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An Introduction to the Preferential Policies of Shanghai Free Trade Zone

Shanghai Pilot Free Trade Zone (FTZ) was officially established on 29 September 2013, covering an area of 28.78 square kilometers, originally including four special customs supervision areas, namely, Shanghai Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port Area, and Shanghai Pudong Airport Comprehensive Free Trade Zone.

The Shanghai FTZ became a new experimental field for China’s economy, for it has implemented a number of reform measures such as the transformation of government functions, financial system, trade services, foreign investment, and tax policies, and will vigorously promote the development of Shanghai’s entrepot and offshore businesses.

In the past years, the Shanghai FTZ successfully intrigued a huge number of investors from all over the world. These achievements can never separate from its preferential governmental policies and foreign-friendly investment environment, which can be categorized as follows:

  1. Negative List Management

Foreign investments in those industries outside the Negative List are treated equally as domestic investments. That is to say, the establishment and amendment of foreign-invested enterprises are subject to a filing system same as that for domestic companies. At present, the Negative List management model has been fully popularized and replicated throughout the country, but the Negative List in the FTZ is less restrictive than that outside the zone.

  1. Encouraging Services, Manufacturing and Some Other Hign-End Industries

Since the FTZ was established, two batches of 54 opening measures have been successively introduced in the service sector and some manufacturing sectors. Some of these opening measures have been replicated outside the zone, while some of them are still being piloted in the zone.

  1. Simplification of Government Procedures

In the past, establishing a foreign-invested enterprise required the approval of the National Development and Reform Commission, the Commerce Commission, Administration of Foreign Exchange, and other relevant government departments, which normally took 3-6 months. Now, projects valued under 300 million US dollars only need to make a filing in the free trade zone, which can be completed within 3 working days.

  1. Customs Supervision Policies

Inside the special customs supervision area in the FTZ, there is a series of new institutional arrangements in terms of trade facilitation, such as navigation and customs clearance, inspection and quarantine, and selective taxation. The FTZ has also promoted the rapid development of a series of new customs service businesses, including a “one-stop” government service window for international trade, supervision of goods status, etc.

  1. Encouraging Policies for Financing

Financial opening and innovation are the key points of FTZ reform. At present, the split-account accounting based on free trade accounts and overseas local and foreign currency financing is still only being piloted in the FTZ. The cross-border RMB two-way capital pool and the centralized operation and management of foreign exchange funds at the headquarters of multinational companies, which are well received by enterprises, have been replicated nationwide, but they are still more convenient in the FTZ region than outside the region.

  1. Leading the Establishment of the Rule of Law

To give full play to the exemplary role of the Shanghai FTZ, the Shanghai government established rules and guidance systems for urban planning and construction, land management, economic development, social management, public services, etc. Besides, a judicial system with international credibility and a new mechanism for administrative law enforcement was established. To meet the needs of FTZ finance and high-tech industries, specialized platforms such as FTZ financial arbitration, high-tech and intellectual property arbitration was built to integrate professional resources and improve service levels.

Over the past 6 years, through the effort of a regional linkage mechanism, the FTZ has given full play to its demonstration effect and provided sufficient impetus for development. The FTZ area was enlarged to more than 120 square kilometers, and there are now 7 free trade areas. What’s more, recently on 12 September 2019, the Shanghai government released Several Opinions of Shanghai Municipal People’s Government on Further Promoting Foreign Investments, which explicitly depicts the future development layout of the FTZ.

All in all, the practical experience of the Shanghai FTZ is a precious wealth to China. As its financial reform keeps pushing forward, the FTZ can surely make more contributions to the accelerating process of the internationalization of RMB and greatly increase China’s influence on the world’s economy.