite the import process of goods entering into the Shanghai Free Trade Zone, unlike the policy of "entering after customs declaration" formerly applied in Waigaoqiao Free Trade Zone, according to the Administrative Measures for the Shanghai Free Trade Zone ("Administrative Measures"), the imported goods will be allowed to enter into the Shanghai Free Trade Zone prior to getting customs declared.
According to the Administrative Measures, on the condition that risks can be controlled, companies can undertake convertibility of Renminbi under the capital account within the Shanghai Free Trade Zone. In addition, the Administrative Measures provide that the government will also promote liberalization of interest rate within the Shanghai Free Trade Zone, although detailed guidance, timeline of Renminbi convertibility and interest rate liberalization have yet to be formulated.
The launch of the Shanghai Free Trade Zone will likely trigger a new wave of reforms and liberalization in the coming years. This is comparable to the Special Economic Zone in the early 1980s and the Pudong Development Area in the early 1990s in China. Although the detailed implementation rules have yet to be issued, it is anticipated that China will sharpen its competitiveness through de-regulation and opening up more sectors to foreign investors. It certainly seems that a new era for China is on the way.