Shanghai FTZ Frequently Asked Questions
On October 15 th 2013 Shanghai Government released “Interpretation of the Administrative Measures for the Shanghai Free Trade Zone”, which clarified several issues regarding the Framework Plan for the China (Shanghai) Pilot Free Trade Zone. It tries to answer the frequently asked questions related to regulatory draft of the Shanghai FTZ. Indeed most of the content in the FAQ’s is already part of the Regulatory draft and I have already covered it in the previous article Shanghai FTZ Updates - Summary of Administrative Measures.
Question: What is the purpose of the “Framework Plan for the China (Shanghai) Pilot Free Trade Zone”?
Answer: The purpose of “Framework Plan for the China(Shanghai) Pilot Free Trade Zone” is to regulate the operations of the Shanghai FTZ. This helps to clarify the administrative system and regulations for Shanghai FTZ. It is released on Sunday September 29 th 2013.
Question: What is the main content of the “Framework Plan for the China (Shanghai) Pilot Free Trade Zone”?
Answer: The Administrative Measures in “Framework Plan for the China (Shanghai) Pilot Free Trade Zone” contains 39 provisions and regulate the following six areas:
- Regulatory basis and application scope of the Administrative Measures and main functions of the Shanghai FTZ.
- Responsibility of the Administration Committee of the Shanghai FTZ.
- Investment System in Shanghai FTZ.
- Entry and Exit Supervision Measures of Shanghai FTZ.
- Financial Innovations and Risk Management System in Shanghai FTZ.
- Supporting Management and Services Optimization in Shanghai FTZ.
Question: What are the main functions of Shanghai FTZ?
Answer: The main functions of the Shanghai FTZ are following:
- Promoting and Opening Up of the Services Industry
- Investment Management System Reforms
- Facilitating Trade Transformation and Upgrades
- Opening up Financial Services Sector
- Innovations in Entry and Exit supervision services to streamline transhipment, import and export.
- Improving Regulatory and Supporting Systems in line with International Investment and Trade Rules.
- Building an International and Lawful Business environment.
Question: What areas will be further opened up for domestic and foreign investors?
Answer: Shanghai FTZ will open up following services sectors for foreign investment:
- Financial Services
- Shipping Services
- Commercial and Trade Services
- Professional Services
- Culture Services
- Social Services
The key innovation in this area is that Shanghai FTZ will suspend or cancle the entry requirements on investors’ qualifications and restrictions on shareholding proportions and business scope.
Question: Did Shanghai FTZ released any new measures for Foreign Investment Management?
Answer: Shanghai FTZ will implement a Negative List approach for Foreign Investment Management. Foreign Investment in the sectors not covered under negative list only need to go through record filing procedures.
Question: Did Shanghai FTZ released any new measures for overseas investment by enterprises registered in Shanghai FTZ?
Answer: Overseas investment by enterprises registered in Shanghai FTZ only need to go through record-filing formalities.
Question: Did Shanghai FTZ released any new measures in terms of Industrial and Commercial Administration?
Answer: All companies in Shanghai FTZ in the sectors and services not in negative list are covered under the capital registration system on trial basis. The authorities will register the subscribed capital contribution of the initiators or the total subscribed shares of the shareholders instead of the paid-up capital of the company. Shareholders shall be liable for the authenticity and legality of the capital contribution.
Companies in Shanghai FTZ may commence normal production and operation activities after obtaining the business license. For foreign-invested enterprises (FIE) whose industry is not on the negative list no longer need verification or approval from the Shanghai Commission of Commerce or Ministry of Commerce. A foreign investor now can file application form and certification with Shanghai FTZ Commission (i.e. Shanghai FTZ’s chief adiministrative authority) providing information on itself and the FIE for setup directly, with no additional supporting documents and extensive examination required.
After filing, FIEs can register with the local Admministration for Industry and Commerce (AIC) and other agencies within Shanghai FTZ to obtain the required certificates and licenses to operate. Based on information available the processing time is reduced to four business days from filing and initial application. This simplified procedure does not apply to companies operating in negative list sectors, for which verification or approval is still required.
Question: Did Shanghai FTZ released any new measures for Entry and Exit Supervision?
Answer: The Shanghai FTZ has rolled out the following Entry and Exit measures:
Goods transferred between the Shanghai FTZ and foreign territories, enterprises in Shanghai FTZ are allowed to deliver such goods to the zone by producing the import manifest information and file for entry record later.
Goods transferred between the Shanghai FTZ and domestic regions, an intelligent monitoring mode will be implemented.
Enterprises in Shanghai FTZ may decide when to apply for inspection on their own before their goods are transferred outside the zone.
Shanghai FTZ will implement a “one declaration, one inspection and one approval” mode.
Shanghai FTZ will implement a “centralized reporting and self-transport” approach to promote the flow of goods between enterprises within Shanghai FTZ.
- Shanghai FTZ will promote classified supervision mode for goods. Specifically:
- Goods under bonded storage and processing goods will be regulated and supervised in accordance with provisions on bonded goods.
- Goods imported and exported through the port in Shanghai FTZ and international transit goods will be regulated and supervised in accordance with provisions on port goods.
- Certain domestic trade goods that enter Shanghai FTZ will be regulated and supervised in accordance with provisions on non-bonded goods.
Question: Did Shanghai FTZ released any new measure for Financial Innovation and Risk Control Measures?
Answer: Shanghai FTZ released following measures for Financial Innovation and Risk Control?*
- RMB Convertibility under Capital Account
- Under a controllable risk level, the Shanghai FTZ will implement a trial program of RMB convertibility under the capital account. But still based on the information available RMB will not be freely convertible, but will have certain approvals or recording measures in place to control the risks.
- Interest Rate Liberalization
- In Shanghai FTZ it is planned to liberalize interest rate and let it be determined by market and real economy gradually. This will promote the reforms on interest rate liberalization.
- RMB Cross-border Usage
- Shanghai FTZ aims to be the largest RMB cross border trade settlement center displacing Hong Kong. But it still depends on the liberalization of RMB convertibility and financial regulations.
- Foreign Exchange Management
- Shanghai FTZ will setup a foreign exchange management system for trade investments.
Question: Did Shanghai FTZ release any new measures to strengthen supporting management and services?
Answer: Shanghai FTZ has established a system to simplify the administrative procedures in the zone. For approval of foreign investment projects and enterprises establishment, Administration of Industry and Commerce (AIC) authorities in the zone will accept the application documents submitted by applicants and deliver relevant instruments to such applicants in a unified manner. Moreover, enterprises in the zone are required to submit annual reports to AIC. Such reports will be publicized and enterprises will be held liable for the authenticity and legality of the reports.