Overview of the Pilot FTZ
Shanghai Pilot FTZ is a regional free trade zone established by the PRC
Government in Shanghai, with an area of approximately 28.78 km2 covering
four zones, namely Waigaoqiao Free Trade Zone, Waigaoqiao Bonded
Logistics Park, Yangshan Bonded Port Area, and Pudong International Airport
Comprehensive Free Trade Zone. The Pilot FTZ, focusing on service industry
and trading industry, and system innovation, will promote the reform in and
opening of six industries, i.e. financial service industry, shipping service
industry, commerce and trade service industry, professional service industry,
culture service industry and social service industry. Moreover, new service
models and administrative and management systems will actively be tested in
the Pilot FTZ in order to create an international business environment in which
the rule of law is upheld.
System Innovation
From:http://www.conpak.com/Interpretation-of-Policies.html
Negative List Management
The negative list management of the Pilot FTZ represents a significant breakthrough for the foreign
investment system in China. Traditional investment management list tells the investors “what they can do”
while the negative list tells “what the investors cannot do”, indicating that the investors are allowed to do
anything other than those listed on the negative list. According to “Catalogue of Industries for Guiding
Foreign Investment” and relevant laws and regulations, the municipal government of Shanghai issued the
first negative list on 1 October 2013, setting out 1,069 subcategories and 190 clauses of regulatory measure.
Although the items set out in the negative list are generally the same as current restricted and prohibited
items, the government officers have stated that the negative list would be modified in due course based on
the laws and regulations for foreign investment and the needs for the development of the Pilot FTZ, and
therefore it is still expected that the negative list will enhance the flexibility of investment.
Filing System for Offshore Investment
A filing system is adopted for the administration of establishment of enterprises carrying out oversea
investment by the enterprises in the Pilot FTZ and the general items of overseas investment. Previously, the
enterprises had to go through rigorous examination and approval procedures and complicated application 4
Filing System for Offshore Investment
A filing system is adopted for the administration of establishment of enterprises carrying out oversea
investment by the enterprises in the Pilot FTZ and the general items of overseas investment. Previously, the
enterprises had to go through rigorous examination and approval procedures and complicated application
formalities for oversea investment, bringing much uncertainty to the investment plans. Upon the
implementation of the filing system, the relevant formalities will be streamlined which helps the enterprises
expand their businesses into international markets.
Financial Reform
The Opening and reform of financial industry is also a bright spot of the Pilot FTZ, and the details of which
are as follows:
– Allow the conversion of capital account items and separate accounting on the condition that risks are
– controllable.
– Encourage financial institutions to exercise their rights of self-pricing to gradually promote the
– marketization of interest rate.
– Allow carrying out cross-border RMB business to boost the cross-border use of RMB
– Establish an appropriate foreign exchange management system for the development of the Pilot FTZ to
facilitate trading and investment
– Allow different types of financial institutions to be set up in the Pilot FTZ to build an international
trading platform
In the Pilot FTZ, banks are not subject to the restriction of “one branch only in a city” and are allowed to
set up “branches” rather than “sub-branches”. Currently, ICBC, Bank of China, SPD Bank and Bank of
Shanghai have set up branches in the Pilot FTZ while those foreign owned banks and insurance companies
such as Citibank, HSBC, BEA and Standard Chartered Bank have also set up points of service one after
another.
So far, no details for the financial reform in the Pilot FTZ have been announced and the extent of opening
up is still uncertain. In view of the fact that only the interest rate for deposit has not yet been liberated in the
process of interest rate marketization, the market expects that the PRC Government is likely to launch the
marketization interest rate first. Moreover, the financial innovation of the Pilot FTZ will also promote the
development of offshore financial services.
Mode of Supervision and Control
A mode of supervision and control under which the first line* is opened and the second line* is controlled,
and goods within the FTZ are freely moved is implemented in the Pilot FTZ. The first line mainly focuses
on checking and controlling people entering in or coming out of the zone and the checkpoint authorities are
only responsible for necessary inspection and quarantine control. On 9 October 2013, the policy of
“importation before declaration” was adopted in the Pilot FTZ, permitting an enterprise to directly transport
the goods into the zone with import manifests and make declaration with the competent customs office with
an imported cargo record list. Meanwhile, the goods may also be freely moved within each special customs 5
controlling areas and across those areas within the Pilot FTZ. Enterprises set up in the FTZ will not in
principle be subject to regional restriction, and they are allowed to make investment or carry out business
activities outside the Pilot FTZ. However, if specific regulation requires the completion of relevant
formalities, the enterprise should follow such regulation. This new mode of administration is a breakthrough
of the administration modes adopted in other comprehensive bonded zones, significantly facilitating the
movement of people and goods and lowering import and export cost of cargos.
Note: The rst line: national boundary
The second line: domestic industry sectors
Reform on Business Registration System
To create a fair business environment, a reform on business registration system has been implemented in
the Pilot FTZ with following actual measures:
– Business licenses of the same type will be issued to the enterprises set up in the FTZ except those
– enterprises under business licenses for a rural specialized cooperative association as a legal person and
– business licenses for privately or individually-owned business.
– A pilot registration system for subscription for registered capital is implemented in the Pilot FTZ under
– which the industry and commerce bureau only registers the registered capital or total capital subscribed
– by all shareholders or the promoters and no paid-up capital of a company will be registered. A
– shareholder’s liability to a company with limited liability is limited to the amount of capital contribution
– subscribed by such shareholder. A shareholder’s liability to a company limited by shares is limited to the
– shares subscribed by such shareholder.
– The requirements of minimum registered capital of RMB 30,000 for a company with limited liability,
– RMB100,000 for a company with limited liability with sole shareholder and RMB5 million for a
– company limited by shares are waived in the Pilot FTZ.
– Normal production and operation activities may be carried out by an enterprise set up in the Pilot FTZ
– once it has been registered with a industry and commerce bureau and obtained a business license.
– However, for an enterprise which carries out permitted business activities, it must obtain the business
– license and a permit or an approval before the commencement of such activities.
– A pilot system for public announcement of annual reports will replace the annual check system and an
– enterprise may submit its annual report to the industry and commerce bureau and disclose the same to
– the public through the credit information public announcement system. An enterprise which fails to
– comply with the requirement will be included in the unusual operation list (經營異常名錄).
– An application for business registration can be made either on site or online. Such applications will be
– collectively collected, and relevant documents will be collectively dispatched to the applicants, by the
– industry and commerce bureau.
It is worth noting that, upon the reform of business registration system, shareholders of a company may on
their own determine the subscribed capital contribution and the mode of and deadline for contribution. No
minimum registered capital is required. Enterprises may need to consider whether corresponding
adjustments have to be made to their future investment plans.6
Establishment of a legal system
An arbitration court was established on the Pilot FTZ on 22 October 2013. As a platform for arbitration of
international business disputes, the arbitration court provides such legal services as arbitration consultation,
initial proceedings and trial. However, in addition to the establishment of legal institutions, legislation is
also an important part for the establishment of the legal system for the Pilot FTZ. It is essential to determine
how the power of law making is granted and how the local laws of Shanghai are made in line with the
development of the Pilot FTZ.
Tax policies
As at 31 October 2013, two tax policies for the promotion of investment and five tax policies for the
promotion of trade were introduced, details of which are as follows:
– Income tax on gain on asset valuation from such asset restructuring as external investment using
– non – monetary assets earned by an enterprises or an individual shareholder may be paid by installments
– within a 5 year period.
– The policy for paying individual income tax by installments is adopted for equity incentives granted by
– an enterprise to highly skilled employees of the enterprise or to attract those talents in short supply by
– means of shares or capital contribution.
– A project subsidiary under a financing leasing company or under a financial lease company is admitted
– into the scope of export tax refund for financing leasing.
– A duty should be levied on the goods produced, processed and sold to the mainland market by an
– enterprise through the second line based on relevant imported parts or the actual status of declaration and
– inspection.
– No tax is imposed on the machines and equipment imported by manufacturing enterprises or
– manufacturing service enterprises.
– The tax refund policy for the port of departure has been improved.
– Value added tax preference for imported cargos will be granted on the aircrafts with aircraft load of over
– 25 tons purchased oversea by domestic leasing companies or their project subsidiaries and leased to
– domestic airlines.
Moreover, if in line with the tax reform and international practice, the PRC Government will study ways to
improve the tax policies appropriate for overseas equity investment and the growth of offshore business,
and to establish a categorized supervision model for monitoring goods based on their status. In response to
the call for a 15% tax rate for enterprise income tax on the Pilot FTZ, the government officials replied that
the time had not matured. From this point, we can see that the reform of the Pilot FTZ pays emphasis on the
system rather than the policies, which indicates the shift in the PRC’s development direction .