The Shanghai Free Trade Zone (FTZ) has been one of the most anticipated reform measures that reflect the next stage of economic liberalization for China. In this newsletter, MSLGROUP shares an insider’s perspective on the latest developments at the FTZ. We believe that entering it early would bring tremendous opportunities for MNCs operating in China. The pilot zone which opened on September 29, 2013, is still a work in progress. Local and central authorities are testing potential reform measures with enormous ramifications for companies doing business in China. Read this newsletter to learn more.

1. Spotlight on…..
The Shanghai Free Trade Zone
- ushering in a new phase in China’s market economy
October 2013, Volume 1
The new Free Trade Zone (FTZ) which was officially opened on
September 29 has been hailed by commentators as a “milestone”
and a “harbinger of new market reforms” in China. The FTZ is still
a work in progress, and although it is not yet clear what the
specific policies for companies may be, it does indeed seem to
have strong support from both central and local authorities. For
these reasons, and given the possible business opportunities as
well as the overall ramifications for the Chinese business
environment, we feel that Multinational Corporations (MNCs) in
China should pay close attention. MSLGROUP Public Affairs
colleagues meet regularly with senior officials in both Shanghai
and Beijing. We have decided to include the FTZ in our ongoing
discussion topics with officials, as well as distributing a specific update to our clients on a regular basis to
provide our insider’s perspective on the latest developments of the FTZ.
Expected opening-up of the service sector in Shanghai FTZ
Sector
Measures
Finance
Allow set-up of foreign wholly-owned banks, joint-venture banks by private
and/or restricted licence banks
Allow set-up of foreign medical insurance companies and investment
companies
Allow foreign exchanges to set up warehouses for settlement of commodity
futures
Remove the capital limit for leasing companies to set up ship and aircraft
financing vehicles
Shipping
Loosen the shareholding limits for foreign shipping companies
Allow all ships owned by domestic shipping companies to carry containers
between ports in China
Trade service
Allow leasing companies to conduct factoring business
Business service
Allow foreign bids for third-party payment licences
Entertainment
Allow production and sales of gaming consoles
Social service
Allow set-up of foreign healthcare institutions
Source: Caixin, SG Cross Asset Research/Economics
Shanghai FTZ—”Crossing the river feeling for stones”
According to information released by the authorities to
date, the Shanghai FTZ will be the first free-trade zone
in mainland China where goods can be imported,
processed and re-exported without intervention of
customs authorities. But many people believe that the
political significance of the FTZ is greater: a
geographically limited experiment with reforms that
the central government would thereafter like to roll out
all over the country, similar to Deng Xiaoping’s famous
“crossing the river while feeling for stones” strategy
used to justify the Shenzhen Special Economic Zone
experiment in the 1980’s.
The concept of the Free Trade Zone was first launched
in 2003 by Shanghai Mayor Chen Liangyu. The official
mission of the FTZ is to “elevate Shanghai into a global
financial hub and free port, encouraging financial
product innovation,
increasing economic
activity during the
Three tier supervision of the Zone.
slowdown and supporting
economic reform and
1st level supervision
restructuring”. With the
support of Premier Li
Central
Directly
government
report to
Keqiang, the FTZ was
officially approved on
August 22 this year, and
launched a month later on
2st level supervision
September 29. The FTZ
Shanghai municipal
Shanghai Free
government
combines the following
Trade Zone
original zones into a single,
new entity, covering 29
square kilometers:
3 level supervision
Yangshan Free Trade Port
Shanghai Free Trade
Area, Shanghai Waigaoqiao
Zone
Administration
Free Trade Zone (including
Shanghai Waigaoqiao
Bonded Logistics Zone),
and Shanghai Pudong
Airport Free Trade Zone. If
successful, the FTZ will likely expand to cover the entire Pudong district.
Led by Vice Premier of
the State Council
Composed of state level
departments, i.e. MOFCOM,
NDRC, etc.
Composed of municipal
level departments
st
Led Deputy Mayor of
Shanghai
Developed on the base of the
Shanghai Free Trade Zones
Administration
The “Negative List”— a positive development
One of the most encouraging official announcements to date says that the Free Trade Zone will turn on its head
the traditional approach to regulation of investment in China, in which an area of business is understood to be
prohibited unless it has been
explicitly allowed: in the FTZ,
all businesses that are not
explicitly prohibited and listed
Negative List sectors
on a “negative list” will be
allowed.
Agriculture, forest and fisheries
Culture, sports, recreation
A document released on
Academic research and
September 29 mentions that
Renting and business services
tech.services
the list still covers 1,069 sectors
across 19 broad categories of
Real Estate
Finance
industry and contains 190
special regulatory measures;
ICT
areas where foreign
Education
investments are banned include
internet cafes, lotteries, news
Public infrastructure
Retail and wholesale
organizations and social survey
research. Other areas are
Sanitary
allowed but face restrictions
such as a ceiling on equity
percentages: these include
insurance, e-commerce and the production of batteries for alternative-energy cars. However, the explicit list is
still an improvement on practices elsewhere, and according to Dai Haibo, Deputy Director of the FTZ's
Management Committee, the list is going to be revised and updated every year or two.
Injecting an element of “real capitalism”
In our opinion, based on discussions with officials and business people around China, the FTZ will
most likely bring significant opportunities for business in Shanghai, through a more relaxed
regulatory system as well as a more commercial atmosphere and better investment environment. In
the words of one prominent finance and economics media publisher that we talked to, the Shanghai
FTZ will bring significant elements of "real capitalism" to China. In a conversation with another
official working at the Shanghai FTZ, he expressed assurance that if this testing zone proves to be
successful, it will be quickly expanded to cover the whole of Pudong District. In the longer run, successful
policies will probably be adopted nationwide.
A good time for MNC’s to get involved
Thanks to the strong potential combined with an initial lack of detailed implementation policy framework, the
Shanghai FTZ presents an opportunity to engage with relevant stakeholders: MNC’s can provide policy
suggestions, share best practices from other markets, and ultimately help shape the direction of the upcoming
policies and regulation. Our conversations with senior officials at FTZ responsible for drafting regulations and
implementation procedures indicate that they are open to suggestions from foreign and local business leaders
– indeed, they see this as a key to the success of the FTZ.
For any inquiries please contact MSLGROUP’s Lusha Niu, Director of Public Affairs, China
lusha.niu@mslgroup.com
Tel: +86-21-5169 9311 ext. 6308 or +86-139 1062 8855.
MSLGROUP is PublicisGroupe’s flagship strategic communications and engagement consultancy with over 3,400 professionals in over 100
offices in 22 markets. In Asia, MSLGROUP has the largest footprint in Greater China (16 offices and 800+ professionals) and India (16
offices and 550 professionals) as well as Asia as a whole, and is actively working to lead the development of the industry with the regular
publication of whitepapers/reports and innovative Learning & People Development programs to nurture talents. MSLGROUP in Asia
includes 35 owned offices and over 1,600 colleagues in Beijing, Shanghai, Guangzhou, Chengdu, Hong Kong, Macau, Taipei, Tokyo, Kuala
Lumpur, Seoul, Singapore, Mumbai, Delhi, Ahmedabad, Pune, Bangalore, Chennai, Hyderabad and Kolkata. An activation network of
colleagues reaches an additional 125 Indian and 100 Chinese cities and a strong affiliate partner network adds another 23 Asian cities to our
reach. MSLGROUP in Asia is widely recognized as an industry leader and was awarded PR Agency Network of the Year for two consecutive
years in 2012 and 2013 by Campaign Asia, as well as Asia Pacific Consultancy of the Year 2013 by the Holmes Report.
The MSLGROUP teams in Asia has also been recognized as leaders by multiple industry groups, including most recently as The Holmes
Report’s China Agency of the Year (2012), PR Agency of the Year by PRCA in India (2011), Marketing Events Asia’s Event Agency of the
Year, Silver Award (Luminous Experiential, 2012), Forbes China’s Innovative China SMEs (Genedigi Group, 2012), Taiwan Advertiser
Associate’s ‘Agency of the Year in Taiwan (2011). The teams have won more than 50 awards in the last two years.
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