Shanghai FTZ pilots reforms for national use

A year after the Shanghai free trade zone (FTZ) was established, reforms piloted in the zone have now been applied elsewhere in the country.

Unlike other economic development zones scattered around China, the Shanghai FTZ does not have much to offer in terms of preferential treatment in taxes and land. Its appeal hinges on broadened access to China's service sector, financial reforms and streamlined administrative procedures.

A total of 21 pilot measures, affecting areas such as business registration, cross-border financing and investment, and customs clearance, have become formal policies applied elsewhere in the country.

According to Wang Zhan, president of the Shanghai Academy of Social Sciences, the FTZ is an example of how opening up to foreign companies and capital has led to a bigger push for reforms at home.

"Just like many other nationwide reforms that were first piloted in Shanghai, the FTZ is also a testing ground for bolder policies high on the central government's agenda for the entire country," Wang said.

The FTZ has made it easier for both domestic and foreign companies to set up businesses in the zone and shifted more focus to regulatory oversight. More than 12,000 companies have been established in the zone, including 1,677 foreign-funded firms.

"Not everyone has a clear idea of what to do in the zone in the rush to register a company there, but real entrepreneurs know that a free and level playing field matters for a successful venture, not subsidies or preferential treatment," Wang said.

NEGATIVE LIST

Foreign companies no longer have to undergo a tedious process of government review and approval of their proposed venture in the free trade zone, as long as their line of business does not appear on a "negative list" of off-limit activities, first published with 196 items when the zone was launched a year ago and shortened to 139 in June.

"The negative list is a move in the right direction. It has broadened foreign companies' access to China's service sector," said Lewis Lu, a partner at accounting firm KPMG's Shanghai office.

"Foreign companies would love to see the list grow shorter and they'd love to see it updated more frequently."

FINANCIAL REFORM

The People's Bank of China, the country's central bank, issued a guideline late last year articulating a string of policies to make cross-border investment, financing and the global use of the Chinese currency, the renminbi or yuan, easier.

The Shanghai Gold Exchange, the world's largest physical gold trading platform, opened China's domestic gold trading market to global investors on Sept. 18, marking the first time offshore investors could participate in the country's spot gold market.

In June, the Shanghai Head Office of the People's Bank of China launched the free trade accounting unit, which allows for free flow of capital between the FTZ and offshore under a closely monitored system.