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FAQ on China (Shanghai) Pilot Free Trade Zone (“Shanghai FTZ”)

Q1. What’s the general image of Shanghai FTZ”?

A:Shanghai FTZ was officially existed and open on 29 September 2013, this special zone located in Pudong New Area and first covered a non-contiguous geographic area of 28.78 square kilo-meters consisting of the following four existing bonded zones: Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Pudong Airport Comprehensive Free Trade Zone, and Yangshan Free Trade Port Area. It is believed that it may eventually expand to cover the entire Pudong district which covers1,210.4 sq. km. And in this area will implement new policies and reforms which include:(a) the liberalization of many investment sectors currently restricting foreign investment; (b)structural changes in the financial sector and foreign exchange administration;(c) the further development of trade in goods within the Shanghai FTZ.

Q2. What’s the specific reform in financial area?

A:The Overall Plan which states that "Under the precondition that risks can be controlled, China will create conditions to test yuan convertibility under the capital account, market-based interest rates and cross-border use of the Chinese currency in the zone.” According the Overall Plan and other regulations which take effect in shanghai FTZ, it is pledged to establish a foreign exchange management mechanism appropriate for trade and investment reforms in the zone. Enterprises are “encouraged” to participate in cross-border financing and multinationals are encouraged to establish regional headquarters or global capital management centers in the zone. Further, foreign companies will be permitted to gradually participate in commodities futures trading in the zone.

Q3. Will there any new rules to infect foreign investment in this area?

A:Yes, the Overall Plan provides that the Shanghai FTZ will adopt a “negative list” approach towards foreign investment administration, which means that foreign investment in all sectors should be allowed unless listed as prohibited or restricted under the “negative list” . Foreign enterprises will generally enjoy national treatment, that is, like Chinese investments, foreign investments in the Shanghai FTZ will generally not be required to undergo an approval process with the relevant government department (the Ministry of Commerce and its local counterparts, collectively, "MOFCOM"). The establishment of foreign-invested enterprises and projects need only complete a record filing process, unless the investment is on the Negative List. This is a giant leap for foreign investments which have always generally been subject to MOFCOM's “discretionary” approval.

Q4. Which areas will be reformed for loosening restriction for foreign investment?

A: According to the Overall Plan the following areas will be freer for foreign investment: Banking Services, Value-added Telecommunications, Selling and Servicing of Gaming Consoles and Amusement Machines, Credit Investigation, Engineering Design, Construction Services, Education and Vocational Skills Training, Financial Leasing, Legal Services, Travel Agencies etc.

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