Shanghai Free Trade Zone: Opening a Whole New Era

by You Shanshan

After months of preparation， China （Shanghai） Pilot Free Trade Zone （FTZ） was officially launched on September 29， 2013. Dubbed a “new test field for Chinas economic reform and opening，”Shanghai FTZ covers more than 28 square kilometers， in which the measures aiming to further Chinas economic restructuring with free trade， financial reform， and transformation of governmental functions will go into effect. Some experts have even likened the zone to a “little Hong Kong” on the Chinese mainland.

Easier to Do Business

On October 8， the first day it began operation， hundreds of people swarmed into the Shanghai FTZs integrated service hall despite pouring rain. Official statistics show that the service hall received over 1，400 consultations and handled 577 applications and registrations on that day alone.

Among the applicants was an apparel trader who intended to register a company in the Shanghai FTZ. “It costs only one yuan to register a company here，” he explained， “and the company can be exempted from annual inspection. The integrated service hall allows me to apply for the three necessary licenses for corporate registration all at once. I never imagined such convenience in the free trade zone.”

“Previously， it took about 29 days to complete every registration procedure，”he added. “Now， I got my business license in four working days. Time is money. You seize an edge on the competition if your products hit the market just a month earlier.”

The Shanghai FTZ makes it even easier for foreign-funded firms to do business in China. Customs clearance in the free trade zone is expedited down to a day or less – as fast as three hours. Along with convenient foreign trade， multinational companies are also eyeing financial reforms being implemented there， such as market-oriented interest rates， foreign exchange administration reform， and convertibility of RMB in capital accounts. “The China Insurance Regulatory Commission just announced eight measures to encourage insurance firms to promote product innovation within the free trade zone，” announced Fang Yushu， CEO of Chinas internet-based insurance vendor Dajiabao.com， upon registering a new company in the integrated service hall. “We plan to merge some of our core businesses now operating outside the free zone into the company we just registered here， so as to take full advantage of the preferential policies.”

Additionally， the Shanghai FTZ plans to incubate 100 Asia-Pacific regional headquarters with capacity to integrate domestic and international markets， onshore and offshore business， as well as trading， logistics， and settlement functions， so as to enhance Chinas competitiveness in the global economy.

System Innovation

“System innovations， including innovations in investment administrative mechanisms， financial systems， and trade supervision systems， are the core，” stresses Jian Danian， vice director of the Shanghai FTZ Administrative Committee. “Unlike development zones providing preferential policies for settlers， the free trade zone is a test field for Chinas deepening of reform and opening in line with international norms.”

One of the most significant steps being taken in the Shanghai FTZ to meet international norms is the introduction of a “negative list” approach， which allows foreign investment in unlisted sectors. According to the Special Administrative Measures on the Entry of Foreign Investment into China（Shanghai） Pilot Free Trade Zone （“2013 Negative List”）， 18 sectors such as cultural relic auctions， villa construction and operation， lottery， and internet cafés are closed to foreign investment. Dai Haibo， deputy executive director of the Shanghai FTZ Administrative Committee， confirmed that the “negative list” is expected to be updated as reform deepens.

The introduction of the “negative list”approach marks a tremendous change in the Chinese governments economic regulation. “The ‘negative list only specifies prohibitions for investors，” explains Professor Lu Feng from the National School of Development at Peking University. “Compared to the ‘positive list approach， it enables the market to play greater role.”

“The ‘negative list approach is based on the fact that Chinas overall economy has become strong enough to tolerate the impact of economic changes，” opines Mei Xinyu， a researcher with Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. “It is expected to encourage indirect regulation rather than direct administration while cutting business operation costs， thus enhancing the dynamics of investments.”