Sept. 30 – The Shanghai Municipal People’s Government released the “Special Administrative Measures on the Entry of Foreign Investment into China (Shanghai) Free Trade Zone (2013 Negative List) (hereinafter referred to as the ‘Negative List’)” on September 30, which details the different treatment for foreign investors and Chinese investors in the Shanghai Free Trade Zone (Shanghai FTZ). Detailed information can be found below.
According to the “General Plan for the Shanghai Free Trade Zone,” a “negative list” approach towards foreign investment management will be adopted in the Shanghai FTZ, meaning foreign investment in all sectors should be allowed unless listed as prohibited or restricted under the Negative List.
Moreover, foreign investment into the areas beyond the Negative List will only have to go through record-filing procedures with the relevant authorities, rather than seeking approval as in the past. The list covers the following 16 service sectors and details 190 management measures:
The list is longer and more restricted than the market had expected, and foreign investors are still banned from investing in the country’s tightly-controlled cultural, sports and entertainment industries, specifically:
Moreover, foreign investment is restricted in the telecommunication and satellite transmission service industries, so is foreign involvement in high-end properties such as offices, hotels and convention centers.
However, the list allows Sino-foreign joint ventures in the following industries:
The list, which comes into effect immediately, is a temporary version for 2013 and will be updated based on future conditions.
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While there has been a lot of hype about the Shanghai FTZ, and the “general plan” looks interesting – much remains to be done to get it into shape. There’s a lot of promises there, but little in the way of substance. Talk of Shanghai developing as a financial center are way off the mark and not likely to happen soon. They are just not ready.
Consider this: Alibaba, China’s largest online shopping company – with revenues that outstrip Amazon and Ebay combined – can’t get listed in Hong Kong and have opted for New York instead. See: http://www.asiabriefing.com/news/2013/09/alibaba-snubs-hong-kong-opts-new-york/
Now think about that. If China can’t get Hong Kong up to speed and prepared to be able to handle the new wave of Chinese companies who want to go global right, what chance does Shanghai have?
Hong Kong has been dealing with international finance and listing Chinese companies for decades. Yet Alibaba – a Chinese company – found Hong Kong backward. If the State Council can’t even get Hong Kong into shape to deal with the new breed of Chinese companies then how do we expect Shanghai to cope? Its not going to happen, at least anytime soon.
Maybe we will see some move to sorting this regulatory mess out at the Third Plenum of the CCP which is due to be held in November. That’s traditionally where China launches new policies
and announces new reforms. If they don’t, and do not take active steps to put some muscle behind the grandiose statements they made about the Shanghai FTZ then China is faced with having no listing vehicle capable of helping the new breed of Chinese companies develop into MNC’s. And that is the rather more important global investment and trade angle than the current media attention on only what the Zone holds for foreign investors.
Many people are missing the point here. And right now its that Shanghai is way behind Hong Kong and now even Hong Kong cannot satisfy the Chinese domestic need to go global. That Third Party Plenum needs to come up with some answers. – Chris
COMPANIES In SHANGHAI FTZ MUST MAKE THEIR AUDITTED ACCOUNTS PUBLIC
Also just realized that all companies in the FTZ – including foreign investors, must make their accounts in China available for public inspection. That’s never been asked by the Government before, and will also turn off a lot of potential investors. As soon as you have your profits made available for public viewing in China, your wage costs and other demands upon the business by staff and unions will skyrocket and make labor management extremely awkward.
There’s a lot in the SFTZ polices that need a serious rethink. – CDE
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