Shanghai Pilot Free Trade Zone – Celebrating The First Year Anniversary

It has been almost a year since the China (“China (Shanghai) Pilot FTZ”) was formally launched. With high expectations that the new free trade zone would be the new Hong Kong or Singapore, the FTZ pioneers an unprecedented degree of openness in relation to foreign investment and international trade in both goods and services.

The FTZ has drawn great attention from the market, resulting in thousands of companies registered in the 28 square kilometers areas of the city. Close to the Shanghai’s existing financial service hub in Lujiazui, the current home of Shanghai Stock Exchange, HSBC and numerous other financial institutions in the city, a number of international bankers, lawyers, new ventures have settled within the FTZ, encouraged to be established to further facilitate overseas investment.

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These institutions follow the objective of promoting and leading the development of an open Chinese economy. The efforts to create a new financial hub, however, has been facing some challenges as the government is itself still assessing its options, as well as regulations that allow foreign investment in banks and other financial companies.

Although some barriers to foreign investment such as real-estate brokerages, internet cafés, rail freight transport, wholesale trading, health care investment were removed, many foreign investors initially were disappointed by the so-called “negative list” of closed sectors. The “negative list” approach means that all sectors will be opened up, except those specifically excluded by law e.g. industries ranging from finance to property to entertainment and media. Officials said at the time that the list would be shortened in 2014.

China opens landmark Shanghai free trade zone

As part of the next big wave of Chinese economic reforms, the FTZ’s guideline underlying the physical trade is easier to understand. It refers to (1) the trade relationship between the FTZ and abroad, which goods can freely exit from and enter into China free of customs supervision and (2) the relationship between the FTZ and the rest of mainland China, which movements of goods shall be subject to applicable taxes and regulation.

The challenge, for instance, is associated to guidelines when applied in the financial industry. According to the report published by JP Morgan, the government is unlikely to make an aggressive move in reforming the financial market.

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In this sense, there remains significant uncertainty about how the experiment will work in practice — in particular, whether companies registered in the zone can benefit from the looser policies nationwide or only within the boundaries of the FTZ.

From what it’s been looking like since the last year, the FTZ is not a simple trial zone for financial liberalization. At the heart of the reform is to redefine the relation between the government and the market, said the JP Morgan report, “We’re crossing the river by feeling the stones”, Ms. Sun, general manager of Ganjie Business Registration Agency, summarized.

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Shanghai Metal Corporation is an integrated global manufacturer, exporter, and supplier with offices and subsidiaries located throughout Asia, Europe, and the Americas. Our company manufactures an array of value-added Metal Products, Building Systems, Shipping Containers, and Machinery. To learn more about our metal products, please visit our website. Please also follow us on Twitter, Facebook and LinkedIn. Try also our new mobile application by scanning the QR code below.

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Source: deloitte.com, forbes.com, ft.com, online.wsj.com, china-briefing.com

Pictures: businessspectator.com.au, online.wsj.com, yahoo.com

Camilla G.//SMC Editor

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