Isolated Internet Freedoms in Shanghai’s Free Trade Zone

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Sept. 25 – The Chinese government has apparently endorsed a plan to allow uncensored internet access in the new Shanghai Free Trade Zone (FTZ), according to reports in the South China Morning Post quoting unnamed official sources. Foreign internet service providers would also be allowed to bid for licenses in the zone.

“In order to welcome foreign companies to invest and let foreigners live and work happily in the free trade zone, we must think about how we can make them feel at home. If they can’t get onto Facebook or read The New York Times, they may naturally wonder how special this zone is compared to the rest of China,” the source was credited as saying.

China’s biggest three service providers – China Mobile, China Unicom and China Telecom – have all apparently been informed of the decision to permit foreign service providers operational licenses in the zone.

China has established a large “firewall” which blocks numerous websites (e.g. Facebook, Twitter, and YouTube) and deliberately impairs search functions throughout the country. Certain media that upset the Chinese government also suffer having their access to the China market blocked (e.g. The New York Times and Bloomberg), and trending key words that highlight matters sensitive to the Communist Party are also routinely blocked.

Map showing how all the world is connected through Facebook (note the black void over China)

Map showing how all the world is connected through Facebook (note the void over China)

China is pulling out all the stops to make the zone a success. It will offer convertibility of the Chinese RMB into forex, allow the market to determine interest rates, and provide additional, as yet unspecified relaxations of investment and tax regulations within the zone.

“International Schools in China and various institutional entities already enjoy unrestricted internet access,” says Chris Devonshire-Ellis, Founding Partner of Dezan Shira & Associates. “So the idea of providing a pocket of unchallenged access is not new. Whether or not this will really help companies operating in China when these freedoms are cut off as soon as one leaves the zone is a debatable point. It seems more a publicity stunt to help promote the zone rather than anything of real consequence to international businesses.”

Details of the new Shanghai FTZ continue to trickle out, but according to Wang Xinkui, Director of the Counselor’s Office of the Shanghai Government, the zone will be officially launched on September 29th.

The free trade zone, the first of its kind in Mainland China, will cover an area of 28.78 square kilometers, and consist of the four following existing bonded zones:

  • Waigaoqiao Free Trade Zone;
  • Waigaoqiao Free Trade Logistics Park;
  • Yangshan Free Trade Port Area; and
  • Pudong Airport Comprehensive Free Trade Zone.

Initially approved by the central government earlier this year, and approved by the State Council only a month ago, Shanghai’s FTZ will seek to further improve the level of opening-up in China to promote domestic reforms.

According to official information released thus far, the purpose of the FTZ is to:

  • Explore news ways to open up China’s economy;
  • Increase the rate of change in government functions;
  • Promote reform of the administrative system;
  • Upgrade the means for economic development; and
  • Optimize economic structures.

Editors Note (Sept. 27, 2013): We understand through Chinese government officials and China’s state-run media that the Shanghai Free Trade Zone will not actually possess any different freedoms relating to internet access than the rest of China.

Chris Devonshire-Ellis has commented: “It appears the story was planted in the South China Morning Post to generate publicity for the launch of the zone. If so, it seems to have worked as the news went global concerning the freedom of internet usage in the new zone. However, other official sources appear to have denied that the zone will be treated any differently from anywhere else in China.”

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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