CHINA (SHANGHAI) PILOT FREE TRADE ZONE: How does one benefit?

PROGRESS SUMMARY

The launch of the Pilot Free Trade Zone “FTZ” is viewed as a quantum leap offering an opening of the service sector to foreign competition and a comprehensive liberalization of the economy. The plan will offer the qualified foreign investors the following:
  • Free transfer gain out of China
  • Free convertibility of Chinese currency
  • Liberalization interest rates
  • Opening up of financial services to foreigners
  • Relaxing pre-approval requirements for foreign investments
In addition, the import, process and export of goods will be free of custom duties.
Shanghai Pilot FTZ is also an experimental model before a potential extension to other zones and then to the entire country.
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The “General plan for the Shanghai Free Trade Zone” was launched on September 29, 2013. The new zone covers the area of 28.78 Sq. km and consists of the following four

customs supervisory zones located in Shanghai’s Pudong New Area:

 

  1. Waigaoqiao Bonded Logistic Zone;
  2. Waigaoqiao Free Trade Zone;
  3. Pudong Airport Comprehensive Free Trade Zone;
  4. Yangshan Free Trade Port Area

 

KEY HIGHLIGHTS OF THE “GENERAL PLAN FOR THE SHANGHAI FREE TRADE ZONE”:

1. Free convertibility of Chinese currency (RMB):

The Chinese government is trying to promote the zone as an international financial hub, just like Hong Kong. At present in China, the Chinese Yuan (RMB) is convertible for operations purposes (current accounts) but not for investments purposes (capital accounts). The free convertibility of Chinese currency will be a testing ground for free RMB convertibility. Further, markets will decide the interest rate rather than the regulators.

2. Relaxed customs supervision on imported items: 

According to the new plan, the imported goods will be allowed to enter into FTZ prior to getting customs declared. In addition, the customs procedure will be more updated and streamlined.

The goods that are imported, stored in a bonded warehouse, processed, assembled and exported may be customs free. The imported goods that are kept for consumption within China may not have to go through customs until after their sales.

3. Fewer restrictions on cross border investments:

Currently, the foreign and Chinese investors are allowed to invest cross border by buying into funds, which are regulated through either the Qualified Foreign Institutional Investor (QFII) program or Qualified Domestic Institutional Investor (QDII) program, and quotas restrict both the programs.

However, under the Shanghai FTZ plan:

 

Foreign investor:Foreign investment will be allowed in all sectors unless featured in the “restricted or prohibited sectors list”.

For now thelist covers eighteen sectors including agriculture, manufacturing, finance, and public services, specifies all the business areas in which restrictions will remain for foreign companies. This is just a temporary list which may be updated.

In addition, foreign investors will enjoy a pre-establishment national treatment “PENT” in the FTZ. This means they will get the same treatment as domestic companies during the stage of establishment, acquisition and expansion, which is expected to encourage fair competition. 

Moreover, no pre-approval will be required for a broad range of foreign investment; instead reporting requirement will apply. In short, foreign investors will only need to go through registration procedure.

Domestic investor: Domestic investors looking to make investments overseas below a stipulated threshold will no longer need pre-approval but only a reporting of the investment.

4. Favorable tax regime:

FTZ will introduce internationally competitive tax regime by offering more comprehensive range of tax friendly policies with respect to corporate income tax, individual income tax, VAT, BT, import level taxes, export tax refund will be introduced in the FTZ.

5. Alignment of regulations with the objective of pilot FTZ:

Shanghai Municipal government will administer the Shanghai pilot FTZ.

SERVICES COVERED UNDER THE PLAN:

Since Shanghai Free Trade Zone plan is a pilot project, the Chinese authorities are still seeking input from industry advisors and further regulations will be announced in the coming days.

Given potential input and remarks of those concerned, nationals or foreigners, some adjustments will be made. We will keep you informed of potential progress on this topic.

 

See also : WOFE China

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