Shanghai’s free trade zone trial gets official go-ahead
China has officially given the green light to setting up a pilot free trade zone in Shanghai, the Ministry of Commerce said yesterday, and an overall plan for the zone will be announced after legal procedures are completed.
“The State Council has proposed to adjust some laws in the free trade zone in an effort to accelerate transition of government functions, explore management of foreign investment through drafting a negative list for foreign investors, and seek innovation in the opening-up model,” according to a ministry statement.
The proposal is pending approval from the Standing Committee of the National People’s Congress, China’s top legislature.
“The free zone will benefit China with new advantages in international competition and provide a new platform for the country to cooperate with other countries and thus help it to explore economic potential and build an upgrading economy,” the statement said.
China plans to suspend some laws on foreign companies and joint ventures in free trade zones, including Shanghai, according to a statement released after a meeting presided over by Premier Li Keqiang on August 16.
The central government approved a draft plan in July, which involves further opening up the country’s service sector, speeding up transformation of trading methods, promoting openness and innovation in the financial sector and building a suitable regulatory system for the zone.
In a free trade zone, goods can be imported, manufactured and re-exported without the intervention of Customs authorities, thus improving convenience and efficiency and facilitating the free flow of commodities and capital.
Shanghai’s current bonded areas allow companies to import goods without paying tax unless they enter the Chinese mainland for sale in the domestic market.
The pilot free trade zone, the first of its kind on the Chinese mainland, will be in the Pudong New Area.
The 28.78 square kilometer area will cover Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistic Zone, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone, where a series of preferential policies is already in place.
The Shanghai Financial Services Office said the trial will focus on facilitating trade and investment activities, promotion of cross-border yuan use, and decentralization and improvement of foreign exchange management.
The trial program and implementation will be designed with Shanghai’s own characteristics to pilot China’s new financial reform, opening up and innovation measures, the office said.
Some measures to be implemented in the trial are related to credit asset securitization and foreign direct investment by individuals.
Sun Lijian, head of the Finance Research Center at Fudan University, said: “The approval of the trial free trade zone in Shanghai indicates the government’s resolution to rebalance economic development from a government-led and policy-supported pattern to a deregulated and more market-oriented mode.”
Lu Zhengwei, chief economist with the Industrial Bank, said that building a free trade zone that follows international standards is expected to bring breakthroughs to China’s service industry, which is set to be a new engine for the Chinese economy over the next decade.