Shanghai Gov’t Issues Q&A on Shanghai Free Trade Zone Administrative Measures

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Oct. 17 – The Shanghai Municipal Government released the “Interpretation of the Administrative Measures for the Shanghai Free Trade Zone (hereinafter referred to as the ‘Interpretation’)” on October 15, which clarifies several issues regarding the administrative measures for the Shanghai Free Trade Zone (Shanghai FTZ). Detailed information can be found below.

Q: What is the background for introducing the “Administrative Measures for Shanghai Free Trade Zone”?
A: With the view to regulate the daily operations of the Shanghai FTZ, the Shanghai Municipal Government released the “Administrative Measures for Shanghai Free Trade Zone (hereinafter referred to as ‘Measures’)” on September 29, which clarify the administrative system and regulations for the zone.

Q: What’s the main content of the Measures?
A: The Measures contain 39 provisions and regulate the following six aspects:

  • Clarifying the regulatory basis and applicable scope of the Measures, as well as the main function of the Shanghai FTZ;
  • Clarifying the responsibility of the administration committee of the Shanghai FTZ;
  • Clarifying the investment system of the Shanghai FTZ;
  • Clarifying the entry and exit supervision measures of the Shanghai FTZ;
  • Regulating the financial innovation and risk management system of the Shanghai FTZ; and
  • Clarifying the measures to optimize management and services in the Shanghai FTZ.

Q: What are the main functions of the Shanghai FTZ?
A: According to the Measures, the main functions of the Shanghai FTZ are as follows:

  • Promoting the opening-up of the services industry and investment management system reform;
  • Facilitating trade transformation and upgradation;
  • Deepening the opening-up of the financial field;
  • Innovating the supervision service mode;
  • Exploring and establishing an administrative management system in line with international investment and trade rule systems; and
  • Cultivating an international and lawful business environment.

Q: Which areas will be further opened up to domestic and foreign investors?
A: The Shanghai FTZ will deepen the opening-up level in the following areas:

  • Financial services;
  • Shipping services;
  • Commercial and trade services;
  • Professional services;
  • Cultural services; and
  • Social services.

Moreover, the Shanghai FTZ will suspend or cancel the entry requirements on investors’ qualifications, as well as restrictions on shareholding proportions and business scope.

Q: Has the Shanghai FTZ rolled out any new measures in terms of foreign investment management?
A: The Shanghai FTZ will implement a “Negative List” approach towards foreign investment management. Foreign investment projects in the sectors not covered under the negative list only need to go through record-filing procedures.

Q: Has the Shanghai FTZ rolled out any new measures in terms of overseas investment by enterprises in the zone?
A: Overseas investment projects by enterprises in the zone only need to go through record-filing formalities.

Q: Has the Shanghai FTZ rolled out any new measures in terms of industrial and commercial administration?
A: The Shanghai FTZ will implement a capital registration system. Shareholders of enterprises in the zone shall agree upon the contributing amount, forms and period independently, and record such in the company’s articles of association.

The shareholders shall be liable for the authenticity and legality of the capital contribution and are held accountable to the enterprise within the limits of their respective subscribed capital or shares. The industrial and commercial authority will register the registered capital of the company, instead of the paid-in capital.

The zone will also pilot the “license before certificate” registration system. Enterprises in the Shanghai FTZ may commence normal production and operation activities after obtaining the business license. Enterprises engaged in businesses which require administrative approval may file an application with the competent authorities for the approval items after obtaining the business license.

Q: Has the Shanghai FTZ rolled out any new measures in terms of entry and exit supervision?
A: The Shanghai FTZ has rolled out the following entry and exit measures:

  • For goods transferred between the Shanghai FTZ and foreign territories, enterprises in the zone are allowed to deliver such goods to the zone by producing the import manifest information and file for entry record later.
  • For goods transferred between the Shanghai FTZ and domestic regions, an intelligent monitoring mode will be implemented.
  • Enterprises in the zone may decide when to apply for inspection on their own before their goods are transferred outside the zone.
  • The zone will implement a “one declaration, one inspection and one approval” mode.
  • The zone will implement a “centralized reporting and self-transport” approach to promote the flow of goods between enterprises in the zone.
  • The zone will promote a classified supervision mode for goods. Specifically:
      • Goods under bonded storage and processing goods in the zone will be regulated and supervised in accordance with provisions on bonded goods;
      • Goods imported and exported through the port in the zone and international transit goods will be regulated and supervised in accordance with provisions on port goods; and
      • Certain domestic trade goods that enter the zone will be regulated and supervised in accordance with provisions on non-bonded goods.

Q: Has the Shanghai FTZ rolled out any new measures in terms of financial innovation?
A: The Shanghai FTZ  has put forward the following four measures for the financial reform:

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, and innovate business and management modes through separate accounting.

Interest Rate Liberalization
The Shanghai FTZ will cultivate an independent pricing mechanism in line with the development of the real economy, and gradually promote the reform of interest rate liberalization.

RMB Cross-border Usage
Enterprises in the Shanghai FTZ may innovate cross-border RMB businesses based on their actual situation, thereby to facilitate the cross-border usage of RMB.

Foreign Exchange Management
The Shanghai FTZ will set up a foreign exchange management system to facilitate trade investment.

Q: Has the Shanghai FTZ rolled out any new measures in terms of strengthening comprehensive management and services?
A: The Shanghai FTZ has established a “one-off handling” system to simplify the administrative procedures in the zone. For approval of foreign investment projects and enterprises establishment, the industry and commerce authorities in the zone shall 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 the industry and commerce authorities. Such reports will be publicized and enterprises will be held liable for the authenticity and legality of the reports.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

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