Oct 3, 2013

Shanghai FTZ officially opens doors

How will the Shanghai FTZ impact shipping, logistics? (Pictured is the Shanghai Waigaoqiao Port)

[Shanghai Bureau] The Chinese government has officially established the Shanghai Pilot Free Trade Zone (FTZ) in Shanghai City on September 29. As reported earlier (dated September 20), trade and finance services will be liberalized in four bonded areas in the region, comprising the Shanghai Waigaoqiao Bonded Zone, Waigaoqiao Logistics Park, Pudong Airport Bonded Zone and Yangshan Bonded Port Area. According to the 'General Plan for the China (Shanghai) Pilot Free Trade Zone' (Guofa [2013] 38) that was released on September 27, the next three years will be positioned as the pilot period of reform toward the deregulation of 18 types of services for foreign companies, including shipping, trade and finances. Services for goods in transit at Shanghai Waigaoqiao, Yangshan and Shanghai Pudong Airport will be reinforced in order to boost their hub functions, while the shipping operation, ship financing, ship management and ship brokering operations will be developed in a bid to simplify customs clearance procedures of imports and exports and to build a system of swift cargo forwarding between the designated bonded areas. The administration committee that will oversee the Shanghai FTZ was also inaugurated on September 29, with 36 domestic and foreign companies becoming the first wave of entities venturing into the new FTZ.

The Shanghai FTZ is a comprehensive special economic zone that spans 28.78 sq.km, covering four bonded areas within the Shanghai region. The facility hopes to open its services to foreign companies and reform foreign investment control by concentrating the administrative functions in such areas as market management, product technical control, food and drug administration, intellectual property, industry and commerce, and taxation. Six major issues have been raised, namely finance, shipping/cargo transport, commerce/trade, specialized services, cultural services and social services, and the facility aims to ease the barrier of entry into the region, including the required qualifications of investors, shareholding rates and business scope. Corporations from all industries will be invited into the new FTZ in a bid to build a global trade and finance center that resembles the ones in Hong Kong and Singapore.

Oceangoing cargo transport and international ship management will be liberalized at the above FTZ for foreign entities in the area of shipping/cargo transport. New management regulations will be established by easing the restrictions on foreign shareholding ratio for shipping companies that take on the form of partnerships or joint ventures between Chinese and overseas firms. Transport services for foreign export/import containers hauled by foreign-flagged ships that are effectively or partially owned by Chinese entities will be allowed at Shanghai port and the coastal ports in the country (littoral ports, except river ports). Permission will also be given to the establishment of foreign-funded ship management firms.

A 'notify first, approve later' system of registration will be implemented at the FTZ. With this, areas outside of the 'negative list' will adopt the notification system in place of the approval system and investment screening will be undertaken after the notification has been submitted. Authority over this process will be given to the city of Shanghai.

Hub functions of the facility will be boosted by linking Shanghai Waigaoqiao, Yangshan port and Shanghai Pudong Airport, with an internationally competitive cargo transport/operation system to be developed. Aside from the foreign trade container trade routes at the coastal ports of Shanghai, freighters of international transshipment cargoes that go through Pudong Airport will also be increased in number. The new FTZ will promote preferential tax measures for the ships of Chinese companies and ship registration in Shanghai, and enforce international ship registration policies that are similar to those being done in Tianjin. It will also undertake freight rate index derivative commerce.

The Shanghai FTZ will allow cargoes to be directly carried into the zone with import shipping documents serving as evidence, with the declaration procedures to be performed with the customs authorities in charge thereafter. Tax refund procedures can be completed at the ship's loading port. The export/import lists of cargoes and procedures for international transit trade, cargo consolidation and cargo organization will also be simplified at the zone. New regulatory systems, such as the "first line opening" and "two-line high-efficiency safety control" in order to ease inspection and quarantines, will also be rolled out. The distribution of cargoes between special regulated zones of customs will be made simpler and faster. Aircrafts that weigh more than 25 tons which were purchased by leasing companies within the zone for deployment to Air China will also be given tax breaks.

Now with regard to the trade segment, the Shanghai FTZ has also vowed to offer incentives for the establishment of the Asia Pacific headquarters of multinational companies, reinforce cross-border settlement and financing functions for service trade through dedicated accounts, create platforms for the deployment of resources and the trading to international commodities within the zone for the purpose of developing the trade of energy products, industrial raw materials and agricultural products, develop asset financing through warehousing and the trading of bond futures, and extend support to the offshore operations of firms within the zone. As for financing, the FTZ will try cross-border deals that are denominated in yuan and the foreign exchange of yuan capital accounts. Foreign-funded banks and financial institutions in which Chinese and foreign entities are involved will also be allowed into the FTZ.

China's Ministry of Commerce and the municipal government of Shanghai held an establishment ceremony for the new facility in Shanghai last September 29, along with a press conference. The presentation of the new facility was attended by Dai Haibo, deputy secretary-general of the Shanghai government and vice-director of the zone's management committee, together with delegates from the Ministry of Commerce, China's National Development and Reform Commission, the People’s Bank of China, the General Administration of Customs, the General Administration of Quality Supervision, Inspection and Quarantine, the Ministry of Finance and a long list of people who are in charge of the trade and foreign investment segments for the State Council.

Thirty-six companies have already forayed into the Shanghai FTZ, including the Industrial and Commercial Bank of China, Citi Group of the U.S., Microsoft, which is also from the U.S, and Porsche from Germany. However, Japanese entities have yet to set foot into the zone.

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