The Shanghai Free Trade Zone (FTZ) is now open for more foreign investment, including in the manufacturing, wholesale and retail, transportation and warehousing sectors.

This relaxation was introduced by a new negative list published in the Special Administrative Measures for Access of Foreign Investment to China (Shanghai) Pilot Free Trade Zone on 30 June 2014 (“Negative List”).

1. Background

The Shanghai FTZ was established for the purpose of opening China’s financial system to innovations, facilitating more domestic and foreign investment, and relaxing foreign exchange controls. It has pioneered in moving away from the traditional two-step approval and registration process for establishing foreign-invested enterprises through the introduction of a negative list for foreign investment.

Foreign investment projects that are restricted by the negative list remain subject to approval. Foreign investment projects not covered by the negative list are subject to a record-filing system for establishment.

2. The new Negative List

The new Negative List is compiled according to the Classification and Codes of Industries in the National Economy (2011 Version), covering 18 sectors. The number of restrictions and prohibitions for foreign investment is reduced from 190 items down to 139 items.

The new Negative List sets out 110 items that are restricted. Only 29 items are prohibited for foreign investment. The new Negative List also clarifies certain restrictions set out in the initial 2013 negative list on investment in specific industries (e.g., limits on foreign investment).

3. New sectors opened

Compared to the 2013 list, the majority of the changes in the new Negative List are concentrated in the following sectors: (C) manufacturing; (F) wholesale and retail; and (G) transportation, warehousing, postal services. Other sectors have also been changed.

Below are some significant changes in the new Negative List:

  1. Agriculture

Foreign investment is now allowed for cotton processing.

  1. Manufacturing

Among other things, the previous prohibition for manufacturing Chinese traditional green tea has been relaxed with foreign investment now allowed in the form of a Sino-foreign joint venture in which the Chinese party has a controlling interest. Foreign investment is also allowed for manufacturing electronic automobile components, coating production and viscose fibres production (each previously restricted).

  1. Wholesale & Retail

Foreign investment is now allowed for the wholesaling of salt, and (previously restricted) plant oil and sugar wholesale and retail.

  1. Transportation, Warehousing, and Postal Services

Foreign investment is now allowed for international maritime transportation.

  1. Information transition, software and information technology services

Foreign investment in basic telecommunication business has now been explicitly limited to a shareholding limit of 49%, which is in line with the current national shareholding restriction.

  1. Real estate

Previous restrictions on real estate agency and master development of land are now removed.