08/03/2014
The Shanghai Free Trade Zone
The Shanghai
Free Trade Zone is seen as the testing ground of China’s economic reforms.
Needless to say, it has garnered a lot of attention. I am very interested to
see what opportunities and benefits it will offer. The Minister of Commerce Gao Hucheng has said the free
zone “is part of the trend of the major economic developments in the world and
reflects a more active opening strategy” from the Middle Kingdom. Due to the
slowing economic growth, China’s leaders want to test gradually greater liberalization
of their system before expanding the experience to the rest of the country.
They want to experiment. This is a good Lean Strategy!
However, Shanghai is not the first attempt in this regard: last year a free zone in Qianhai opened, near Shenzhen and Hong Kong border, but the site has not so far successful as hoped … Several other zones are in the starting blocks, particularly on the island of Hengqin island (Zhuhai Special Economic Zone) and Nansha near Guangzhou (formerly Canton), both in the south of China.
The January 14, 2014, more than 4600 new companies, including 280 foreign-invested enterprises were established in the Zone.
The State Council released a Framework Plan of the China Pilot Free Trade Zone with 18 service industries for which policies are to be relaxed including medical services, valued added telecommunications, ocean freight & International ship management and banking.
We can notice that the Chinese Government is opening its frontiers and its regulations because it was impossible before to set up a WOFE in the medical sector for example.
Medical Industry
In 2011, China’s Ministry of Commerce updated the Foreign Investment Industrial Guidance Catalogue, classifying for the first time foreign Investment in Medical Institutions. This move was a strong sign that china wants to attract foreign capital. Prior to the Measures, nothing was really done. Now, foreign investors can set up a WOFE in the Shanghai FTZ with a specific guideline to follow.
Value-added telecommunication Industry
The Opinions on Further Opening Up Value-added Telecom Services in the Shanghai FTZ released by the China’s Ministry of Industry and Information Technology confirmed that overseas investor can now own more than 50 percent of online application stores and online storage businesses in the SFTZ. Unfortunately, foreign ownership in this sector will be limited to 55%.
China will open up 4 new business types to foreign capital:
Calling center services: over 50% foreign ownership permitted
Internet access services: over 50% foreign ownership permitted
Multi-side voice and video communication services: over 50% foreign ownership permitted
Domestic Internet virtual private network businesses: foreign ownership capped at 50%
Companies registered and based in the Shanghai FTZ will be allowed to offer their services (excluding internet access) nationwide.
Shipping Industry
The Shanghai FTZ will relax restrictions in this sector. Following issuance of the plan, two official documents have been issued by the country’s Ministry of Transport in order to allow foreign investors to control more than 49% stake in such enterprises registered in the SFTZ. Foreign investors can also engage in the international vessel management industry now. In addition, tax and customs policies have been tailored to facilitate the shipping industry.
The importing of equipment, machines and other gods by manufacturers and manufacturing service enterprises in the SFTZ are entitled to tax exemption. However goods produced and processed by enterprises established in the SFTZ and sold to domestic market are still subject to import value-added and consumption taxes.
Financial Industry
Simplification for Cross-border RMB Usage: Commercial banks in the SFTZ may directly process these transactions.
Financing: Non-banking financial institutions and enterprises located in the SFTZ are permitted to borrow funds from offshore sources. Limitation on the amount though!
Free Trade Accounts: to both residents and non-residents in the Zone to facilitate the cross-border flow of funds in the SFTZ.
Foreign Exchange Administration: A foreign exchange registration for overseas direct investment may be processed with banks directly instead of the State Administration of Foreign Exchange. Besides, Enterprises in the zone will not need the approval from SAFE for the purchased of foreign exchange and regulations for financial leasing companies engaged in offshore financial leasing business will be easier.
Cross Border Investments:
Time-consuming pre-approval procedures are cancelled for outbound investment
Regarding Inbound investment, financial institutions and enterprises will be able to directly invest nd trade securities and futures listed on Shanghai exchanges. Moreover, foreign companies with subsidiaries in the SFTZ will be permitted to issue RMB-denominated bonds.
E-commerce Industry
Buyeasi.com, the first cross-border e-commerce platform has been launched by the SFTZ on December 28, 2013. The aim is to provide mid to high-end products. It presents sex categories of popular commodities including clothing, accessories, baby products, 3C electronic products, cosmetics and luggage and handbags. This platform was created to bring order to the currently chaotic cross-border e-commerce market. Vendors will have to give proof that all products sold on the platform are genuine. Prices on the platform will be highly reduced (30%) but there will still be restrictions imposed on the total amount customer can spend and the quantity of products a single consumer can purchase.
The platform also provides an online channel for overseas companies to sell directly to China.
However, Shanghai is not the first attempt in this regard: last year a free zone in Qianhai opened, near Shenzhen and Hong Kong border, but the site has not so far successful as hoped … Several other zones are in the starting blocks, particularly on the island of Hengqin island (Zhuhai Special Economic Zone) and Nansha near Guangzhou (formerly Canton), both in the south of China.
The January 14, 2014, more than 4600 new companies, including 280 foreign-invested enterprises were established in the Zone.
The State Council released a Framework Plan of the China Pilot Free Trade Zone with 18 service industries for which policies are to be relaxed including medical services, valued added telecommunications, ocean freight & International ship management and banking.
We can notice that the Chinese Government is opening its frontiers and its regulations because it was impossible before to set up a WOFE in the medical sector for example.
Medical Industry
In 2011, China’s Ministry of Commerce updated the Foreign Investment Industrial Guidance Catalogue, classifying for the first time foreign Investment in Medical Institutions. This move was a strong sign that china wants to attract foreign capital. Prior to the Measures, nothing was really done. Now, foreign investors can set up a WOFE in the Shanghai FTZ with a specific guideline to follow.
Value-added telecommunication Industry
The Opinions on Further Opening Up Value-added Telecom Services in the Shanghai FTZ released by the China’s Ministry of Industry and Information Technology confirmed that overseas investor can now own more than 50 percent of online application stores and online storage businesses in the SFTZ. Unfortunately, foreign ownership in this sector will be limited to 55%.
China will open up 4 new business types to foreign capital:
Calling center services: over 50% foreign ownership permitted
Internet access services: over 50% foreign ownership permitted
Multi-side voice and video communication services: over 50% foreign ownership permitted
Domestic Internet virtual private network businesses: foreign ownership capped at 50%
Companies registered and based in the Shanghai FTZ will be allowed to offer their services (excluding internet access) nationwide.
Shipping Industry
The Shanghai FTZ will relax restrictions in this sector. Following issuance of the plan, two official documents have been issued by the country’s Ministry of Transport in order to allow foreign investors to control more than 49% stake in such enterprises registered in the SFTZ. Foreign investors can also engage in the international vessel management industry now. In addition, tax and customs policies have been tailored to facilitate the shipping industry.
The importing of equipment, machines and other gods by manufacturers and manufacturing service enterprises in the SFTZ are entitled to tax exemption. However goods produced and processed by enterprises established in the SFTZ and sold to domestic market are still subject to import value-added and consumption taxes.
Financial Industry
Simplification for Cross-border RMB Usage: Commercial banks in the SFTZ may directly process these transactions.
Financing: Non-banking financial institutions and enterprises located in the SFTZ are permitted to borrow funds from offshore sources. Limitation on the amount though!
Free Trade Accounts: to both residents and non-residents in the Zone to facilitate the cross-border flow of funds in the SFTZ.
Foreign Exchange Administration: A foreign exchange registration for overseas direct investment may be processed with banks directly instead of the State Administration of Foreign Exchange. Besides, Enterprises in the zone will not need the approval from SAFE for the purchased of foreign exchange and regulations for financial leasing companies engaged in offshore financial leasing business will be easier.
Cross Border Investments:
Time-consuming pre-approval procedures are cancelled for outbound investment
Regarding Inbound investment, financial institutions and enterprises will be able to directly invest nd trade securities and futures listed on Shanghai exchanges. Moreover, foreign companies with subsidiaries in the SFTZ will be permitted to issue RMB-denominated bonds.
E-commerce Industry
Buyeasi.com, the first cross-border e-commerce platform has been launched by the SFTZ on December 28, 2013. The aim is to provide mid to high-end products. It presents sex categories of popular commodities including clothing, accessories, baby products, 3C electronic products, cosmetics and luggage and handbags. This platform was created to bring order to the currently chaotic cross-border e-commerce market. Vendors will have to give proof that all products sold on the platform are genuine. Prices on the platform will be highly reduced (30%) but there will still be restrictions imposed on the total amount customer can spend and the quantity of products a single consumer can purchase.
The platform also provides an online channel for overseas companies to sell directly to China.