New FTZ seen as a major step for deeper reform (2)

Lure foreign investors

Relaxing restrictions on foreign investment is an important part of reforms in the new FTZ.

Since the news broke, many foreign companies in the city have been looking forward to more details.

"Some Shanghai-based Singapore companies have already consulted me about the FTZ," Ong Siew Gay, consul-general of Singapore in Shanghai, told the Global Times. "They are very excited about the business opportunities the zone may bring."

Under the plan of the new FTZ, foreign banks will be allowed to directly set up wholly-owned subsidiaries or joint ventures with mainland partners in the zone; foreign commodity exchanges such as the London Metal Exchange will be approved to set up their own futures delivery warehouses; permission will be given to foreign companies like Sony and Nintendo to sell gaming consoles in the zone as long as they are produced there; and the FTZ will also permit foreign companies to establish wholly-owned healthcare insurance institutions, shipping companies and medical institutions as well as joint ventures of credit investigation and investment management, according to Caixin Century Weekly magazine.

Moreover, the FTZ will streamline approval procedures for both domestic and foreign investments. Foreign-invested projects will only need to report to relevant authorities in the FTZ instead of submitting applications for approval.

"Such an area where regulations are much looser will attract many foreign investors from different sectors to come and invest in these kinds of new businesses," said Bala Ramasamy.

"It's also good for the Shanghainese who will have more choices in terms of medical care, investment options and other services," he noted.

Financial reforms

Financial reform under the new FTZ is another key focus of the market, which is largely expected to further promote the liberalization of yuan capital accounts.

Before the FTZ proposal was approved, one of the areas that garnered the highest anticipation was that the plan would allow a trial for the yuan's full convertibility, interest rate liberalization and the building of offshore financial markets.

The latest news about the draft plan, currently under consideration from top authorities, shows it will seek to meet market expectations. It will marketize interest rates, provide offshore yuan services in the zone while also experimenting with the yuan's convertibility under capital accounts on condition that any risks remain controllable, according to recent Caixin reports.

However, since no detailed policies have been officially released, there have been controversies on how deep the reforms will truly go.

Increasing options for offshore yuan businesses have anchored the flagship policy that has won the most plaudits.

"It is natural to see offshore yuan businesses expand with the launch of the new FTZ," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times. "As overseas investors participate in trading activities in the FTZ, they will inevitably become involved in offshore yuan businesses, such as yuan-denominated investing and fundraising."