Plans for the Future Development of the Shanghai Free Trade Zone

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Nov. 26 – Authorities from different departments of China have recently rolled out their respective plans for the highly-anticipated Shanghai Free Trade Zone (Shanghai FTZ). Included in this is the summary of the development plans and policies for the Shanghai FTZ.

Offshore Insurance Market
The Shanghai FTZ will be positioned as the offshore insurance market test zone, the insurance innovation test field, and the insurance fund overseas investment base, according to Pei Guang, Director of the Shanghai Branch of the China Insurance Regulatory Commission (CIRC).

“The offshore insurance test zone will not focus on increasing competition in the domestic market, but rather competition in the international market, particularly competing against Japan, Singapore, and Hong Kong,” Pei said. “With support from all sides, the zone should be able to achieve significant results.”

The test zone will mainly develop the areas of shipping insurance, high-end health insurance, liability insurance and credit insurance, and will also explore the construction of an insurance market (exchange). The main goals of the zone are to further internationalize China’s insurance industry, and introduce a more efficient and transparent insurance supervisory system that can be applied domestically at a later stage.

With respect to the overseas investment base for the insurance fund, the Shanghai FTZ will study the two-way (outward and domestic) investment with insurance funds and expand the overseas investment scope of the insurance fund.

In terms of the shipping insurance business, the CIRC Shanghai Branch is working on further promoting the construction of shipping insurance services and introducing more companies to establish shipping insurance centers in Shanghai.

Pei also revealed that a shipping insurance association is expected to be established before the end of this year and the CIRC Shanghai Branch is now cooperating with the local government to include the insurance industry information under the supervision of the Shanghai FTZ.

Trading Platform for Bill of Exchange
The People’s Bank of China (PBOC) is considering setting up a trading platform for bill of exchange trade financing at the Shanghai FTZ, according to Pan Yingli, professor at Shanghai Jiaotong University.

After establishment of the platform, trade financing tools such as letter of credit will be able to be traded on the platform and the traders thereof will be the major banks, including foreign-invested banks and Chinese banks.

Trade financing refers to short-term financing or credit facilitation related to the import and export trade settlement provided by banks to importers or exporters. The main methods include factoring, letter of credit, outward bill and import bill advance.

As of now, China does not have a nationwide trading platform, which largely hinders the development of the bill of exchange market in the country. Pan believes setting up a trading platform of bill of exchange in the Shanghai FTZ will largely facilitate the RMB financing of overseas trade.

Bulk Commodity Trading Platform
The Shanghai Futures Exchange (SFE) will establish a bulk commodity trading platform on a pilot basis at the Shanghai FTZ, as part of the continuous efforts to further open up China’s financial market and facilitate the construction of a multi-tiered capital market system.

It is reported that the Shanghai International Energy Trading Center has already registered in the Shanghai FTZ with a registered capital of RMB5 billion and crude oil futures will become the first futures product to be traded in centre.

Policies and Regulations
To upgrade the legal framework from the administrative measures to regional-level laws, the Shanghai Municipal People’s Congress has begun research on the regulations for the Shanghai FTZ, which are expected to take effect in the first quarter of next year.

At present, Shanghai has suspended the implementation of the Regulations of Shanghai Municipality on the Examination and Approval over Foreign-Invested Enterprises in the Shanghai FTZ, and issued one regulation (Administrative Measures for the Shanghai Free Trade Zone) and five documents, including the Negative List and four administrative measures for record-filing.

The Administrative Committee of the Shanghai FTZ plans to fully implement 19 of the 23 policy measures that aim to further open up the city’s service sectors by the end of this year. At present, 12 out of the total 23 measures have been put in place and the remaining 11 will be carried out after certain rules and regulations have been revised and settled. Moreover, the PBOC is formulating the detailed financial policies for the Shanghai FTZ and will release such at an appropriate time.

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