The State Council has approved establishment of China (Shanghai) Pilot Free Trade Area (“SHFTA”) and more flexible, efficient and open economic administration will be carried out within SHFTA. In summary, two aspects of breakthroughs are relevant to foreign direct investment in SHFTA.
Firstly, the market entry approval for the foreign investment will be abolished and replaced by a market entry limitation thorough a “negative list”. Any foreign investment not covered by the negative list, such as encouraged or permitted industries and modern service industries will be only subject to a simple filing process. For this purpose, the 4th session of the Standing Committee of the 12th National People’s Congress has made on August 30, 2013 the decision on authorization for interim 3 years to suspend in SHFTA the relevant laws and regulations providing approvals for incorporation and amendments to incorporation and other corporate documents for foreign invested enterprises (FIE) not covered by the negative list, including:
- The relevant provisions of Law of The People’s Republic of China on Foreign Invested Enterprises requiring approvals of FIE incorporation, merger and de-merger, other significant matters to be amended and business operation term.
- The relevant provisions of Law of The People’s Republic of China on Sino-Foreign Joint Ventures stipulating approvals relevant to a joint venture the joint venture agreement, contract, articles of association, extension of business operation term and termination of the joint venture contract.
- The relevant provisions of Law of The People’s Republic of China on Sino-Foreign Cooperative Joint Ventures providing for approvals of the cooperative joint venture agreement, contract and articles of association, material amendments to the joint venture contract and articles of association, assignment of the rights and obligations under the joint venture contract, entrustment of a third party to operate the joint venture and extension of business operation term.
Secondly, the foreign investment will have a broad access to China market, and equitable market entry standards will apply to domestic and foreign investors in some service sectors within SHFTA. The possible measures are as follows:
- The restriction over proportion of foreign equity of a foreign-funded entertainment performance brokerage enterprise may be cancelled and the incorporation of a wholly foreign-owned entertainment performance brokerage enterprise may be permitted within SHFTA.
- A wholly foreign-owned entertainment business may be permitted to be incorporated within SHFTA.
- For value-added telecommunication industry, it may be permitted for a WFOE or foreign investment dominated joint venture to engage in some forms of value-added telecommunication business within SHFTA provided information security can be ensured.
With the aforesaid breakthroughs, foreign investors will enjoy more investment opportunities and more freedom with respect to incorporation, operation and termination of their business in SHFTA, the investment environment will thus be significantly improved and the competitiveness of SHFTA in the global market will be enhanced accordingly.