Shanghai FTZ rules loosened

State investment in ports faces challenges

On the eve of its one-year anniversary, the China (Shanghai) Pilot Free Trade Zone (FTZ) saw a loosening of ownership rules and market access for companies in more than two dozen categories, in a bid to draw foreign investors.

The new rules, made public Sunday by the State Council, or China's cabinet, include temporary revisions of 27 items, covering areas including market access for international shipping, automobiles, civil aviation and high-speed train accessories, among others.

Foreign firms will be allowed to hold bigger stakes in joint ventures set up with Chinese partners and do business in more fields, with better market access in the Shanghai FTZ.

The revisions came ahead of the FTZ's first anniversary on Monday.

Lu Hongjun, president of the PCEC Shanghai Institute of International Finance, said the announcement of the new measures and policies, just before the FTZ's one-year anniversary, showed China's commitment to further open up its market to global companies.

"These policy adjustments are also consistent with the spirit of the Bilateral Investment Treaty talks between China and the US, as the two sides are expected to ink an agreement by the end of this year or early next year," Lu told the Global Times Sunday.

Tang Jianwei, a senior macroeconomic analyst at the Bank of Communications, told the Global Times Sunday that the adjustments are further steps aimed at better attracting foreign investment.

In July, a new "negative list" for the FTZ reduced the items that are off-limits or restricted for foreign investment to 139 from the original 190.

"The adjustments can also be seen as one concrete step in the process of the shortening of the 'negative list,' which is considered too long even after it was shortened this year," Tang said on Sunday, noting that foreign companies will be treated on a more equal basis, according to the new regulations.

During a visit to the FTZ on September 18, Premier Li Keqiang said foreign firms should be treated equally with domestic firms, after an official at the FTZ briefed him on details as to why companies from the private sector are now enjoying the same status as State-owned enterprises in the FTZ.

As of September 15, 1,677 overseas-funded firms have registered in the zone, accounting for 13.7 percent of the 12,266 newly established companies, Ai Baojun, Shanghai's vice mayor and the FTZ head, told a press conference Friday.

However, a Reuters report on Sunday said that if Hong Kong and Taiwanese firms are excluded, foreign companies comprised just 6 percent, or 643 entities, and that this is considered far fewer than expected.

According to the revisions, wholly foreign-owned companies will be allowed in the FTZ for the manufacturing of motorcycles, aviation engine parts, hoisting machinery, railway bridges and station equipment.

Foreign companies will also be allowed to set up wholly-owned firms in the FTZ for the research of oil exploration technologies and the design of luxury cruise ships and yachts.

"Some big European and US companies excel in these sectors. We can see this is a result of their lobbying for more market access and lowering of thresholds," Lu said.

Foreign firms in the trade of international maritime cargo handling will be allowed to hold up to 51 percent of any joint venture, up from 49 percent earlier, according to the new rules.

Zhang Yongfeng, a Shanghai-based shipping expert, said Chinese companies could benefit from the arrival of foreign companies, which could break the dominance of State-backed investment at Chinese ports.

"Eight out of 10 of the world's busiest ports are in China, so the market is certainly attractive to foreign investors. Currently, State-backed capital or local governments are the dominant investors in China's wharf business. So the quality of service and efficiency has room for improvement," Zhang told the Global Times Sunday.

In the FTZ, wholly foreign-owned firms may also engage in the retail and distribution business for a number of commodities, including cotton, sugar, chemical fertilizer, grain and cooking oil. These items were formerly limited to Sino-foreign joint ventures. The authorities are also going to remove the cap set for the number of such stores.