Shanghai Plans to Lure Foreign Investors to Its New Free Trade Zone

At the meeting on July 3 2013, the State Council of China passed the Overall Scheme of China – Shanghai Free Trade Pilot Zone (“Scheme”). According to the press, the Scheme could contain as many as 21 separate initiatives, will be a template for the potential nationwide roll-out of structural economic reform and liberalisation. At present, the implementing regulations of the Scheme are yet to be promulgated, and it is expected that the Scheme will consist of new policies, covering industries from financial services to shipping and transport, as part of its plan to create a Hong Kong-like free-trade zone in Shanghai.

The pilot zone will situate on the current Shanghai Free Trade Zones (上海综合保税区), which is a combination of the three bonded zones in Shanghai, namely, the Waigaoqiao port, the Yangshan deepwater port and Pudong International Airport with an area of 28.78 square kilometres. The latest news from the media is that the Shanghai Free Trade Pilot Zone will officially be established around the end of September.

While the implementing regulations of the Scheme are pending finalization, it was reported that the Scheme will cover trials on free currency exchange, management innovation, trade-related financial services and other measures.

The Scheme seems to be one of the biggest to attract foreign investors since China entered the World Trade Organisation in 2001. In order to attract foreign investment into the new pilot zone, Shanghai, subject to approval by the relevant supervising authorities, plans implement the followings:

• The Scheme will provide convenient access to foreign banks for setting up subsidiaries or joint ventures;
• Permission will be granted to foreign commodities exchanges for owning and operating warehouses in the free-trade zone;
• Subject to qualification requirements, foreign investors will be allowed to set up wholly owned healthcare insurance operations and foreign shipping firms will be able to set up cargo joint ventures;
• Overseas human resources and recruitment firms will, subject to approval, be permitted to set up Sino-foreign joint ventures to engage in human resources and recruitment business, and the foreign investors will be allowed to own up to 70 per cent of the equity interest in such joint ventures;
• Subject to approval, foreign travel agencies will be allowed to set up joint ventures to provide international travel and holiday services (excluding Taiwan) to customers from Mainland China.

The Scheme is probably the central government’s latest initiative to promote Shanghai’s ambitions as a global business hub and international financial centre. If the Scheme works well in Shanghai, it is expected that similar projects will be copied around the country. Therefore the Scheme will eventually have a significant impact on the business environment for foreign investors in the entire country.

The new Shanghai Free Trade Pilot Zone will be developed in line with the other three areas namely Nansha (南沙), Qianhai (前海), Hengqin (横琴) in the Guangdong Province to look for economic breakthrough. We will continue to pay attention to the development of Shanghai New Free Trade Pilot Zone which is regarded by the senior government officials as a snapshot of an “upgraded Chinese economy”.