More sectors open to foreign investors in FTZ

Shanghai on Tuesday shortened the negative list that bars overseas investment into some sectors in the Shanghai free trade zone (FTZ), a policy move designed to lower the entry barriers for foreign investors into the Chinese market, but analysts suggested that the focus should be on the rules for a wider market.

The newly revised version of the negative list cut the number of bans and restrictions on foreign investment in the FTZ to 139 items from the previous 190 items.

One of the biggest changes is made in the financial sector. In the previous version of the negative list, foreign investors were not fully allowed to participate in the banking industry and the services offered by finance, trust and currency brokerage companies. But in the revised version, foreign investors can do business in these sectors as long as they abide by the related regulations.

Other sectors that are newly opened to foreign investors include oil refinery, nonferrous metal smelting and the wholesale market, according to a statement on the website of the China (Shanghai) Pilot Free Trade Zone.

The easing of restrictions is in line with the market expectations, Zhang Yugui, director of the School of Economics and Finance at the Shanghai International Studies University, told the Global Times on Tuesday.

But Zhang also noted that foreign investors should have more access to the services industry, as core industries such as the manufacturing sector are still firmly controlled.

Shanghai FTZ, launched in September 2013, was seen as a testing ground for financial reforms, commodities trading and logistics.

Shanghai adopts a "negative list" approach for foreign investment in the zone, which ensures foreign companies can invest without any restriction if a sector is not on the list.

The number of bans or restrictions that the new negative list has lifted for foreign investment is not the central issue. What matters more is whether what has been achieved in the FTZ can be extended to the whole country, analysts said.

"At present, the newly opened sectors that are excluded from the shortened negative list actually don't attract much interest from foreign investors, and the policy is only confined to the free trade zone. What overseas investors value the most is the massive market potential in the whole country," Qiang Yongchang, director of the International Trade Study Center at Fudan University, said on Tuesday.

The actual impact of the policy innovations carried out in the FTZ on the dynamics of the entire Chinese economy is the fundamental issue, instead of the specific policy privileges, Qian pointed out. The opening of the sectors is an unprecedented move in China, and where the line should be drawn for the restrictions in the future will require time and patience to figure out, he said.

The People's Bank of China has held an internal discussion and expects the rules related to the negative list could be expanded beyond the FTZ by the end of this year or early next year, Zhang said without elaborating.

"It's just an anticipation for now, and whether it will be achieved depends on China's risk control ability, as an open capital market is vulnerable to arbitrage," Zhang noted.

"The reduction to the scope of the negative list re-establishes European companies' confidence in China's commitment to the China (Shanghai) Pilot Free Trade Zone," said Stefan Sack, vice president of the European Chamber and Chairman of its Shanghai Chapter in a statement e-mailed to the Global Times Tuesday.

There is, however, still great room for further eliminating many of the remaining barriers to foreign investment in the zone that would bring benefit for both European business and China, Sack said.