Covington & Burling LLP
China’s Economic Reforms:
Current Policy Trends
and Debate
Prepared for the European Commission Directorate-General for Trade
Contact:
Timothy P. Stratford
Managing Partner
Covington & Burling LLP Beijing Representative Office
[email protected]
August 7, 2014
China’s Economic Reforms:
Current Policy Trends and Debate
SECTION 1 - THE CHINA (SHANGHAI) PILOT FREE TRADE ZONE
1.1 Political Background ............................................................................................................................... 2
1.2 Shanghai Free Trade Zone Overview ..................................................................................................... 3
1.2.1 Framework Laws and Supporting Regulations........................................................................ 4
1.2.2 Administrative Reforms ......................................................................................................... 6
1.2.3 Sector-Based Ministerial Instructions .................................................................................... 7
1.3 Prospects for the Shanghai FTZ ............................................................................................................ 11
SECTION 2 - THE THIRD PLENUM’S BLUEPRINT FOR REFORM
2.1 Overview of the Third Plenum Resolution ............................................................................................ 12
2.2 Domestic Reforms Contemplated in the Third Plenum Resolution ...................................................... 13
SECTION 3 - FUTURE TRADE AGREEMENTS
SECTION 4 - CONCLUSION
ANNEXES
Annex 1 - China (Shanghai) Pilot Free Trade Zone Laws and Regulations
Annex 2 - Industries Removed in 2014 Negative List
Annex 3 - Newly Opened Service Industries in the China (Shanghai) Pilot Free Trade Zone
1
Section 1: The China (Shanghai) Pilot
Free Trade Zone
“The China (Shanghai) Pilot Free Trade Zone is a national strategy aiming to expedite the functional
transformation of government, explore administrative innovation, stimulate trading and investment,
and accumulate experience on achieving a more open Chinese economy.”
-- Circular of the State Council on the Framework Plan for the China (Shanghai) Pilot Free Trade Zone
This Report is intended to complement our companion study on Measures and Practices Restraining
Foreign Investment in China (“China Restraints Report”) by describing the current climate for reform
in China and analyzing its potential effect on foreign investors and investment. Central to this
discussion are the innovative reforms now being tested in the China (Shanghai) Pilot Free Trade Zone
(“Shanghai FTZ” or “the zone”). As a major initiative of President Xi Jinping’s new administration,
the Shanghai FTZ provides a limited space to test economic and administrative reforms before they
are considered for introduction nationwide. Although still in its early stages, the zone’s planned
reforms herald potentially significant market openings and administrative reforms for foreign
investors.
1.1 Political Background
When Xi Jinping took the helm of the Communist Party in November 2012, 1 a growing consensus had
formed that China would need to pursue significant economic reforms over his ten-year term to shift
the economy from its slowing investment-led growth model to a more sustainable model based on
personal consumption, innovation, and services. With many pundits predicting the embrace of
economic if not political reforms by the new administration, it was perhaps no surprise when Xi
chose the border city of Shenzhen for his first official inspection tour as head of the Communist
Party. 2
For the newly installed leader, the choice was rife with historical significance. In 1980, Deng
Xiaoping had selected Shenzhen as the first special economic zone to serve as a testing ground for
China’s experiments with market reform. Twelve years later, Shenzhen would again play a crucial
role as part of Deng Xiaoping’s landmark 1992 “Southern Tour,” a visit now credited with reaffirming
the Party’s commitment to the market economy in the uncertain post-Tiananmen era. Xi’s visit in
2013 was a clear homage to this spirit of reform and a way to harness the political bona fides of the
“paramount leader,” Deng Xiaoping, to support his own developing reform agenda.
1
In November 2012, Xi was elected General Secretary of the Chinese Communist Party and Chairman of the
Chinese Communist Party Military Commission at the 18th Central Committee Meeting of the Chinese
Communist Party. He assumed his position as President of China at the 18th National Congress in March 2013.
2
Many China-watchers pointed to the selection of Li Keqiang as Premier as settling any debate that the Xi
administration would focus on economic reform. As Vice Premier, Premier Li had been the sponsor of an
influential economic-orientated report co-authored by the World Bank and the Development Research Center
of China’s State Council entitled “China 2030: Building a Modern, Harmonious, and Creative High-Income
Society,” and his selection was widely interpreted as a win for the reformist camp.
2
Although the next six months of his leadership focused on setting in motion an ongoing internal anticorruption crackdown (a crackdown which has likely had the effect of cementing his leadership and
reducing potential domestic opposition to future reforms), Xi’s own “southern tour” established that
economic reforms were now on the table, and suggested that Xi’s own presidential legacy would be
determined by their success or failure.
While the initial details regarding the shape of these reforms were the subject of much speculation
in the first half of 2013, the subsequent announcement of the Shanghai FTZ during the summer of
2013 and its initial rollout that fall provided onlookers with a first look at the reform priorities of the
Xi administration.
Although some have criticized the zone for its lack of immediate impact, it should be remembered
that the history of China’s economic reforms has not been one of shock therapy, but rather of
managed incremental reforms launched initially on a pilot basis. The government’s Shanghai FTZ
policies have been consistent with this historical theme, and the support of President Xi
demonstrates that the Shanghai FTZ is a major party initiative -- one that will likely have outsize
effects on the future direction of China’s economy in the years to come.
1.2 Shanghai Free Trade Zone Overview
Officially established on September 29, 2013, the Shanghai FTZ combines the area of four bonded
zones located on the far eastern borders of the Shanghai municipality: the Waigaoqiao Free Trade
Zone, Waigaoqiao Bonded Logistics Zone, Pudong Airport Comprehensive Free Trade Zone, and
Yangshang Free Trade Port. With a total geographic area of 28.78 square kilometers, the noncontinuous zone is one-third the size of Hong Kong island, and a fraction of the size of the greater
Shanghai metropolis (6340.5 square kilometres).
As expressed in its framework plan, the Notice of the General Plan of the China (Shanghai) Pilot Free
Trade Zone (Pilot FTZ Plan), the Shanghai FTZ aims to “expedite the functional transformation of
government, explore administrative innovation, stimulate trading and investment, and accumulate
experience in achieving a more open Chinese economy.” As one of its major initiatives, the zone has
adopted a “negative list” approach that replaces China’s current investment approval process with a
record filing for investment in non-covered industries. In addition, investment restrictions have, to a
certain extent, been loosened in 23 service sectors previously restricted to foreign investors,
including telecommunications, banking, financial services, and healthcare.
Many of the reforms announced in the Pilot FTZ Plan have been selected for eventual nationwide
implementation in the CCP Central Committee Resolution Concerning Some Major Issues in
Comprehensively Deepening Reform (Third Plenum Resolution), issued on November 15, 2013
following the Party’s Third Plenum. These reforms are reflected in language resolving to “explore
implementation of a management model for foreign investment with pre-establishment national
treatment plus a negative list,” to “move forward with the orderly opening up of finance, education,
culture, healthcare, and other service areas,” and calling for financial reforms similar to those
contained in the Pilot FTZ Plan. A fuller treatment of the Third Plenum Resolution is presented in
Section 2, below.
According to government officials familiar with the zone, the central government has established the
Shanghai FTZ with the primary objective of driving reforms capable of nationwide replication.
3
Should these reforms be promulgated nationwide, a number of the restrictive or discriminatory
measures identified in the China Restraints Report may be revised or replaced. We expect that a
number of the administrative reforms now being piloted in the zone will see nationwide
implementation by 2016, but further sectoral investment openings and financial liberalization will
likely proceed on a more extended timeline, given the need to overcome entrenched domestic
interests.
To date, approximately 41 regulations have been promulgated to support the zone, though many
are general policy formulations lacking implementation specifics. For the zone to succeed, these
general directives will need to be supplemented by clearer and more detailed implementing rules.
The current regulations, a full list of which appears in Annex 1, can be roughly divided into four
categories as follows:
•
•
•
•
Framework laws and supporting regulations (4);
Administrative registration guidelines (13);
Sector-based ministerial instructions (19); and
Implementing measures (5).
1.2.1 Framework Laws and Supporting Regulations
The Pilot FTZ Plan provides a general description of the zone and sets forth its major aims. Of the
many reforms it describes, perhaps the most significant for foreign investors are the replacement of
the Foreign Investment Catalogue with a “negative list” for specific industries, the application of preestablishment national treatment for foreign investors, and the opening of 23 service industries
previously restricted or prohibited to foreign investment. Other reforms affecting specific sectors, in
particular the financial sector, have been further elaborated on by subsequent ministerial
instructions, which we examine below.
The Negative List & Pre-Establishment National Treatment
China’s current foreign investment scheme outside of the zone requires approval for all inbound
foreign direct investment, regardless of industry. Under the newly-announced negative list
approach, foreign investment approvals in the zone will only be required for those industries
included on the list or that are otherwise designated as requiring approval by China’s State Council
(e.g., within an industrial policy). Investors in industries not listed on the negative list may simply
“file for record” with administrative authorities and do not need to obtain separate investment
approvals. This reform essentially applies pre-establishment national treatment to foreign investors
in non-covered industries, bringing their investment approvals process in line with the process
applicable to domestic investors. 3 Investment in regulated industries (e.g., financial services and
other licensed industries) would still require the approval of the industry regulator postestablishment, but this is true for domestic as well as foreign-invested firms.
3
China’s adoption of a “negative list” in the Shanghai FTZ follows a similar agreement with the United States in
which China has agreed to adopt a negative list approach as one aspect of a forthcoming bilateral investment
treaty. It is also seen as a first step in Chinese preparations to join negotiations for the Trans-Pacific
Partnership free trade agreement. We discuss these issues in further detail in Section 3, below.
4
The first negative list was released on September 30, 2013. Entitled Special Management Measures
(Negative List) on Foreign Market Access in the China (Shanghai) Pilot Free Trade Zone (2013) (2013
Negative List), the document included 190 industry categories and over 1000 subcategories. The list
included all of the industries currently listed as “prohibited” in the Foreign Investment Catalogue but
opened for investment (i.e., by not including them on the list) several “restricted” industries, such as
video distribution and performance agencies.
Following criticisms that the 2013 Negative List was too lengthy, government officials responded by
noting that the list’s relative absence of sectoral openings would be remedied in subsequent
iterations, with future versions including potential cuts of up to 30%. 4 However, this prediction
failed to materialize when the Shanghai Municipal People’s Government released an amended
version of the negative list (2014 Negative List) on July 1, 2014. Although official news reports stated
that the 2014 Negative List had reduced the number of covered industries from 190 to 139, this
reduction was primarily achieved by reclassification of existing industry headings, rather than
through actual elimination of industry restraints. In fact, the revised 2014 Negative List only
removed 17 restrictions (See Annex 2), several of which -- e.g., oil refining, metal smelting, and coalfired power plants -- are in industries that are unlikely to be established within the limited confines
of the Shanghai FTZ.
Legal Foundation
Consistent with the general framework provided by the Pilot FTZ Plan, the Decision by the State
Council on Temporarily Adjusting the Administrative Approvals and Special Measures of Investment
Permission Prescribed by Relevant Regulations and State Council Circulars in the China (Shanghai)
Free Trade Pilot Zone provides a legal foundation for the zone’s administrative and investment
reforms by temporarily suspending within the zone (for a period of three years) various
administrative approval items currently found in national law and regulations. These approval items
-- the majority of which are found in the Sino-Foreign Equity Joint Venture Enterprise Law, the SinoForeign Cooperative Joint Venture Enterprise Law, and the Wholly Foreign-Owned Enterprise Law -backstop China’s current inbound investment approvals regime.
Newly Opened Service Industries
The Pilot FTZ Plan calls for the opening of 23 service industries currently prohibited or restricted for
foreign investors, including the following significant areas (See Annex 3 for full list):
•
•
Financial Services
o Permits qualified foreign investors to establish foreign banks and Sino-foreign joint
banks in the FTZ. Chinese banks will be permitted to provide offshore banking
business in the FTZ.
Internet and Technology
o Permits foreign-invested enterprises to engage in the following value-added
telecommunications services within the FTZ: internet information services (e.g.,
4
The understanding is that the drafters of the 2013 Negative List did not have time to negotiate internally for
sector openings, and simply compiled in this first version all known industry-specific foreign investment
restrictions.
5
•
•
•
•
•
certain commercial websites); information transmission, software, and information
technology services; call centers; and data processing and storage services (e.g.,
cloud computing).
o Ends a 13-year ban on gaming consoles in mainland China, permitting foreign
manufacturers to manufacture their gaming consoles within the FTZ and sell
throughout China following examination by the Ministry of Culture.
Construction
o Abolishes equity restrictions for Sino-foreign joint venture construction companies
that carry out joint construction projects in the Shanghai municipality.
Healthcare
o Permits wholly foreign-owned foreign enterprises to open certain healthcare
organizations, including general hospitals, specialized hospitals, and out-patient
clinics.
Travel Services
o Permits Sino-foreign joint ventures registered in the FTZ to offer travel services to
Chinese consumers (except for travel to Taiwan).
Entertainment
o Permits wholly foreign-owned enterprises to establish entertainment venues in the
FTZ.
Education
o Permits Sino-foreign joint ventures to open educational and vocational training
institutions.
Notably, the opening of many of these industries will require specific implementing legislation from
the ministerial agency responsible for supervision. We discuss this in further detail in Section 1.2.3,
below.
1.2.2 Administrative Reforms
The Shanghai FTZ introduces a number of innovative administrative reforms for Chinese and foreigninvested enterprises registered within its limits, several of which are currently being considered for
implementation nationwide. Principally contained in the Administrative Measures for the China
(Shanghai) Pilot Free Trade Zone, these reforms include:
•
Creation of a “One-Window” Acceptance Mechanism. Within the Shanghai FTZ, a
comprehensive services center has been created where all relevant government authorities
will be located to assist with filing procedures. This center will adopt a “one-window”
acceptance mechanism whereby applicants may complete a “one-form” declaration (i.e.,
single application document) to register their enterprise or modify its registration. This
supplants the general investment approval regime that requires submission of separate
applications to each supervising ministry.
•
Expedited Business Approval Times. Following enterprise registration, filing and tax
certificates are to be issued within one business day, and business licenses within four days.
This new system would significantly cut down on the approval time for new businesses,
which previously involved a multi-agency review, and where time for review could exceed a
6
month. Enterprises will also be able to receive their business licenses and commence
preparatory operations prior to receiving any necessary industry permits. Previously,
companies in most regulated industries were required to obtain their industry licenses prior
to applying for the business license.
•
Shift from “pre-approval” to “mid-event control and supervision.” The Shanghai FTZ
removes pre-approval requirements in a number of industries (generally consisting of a
regulatory review of company-submitted information) and replaces it with a “mid-event
control and supervision” system by which administrative authorities will focus on on-going
supervision rather than initial approvals. This is principally being carried out through the
creation of an online “filing platform” to permit companies to perform online regulatory
filings and make amendments. Regular reviews will be conducted against the information
stored on the filing platform, and an order to make amendments will be issued if the actual
situation is found to be inconsistent with the information filed or declared. If the matter is
serious, the business’s filing certificate may be revoked, with the business itself placed on a
“black list” and reported to the public.
•
Removal of Minimum Registered Capital Requirements and Adoption of “Subscribed
Capital” (认缴) mechanism. Minimum registered capital requirements for new companies
have been eliminated in the zone. Except where otherwise legally required (e.g., for
financial services), the minimum registered capital requirement formerly applicable to
companies has been removed, and there are no longer any restrictions on the amount of the
initial capital contribution, the proportion of the initial capital contribution to total
registered capital, the proportion of paid-in capital to total registered capital, or the time
period for shareholders to fully contribute capital. These matters may be determined by the
shareholders and set forth in their articles of association. Shareholders are still liable to the
company for the amount of capital contribution for which they subscribe.
•
Annual Reporting. Companies established in the zone will be responsible for filing an annual
report with the local office of the Administration of Industry and Commerce (AIC), and AIC
officials will no longer carry out annual inspections of companies within their jurisdiction.
Such annual reports will be open to the public.
1.2.3 Sector-Based Ministerial Instructions
Many of the reforms contained in the Pilot FTZ Plan, in particular financial liberalization and the
opening of service sectors that currently require industry licenses, will only become effective upon
the passage of implementing regulations by applicable regulatory bodies. To date, many of these
rules remain unissued, leaving considerable uncertainty for companies considering whether to invest
in the zone. A number of ministerial agencies have, however, issued circulars (or opinions)
supporting the overall aims of the Shanghai FTZ and describing the reforms slated for the zone
within their relevant administrative spheres.
These circulars serve several functions. Politically, they demonstrate support for the Pilot FTZ Plan
and the goals of the State Council, and they provide notice to their local (Shanghai) subordinate
agencies that Shanghai FTZ-related work should be accorded a high priority. They also clarify and
7
expand on the more general aims of the Pilot FTZ Plan, providing helpful guidance to legislative
drafters and other stakeholders as more specific implementing regulations are developed.
In this section we summarize several of the more significant circulars released by ministerial
agencies, highlighting those provisions of most relevance to foreign investors. A full list of relevant
circulars can also be found in Annex 1.
People’s Bank of China (PBOC)
Undoubtedly the most comprehensive zone-related ministerial circular is the PBOC’s Opinions to
Support the Construction of the China (Shanghai) Pilot Free Trade Zone in the Financial Sector. The
PBOC circular sets out a number of significant financial innovations to be implemented in the zone in
six key areas. These reforms are perhaps the most vital for the successful growth of the Shanghai
FTZ, as they would provide the financial lifeblood for the zone’s overall operations. In January 2013,
PBOC Shanghai Chief Zhang Xin indicated that these reforms would be rolled out in three months
and evaluated in six months, with formal policies to be released by the end of 2014. However, this
ambitious timeline has not been met in practice.
Slated reforms include:
1) Bank Account Innovation
o Banks may directly handle fund remittance and conversion for cross-border direct
investments in and out of the Shanghai FTZ without the need for State
Administration of Foreign Exchange (SAFE) approval;
o Individuals and enterprises resident in the zone may set up “free trade accounts” at
any bank (including non-zone banks) in Shanghai for the purposes of cross-border
investment and financing (resident FTA account). Non-resident individuals and
enterprises may also open “free trade accounts” with banks inside the zone to enjoy
certain unspecified financial services on a pre-establishment national treatment
basis (non-resident FTA account).
o Free fund flows will be permitted between resident FTA accounts and overseas
accounts, non-resident FTA accounts, other resident FTA accounts, and non-resident
domestic accounts.
o Fund transfers between a resident FTA account and a non-financial settlement
account in another bank will be permitted for current account transactions, loan
repayment, industrial investment, and other (non-financial) cross border trading
activities.
o When conditions are mature, the zone will implement full convertibility between
domestic and foreign currencies within the same account.
2) Exploration of a Convertibility Account System to Facilitate Financing and Investment
o Receipt or payment of funds for cross-border investments will no longer require
SAFE pre-approval for investors within the zone.
o Qualified individuals working in the Shanghai FTZ will be able to make outbound
investments, including in foreign securities, pursuant to relevant (though not yet
promulgated) regulations.
o Foreign parent companies of Shanghai FTZ enterprises will be able to issue RMB
bonds in domestic capital markets.
8
Shanghai FTZ institutions (including both Chinese- and foreign-funded enterprises)
will be permitted to borrow funds from overseas in domestic and foreign currencies
according to business needs.
o Qualified Shanghai FTZ institutions will be able to make foreign securities and
derivatives investments according to relevant regulations.
3) Enhancement of Cross-Border RMB Usage
o Banking institutions in Shanghai will be able to directly arrange cross-border RMB
settlements of current account or direct investment matters for Shanghai FTZ
institutions and individuals.
o Financial institutions and enterprises in the Shanghai FTZ will be able to borrow RMB
funds from overseas.
4) Steady Progression of Interest Rate Liberalization
o Within the zone, a liberalized interest rate system will be established “according to
the relevant [currently unspecified] conditions.”
o Qualified financial institutions in the Shanghai FTZ will be permitted to issue largedenominated certificates of deposit with priority.
5) Deepening Reform of Foreign Exchange Administration
o The foreign exchange registration system for direct investments will be simplified
and delegated to banks. Provided the transaction is confirmed and complete
information collected, foreign businesses will be able to freely convert the foreign
exchange used for inbound foreign direct investments to RMB.
o Enterprises in the zone will not need to obtain pre-approval for payment of
guarantees to overseas parties.
o
Although the PBOC circular is notable for its ambitions, many of its measures involve items of
particular political sensitivity, and critical questions on the interplay between the financial structure
contemplated in the zone and China’s national financial markets remain unaddressed. For instance,
how will domestic institutions be permitted to fund their Shanghai FTZ operations, and, once funded,
will the allowance of cross-border free fund flow lead to excess capital flight from China’s otherwise
closed capital account? These issues suggest that financial liberalization measures may face
significant domestic political roadblocks, notwithstanding PBOC Shanghai Chief’s Zhang Xin’s
optimistic implementation timeline. This will be an area worth monitoring as China’s policymakers
grapple with the future of its domestic financial policy.
China Insurance Regulatory Commission (CIRC)
On October 10, 2013, CIRC released the Opinions to Support the China (Shanghai) Pilot Free Trade
Zone, noting its support of policy initiatives in the Shanghai FTZ, including the:
•
•
•
•
Establishment of foreign-invested medical companies;
Establishment of insurance company branch offices specializing in cross-border RMB
reinvestment;
Launch of an outbound investment pilot by FTZ insurance institutions, and research for
expanding the scope of permitted outbound insurance investments;
Development of shipping insurance business in Shanghai;
9
•
Innovation of insurance products by insurance companies, and continuous expansion of the
service scope liability insurance business.
Ministry of Industry and Information Technology (MIIT)
In accordance with the Pilot FTZ Plan’s listing of “value-added telecommunications services” (VATS)
as one of the newly opened service sectors, MIIT and the Shanghai Municipal People’s Government
issued the Opinions on Further Opening Up Value-Added Telecommunication Services in the China
(Shanghai) Pilot Free Trade Zone on January 6, 2014.
The opinion provides for enhanced foreign ownership of certain VATS services located within the
zone:
•
•
Foreign ownership may now exceed 50% for app stores, storage and forwarding services, call
centers, domestic multiparty telecommunications services, and internet access providers;
and
Foreign investors may now hold up to a 50% ownership stake in domestic virtual private
networks and a 55% stake in online data processing or e-commerce services.
Investors in these areas will be required to locate their servers within the boundaries of the
Shanghai FTZ but may serve customers throughout China. Internet access providers are the
exception to this rule, however, and may only provide their services within the Shanghai FTZ.
China Banking Regulatory Commission (CBRC)
CBRC is the ministry responsible for overseeing China’s banking sector. On September 29, 2013,
concurrent with the release of the Pilot FTZ Plan, CBRC released its Circular on Issues Concerning
Banking Supervision in the China (Shanghai) Pilot Free Trade Zone.
In addition to expressing support for the establishment of domestic (i.e., Chinese-funded) banking
business within the Shanghai FTZ, the circular supports foreign-invested banking business within the
zone, 5 though it does not state which restrictions currently in place for foreign banks will apply
within the Shanghai FTZ. The circular does note that the CBRC will carry out “studies with the aim of
properly shortening the statutory period for an FTZ representative branch of a foreign bank to be
upgraded to a branch, and the statutory period for an FTZ branch of a foreign bank to be allowed to
carry out RMB business,” but the lack of a specific mandate suggests that such reforms may be some
ways off. Until such time, the establishment and operation of foreign banks in the zone may be
subject to regulations similar to those currently applicable nation-wide. Nevertheless, foreigninvested banks will likely benefit from future financial liberalization measures adopted in the zone, in
particular those relating to cross-border investment.
The circular also states that market access measures will be simplified in the FTZ, with reporting,
rather than pre-approval, to be required for such items as the qualification of branch offices, senior
management, and certain business approvals. These provisions mirror many of the administrative
reforms implemented elsewhere in the zone (See Section 1.2.2, above), but it is still unclear whether
this reporting system will be applied to all banks in the Shanghai FTZ, or simply to domestic ones.
5
This includes ”subsidiaries, branches, special institutions, and Sino-foreign equity joint-venture banks.”
10
China Securities Regulatory Commission (CSRC)
In a circular issued on September 29, 2013 and entitled Policies and Measures on Capital Market for
Supporting and Promoting China (Shanghai) Pilot Free Trade Zone, the China Securities Regulatory
Commission voiced its support for the following major initiatives in the zone:
•
•
•
•
Establishment of the Shanghai International Energy Trading Co., Ltd., a company responsible
for establishing a trading platform for crude oil futures and permitting foreign investors to
participate in domestic futures trading based on this platform;
Permitting qualified individuals and companies in the zone to invest in domestic and foreign
securities and futures;
Permitting the overseas parent companies of companies in the zone to issue RMBdenominated bonds in the domestic market; and
Allowing securities and financial companies to set up subsidiaries and engage in over-thecounter trading in commodities and financial derivatives.
As with the CBRC circular referenced above, it is unclear at this time whether the regulatory reforms
noticed in the CSRC circular will be made available to all security and financial companies in the
Shanghai FTZ, or simply to domestic ones.
1.3 Prospects for the Shanghai FTZ
The central position of the Shanghai FTZ within China’s national policy agenda was most directly
affirmed by the release of the Third Plenum Resolution. The resolution specifically called for
“establishing the China (Shanghai) Pilot Free Trade Zone as a major national measure to move
reform and opening up forward under new circumstances,” and also called for the establishment of
other free trade zones across the country:
Accelerate the construction of free trade zones. Persist in the rules of the global trading
system, persist in launching bilateral, multilateral and regional cooperation, broaden points
of converging interests with all countries and all regions, and accelerate the implementation
of the free trade strategy with the periphery as the basis. Reform market access; customs
supervision; management, inspection, and quarantine; and other such management systems.
Accelerate negotiations on environmental protection, investment protection, government
procurement, electronic commerce and other such new topics, and form a network of
international-facing high-level free trade zones.
On January 23, 2014, the China Daily reported that China’s central government had approved 12
additional free trade zones, including in Tianjin and Guangdong. 6 Around the time of this report,
Deputy Director Huang (Department of Foreign Investment Administration -- Ministry of Commerce)
noted in a meeting with foreign investors that the Shanghai FTZ is intended to operate in
conjunction with ongoing Bilateral Investment Treaty (BIT) negotiations with the U.S., and that these
negotiations will likely shape the final content of the zone’s negative list. He suggested that future
6
According to the article “a source with knowledge of the approval refused to disclose the additional ten.”
11
expansion to other cities will be subject to the further approval of the State Council and is unlikely to
occur while BIT negotiations with the United States are still in their opening stages. 7
Political support for the zone was further demonstrated through a brief visit by President Xi,
together with Shanghai Communist Party Chief Han Zheng and Shanghai Mayor Yang Xiong, in late
May, 2014.
Section 2: The Third Plenum’s
Blueprint for Reform
2.1 Overview of the Third Plenum Resolution
Many of the foreign investment reforms identified in the Pilot FTZ Plan were later incorporated into
the Third Plenum Resolution published on November 15, 2013, following the Third Plenum of the
18th Central Committee of the CCP (Third Plenum). The Third Plenum is the third major party
meeting in China’s five-year cycle and is historically used by Chinese leaders to lay out their policy
vision.
Notable for the breadth of its anticipated social, economic, and administrative reforms, the Third
Plenum Resolution calls for the market to play a “decisive” rather than “basic” role in allocating
resources, while at the same time asserting the need to “strengthen the vitality, control, and
influence of the state-owned economy.” This language upgrades the role of the market in China
while still making clear that the “leading role of the state-owned economy” will be maintained.
The Third Plenum Resolution also recognizes China’s urgent need to transition its economy to a new
growth model. Its precatory language reflects some of the fundamental challenges now facing
China:
At present, our country’s development has entered a new phase, and reform has entered a
period of storming fortifications and an area of deep water. We must, with a strong sense of
historical commitment, concentrate the wisdom of the entire Party and the entire society to
the broadest extent; muster all positive factors to the broadest extent; dare to gnaw
through hard bones, dare to ford dangerous rapids, and breach through the fetters of
7
While the China Daily may have overstated the case for new free trade zones in the short-term, they are
likely correct in identifying the city of Tianjin and Guangdong province as potential locations for expansion.
Tianjin, a port city of 14 million adjacent to Beijing, has recently invested in a 3.86 million square-meter
financial center reportedly modelled on Manhattan (and including its own Rockefeller Center). Former Tianjin
Party Secretary Zhang Gaoli, the champion of that investment, now sits on China’s powerful seven-man
Standing Committee and is likely to support establishment of a Tianjin Free Trade Zone as a means to confirm
the success of this initiative. In Guangdong, China has recently sought greater integration between the
manufacturing boomtowns of Shanghai, Dongguan, Guangzhou, and the city of Hong Kong. Promotion of
further cross-border trade and investment reforms through an FTZ would combine the advantages of the
southern export powerhouse and its neighboring financial center, and further China’s aims for an integrated
Pearl River Delta.
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ideological concepts with even greater resolution; surmount the barriers of solidified
interests, and promote the self-perfection and development of the system of socialism with
Chinese characteristics.
China has always relied on the metaphor of “crossing the river by feeling for stones” to describe its
reform approach, with its gentle suggestion of a gradual process of trial and error. The more vibrant
language (“gnaw through hard bones,” “ford dangerous rapids”) contained in the Third Plenum
Resolution does not do away with this approach, but instead emphasizes the difficulties present at
China’s current stage of economic reform, and the need for steadfast determination if China is to
escape the challenge of the “middle-income trap” and continue its historic rise. The contents of the
Third Plenum Resolution provide a wide-ranging blueprint of potential reforms intended to
overcome such challenges.
2.2 Domestic Reforms Contemplated in the Third Plenum Resolution
The bulk of the reforms identified in the Third Plenum Resolution focus on the domestic economy.
They include:
•
•
•
•
•
•
Creation of a central leading group to promote reform, and the creation of a national
security committee to oversee domestic security and foreign affairs;
Numerous financial reforms including establishment of a deposit insurance system for
investors, permission for private capital to establish small- to mid-sized banks, and further
development of a multi-tier capital market;
Expanded land use rights for farmers and indications of future reforms to China’s resident
permit (hukou) system;
Greater opening of SOEs to private investment (so-called “diversified ownership”) 8;
New rules requiring SOEs to contribute up to 30% of their profits to the government by 2020
to fund social welfare programs; and
Prioritization of the environment in China’s economic growth, with calls for tougher
punishment of polluters and the elimination of GDP growth as a criteria for assessing official
performance in certain regions.
While these reforms are worded quite broadly, we should expect the underlying principles of the
Third Plenum Resolution to be further integrated into upcoming policy formulations, such as China’s
Thirteenth Five-Year Plan (2016-2020), and other more specific implementing regulations.
2.3 Reforms Affecting Foreign Investment in the Third Plenum
Resolution
In addition to supporting the Shanghai FTZ as discussed in Section 1.3, above, the Third Plenum
Resolution also includes the following reforms likely to affect foreign investment:
Article
Targeted Reform
Text
9
Implement nationwide negative list
for foreign investment, including pre-
“Implement unified market access systems, on the
basis of formulating negative lists, to permit all
sorts of market subjects to enter into areas
8
It is presently unclear whether this “private” investment will include foreign investment.
13
establishment national treatment.
outside of the list on an equal basis and according
to the law. Explore the implementation of a
management model for foreign investment with
pre-entry national treatment plus the negative
list.”
9
Simplify the administrative approvals
process for both domestic and foreign
investment.
“Move forward with making industry and
enterprise registration systems more convenient,
reduce qualification accreditation programs,
change from certification before licensing to
licensing before certification, progressively change
the paid-in registered capital registration system
into a subscribed capital registration system.”
12
Pursue financial reforms aimed at
encouraging greater financial opening
and cross-border trade.
“Perfect mechanisms for the formation of
Renminbi exchange marketization, accelerate with
moving forward interest rate marketization, and
complete national debt yield curves that reflect
the relation between market supply and demand.
Promote bidirectional openness for capital
markets, raise the extent of convertibility of crossborder capital and financial trading, establish and
complete foreign debt and capital flow
management systems under prudential macrolevel management frameworks, and accelerate the
realization of the convertibility of Renminbi capital
accounts”
13
Further support China’s “indigenous
innovation” policies.
“Establish and complete systems and mechanisms
to encourage original creation and innovation,
integrated innovation, import, absorption and reinnovation; complete market-oriented
technological innovation mechanisms; give rein to
the guiding functions of markets in the direction of
technological research and development.”
13
Strengthen protection of intellectual
property rights.
“Strengthen intellectual property rights use and
protection, complete technological innovation
incentive mechanisms, explore the establishment
of intellectual property rights courts.”
24
Open service industries to foreign
investment.
“Move forward with the orderly opening up of
finance, education, culture, healthcare and other
service areas; lift limits on foreign investment in
childcare, care for the elderly, architectural
design, accounting and auditing, commerce and
logistics, electronic commerce and other such
service areas; further open up the general
manufacturing industry.”
24
Unify domestic and foreign capital
“Broaden investment input. Unify domestic and
foreign capital laws and regulations, maintain
14
laws and regulations.
foreign capital policy stability, transparency, and
predictability.”
As can be seen above, there is significant overlap between the reform initiatives currently being
tested in the Shanghai FTZ and those targeted for nationwide implementation by the Third Plenum
Resolution, particularly those promoting sectoral openings, a negative list approach, and a
streamlined administrative approvals process. This legislative mirroring suggests that the Shanghai
FTZ will serve as somewhat of a canary in the coal mine for the fate of Xi’s ambitious reform agenda.
Section Three: Future Trade
Agreements
The foreign investment reforms found in the Third Plenum Resolution and Pilot FTZ Plan are likely
being developed, in part, to help drive China’s domestic reform process, as well as to position China
for greater engagement with regional and global trading bodies. In the past year, China has
indicated its interest in a number of trade pacts, including:
•
US-China BIT. At the July 2013 US-China Strategic and Economic Dialogue, China surprised
many observers when it announced that it would accept pre-establishment treatment and a
“negative list” approach for negotiating a US-China BIT. This concession is expected to fasttrack trade talks between the two countries. As noted above, comments from Chinese
officials indicate that the Shanghai FTZ is intended to operate in conjunction with ongoing
BIT negotiations with the U.S., and that these negotiations will likely shape the final content
of the zone’s negative list.
•
EU-China BIT. On October 18, 2013, the European Council announced that it accepted a
mandate for the European Commission to negotiate a BIT with China on behalf of the
European Union. These talks will likely be carried out at the same time China negotiates the
US-China BIT, and it is likely that many of the benefits and safeguards agreed upon in the US
negotiations will be included in the EU-China BIT.
•
Regional Comprehensive Economic Partnership (RCEP). At the 2014 opening ceremony of
the annual Boao Forum, Chinese premier Li Keqiang noted China’s intention to accelerate
negotiations on the RCEP to finalize it by the end of 2015. The RCEP is a proposed free trade
agreement between China, ASEAN, Australia, New Zealand, Japan, Korea, and India.
•
The Trans-Pacific Partnership (TPP). In Summer 2013, news reports emerged indicating that
China was studying the possibility of joining the US-led TPP currently being negotiated by the
Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the
United States, and Vietnam.
•
Trade in Services Agreement (TISA). China has also stated its interests in joining the TISA
now being negotiated by the EU and more than 50 other countries. First begun in 2013, TISA
15
is intended to build on the foundation of the 1995 General Agreement on Tariffs and Trade
(GATT) to establish a new multinational trade in services agreement more reflective of 21st
century trade.
China’s ongoing support for international trade agreements and domestic economic reforms was
further reiterated in statements found in in the US-China Joint Fact Sheet following the two
countries’ sixth Strategic & Economic Dialogue in July 2014. In the fact sheet:
•
Both sides affirmed their commitment to “intensify…negotiations toward a BIT with high
standards, including non-discrimination, fairness, openness and transparency…to narrow
differences and to reach agreement on core issues and major articles of the treaty text by
the end of 2014, and…to initiate the ‘negative list’ negotiation early in 2015 based on each
other’s ‘negative list’ offers”;
•
China committed “to follow the guidance provided at the Third Plenum of the 18th CPC
Central Committee, which is to promote the orderly opening-up of the finance, educational,
cultural, medical sectors, and other service areas, and to remove foreign investment access
restrictions in child and old-age care, architectural design, accounting and auditing,
commerce and logistics, electronic commerce, and other service sectors, including
accelerating the revision of the Catalogue Guiding Foreign Investment in Industries to
further open up to foreign investment”; and
•
With respect to the Information Technology Agreement, both sides committed to “continue
the discussion…to create conditions to restart plurilateral negotiations.”
Conclusion
The spirit of reform expressed in China’s Third Plenum Resolution and Pilot FTZ Plan, and China’s
renewed interest in international trade agreements, present trade negotiators, trade associations
and individual companies with a unique opportunity to pursue agreements and support Chinese
reforms that will reduce existing investment barriers and ensure a more transparent and level
playing field for foreign investors. However, the path to achieve such reform will not be easy.
Interested parties should consider the following points in preparation for the winding road ahead:
•
Trade negotiators, trade associations and individual companies will have greater success
persuading Chinese policy-makers and regulators to abandon existing restraints on foreign
investment championed by powerful vested interests if they present well-founded
arguments showing that proposed reforms will benefit China and help to implement specific
goals articulated in the Third Plenum Resolution.
•
China’s willingness to implement economic reform is likely dependent on maintenance of
steady economic growth. Although China’s anticipated reforms appear to have the strong
backing of President Xi, the general slowdown of the Chinese economy in the first half of
2014 has led to a renewed emphasis on pursuing debt-financed investment-led growth,
while the pace of post-Third Plenum economic reforms has been comparatively stagnant.
16
This disparity suggests that Chinese leaders’ acceptance and implementation of structural
reforms may ultimately depend on the maintenance of a favorable macroeconomic
environment to ensure domestic stability.
•
Greater sectoral openings will likely be subject to significant internal pushback from
vested domestic interests. Although China has pledged to open a number of industries to
foreign investment, the slow roll out of the Shanghai FTZ -- evidenced by a lack of
implementing regulations and the minimal edits to the 2014 Negative List -- suggests that
vested interests in numerous industries are determined to protect their current fiefdoms.
Advocates of reform should consider how their proposals might affect entrenched domestic
players and how best to overcome such opposition.
•
China will seek to formulate its commitments under any agreed-upon treaties loosely, in
order to maintain maximum flexibility. This approach is followed in the Third Plenum
Resolution itself, which expresses simultaneous support for policies that push in opposite
directions. For example, the market is to play a “decisive” role in allocating resources, at the
same time that “the vitality, control, and influence of the state-owned economy” is to be
strengthened. These potentially conflicting mandates could justify further opening or
tighter closing of particular industry sectors to foreign investment.
17
Annex A
China (Shanghai) Free Trade Zone-Related Laws and Regulations
Framework Laws and Regulations
Number Title
1
Framework Plan for the China (Shanghai) Pilot Free Trade Zone
2
Special Administrative Measures (Negative List) on Foreign Investment Access to the (Shanghai) Pilot Free Trade Zone (2013)
3
Decision of the State Council on Temporarily Adjusting the Administrative Approvals and Special Measures of Investment Permission Prescribed by Relevant Regulations and State Council Circulars in
4
Special Administrative Measures (Negative List) on Foreign Investment Access to the (Shanghai) Pilot Free Trade Zone (2014 Amended Version)
Issuing Authority
State Council
Shanghai Municipal People's Government
State Council
Shanghai Municipal People's Government
Administrative Guidelines
Number Title
Issuing Authority
1
Authorizing the Administrative Authority of Foreign-invested Enterprises Registration to the Branch of Shanghai Administration for Industry and Commerce in Pilot Free Trade Zone
State Administration of Industry and Commerce
2
Filing Administrative Measures for Outbound Investment in Setting up Enterprises by China (Shanghai) Pilot Free Trade Zone Enterprises
Shanghai Municipal People's Government
3
Filing Administrative Measures for Foreign Invested Enterprises in China (Shanghai) Pilot Free Trade Zone
Shanghai Municipal People's Government
4
Filing Administrative Measures for Outbound Investment Projects by China (Shanghia) Pilot Free Trade Zone Enterprises
Shanghai Municipal People's Government
5
Filing Administrative Measures for Foreign Investment Projects in China (Shanghai) Pilot Free Trade Zone
Shanghai Municipal People's Government
6
Administrative Measures for the China (Shanghai) Pilot Free Trade Zone
Shanghai Municipal People's Government
7
Registration Administration of China (Shanghai) Pilot Free Trade Zone Enterprises
Shanghai Administration of Industry and Commerce
8
Circular on Relevant Import Tax Policies for the China (Shanghai) Pilot Free Trade Zone
State Administration of Taxation
9
Circular of the Ministry of Finance and the State Administration of Taxation on Enterprise Income Tax Policies Concerning Asset Restructuring Activities Such as Using Non-monetary Assets for InvestmMinistry of Finance and State Administration of Taxation
10
Implementation Plan for Convenient Supervision Measures of "Quick Inspection & Quick Pass" for Import and Export of Industrial Products in China (Shanghai) Pilot Free Trade Zone
Shanghai Entry-Exit Inspection and Quarantine Bureau
11
Implementation Regulations on Foreign Exchange Administration to Support the Contruction of the China (Shanghai) Pilot Free Trade Zone
State Administration of Foreign Exchange
12
Trial Measures of Annual Report Public Disclosure for China (Shanghai) Pilot Free Trade Zone Enterprises
Shanghai Administration of Industry and Commerce
13
Circular of the Ministry of Industry and Information Technology on Issuing the Administrative Measures for the Pilot Operation of the Value-Added Telecommunications Business by Foreign Investors in Ministry of Industry and Information Technology
Sector-based Ministerial Instructions
Number Title
Issuing Authority
1
Opinions of the State Administration for Industry and Commerce of the People's Republic of China on Supporting the Establishment of the China (Shanghai) Pilot Free Trade Zone
State Administration of Industry and Commerce
2
State Administration for Industry and Commerce’s Reply for Approving the Trial Implementation Plan of New Business License Template in the China (Shanghai) Pilot Free Trade Zone
State Administration of Industry and Commerce
3
Circular on Issues Concerning Establishment of Foreign Invested Construction Engeering Enterprise in China (Shanghai) Pilot Free Trade Zone
Shanghai Urban Construction and Communications Commission
4
Opinions of the General Administration of Quality Supervision, Inspection and Quarantine on Supporting the Establishment of the China (Shanghai) Pilot Free Trade Zone
General Administration of Quality Supervision, Inspection and Quarantine
5
Implementation Opinions of the Ministry of Transport and Shanghai Municipal People’s Government on Fulfilling the Requirements in the "Framework Plan for the China (Shanghai) Pilot Free Trade ZonMinistry of Transport and Shanghai Municipal People's Government
6
Circular of China Banking Regulatory Commission on Issues Concerning Banking Supervision in China (Shanghai) Pilot Free Trade Zone
China Banking Regulatory Commissions
7
Circular on Issuing Implementation Opinions on Developing Global Maintenance Business in China (Shanghai) Pilot Free Trade Zone
Shanghai Municipal Commission of Commerce, Shanghai Municipal Com
8
Policies and Measures on Capital Market for Supporting and Promoting China (Shanghai) Pilot Free Trade Zone
China Securities Regulatory Commission
9
Opinions by China Insurance Regulatory Commission to Support China (Shanghai) Pilot Free Trade Zone
China Insurance Regulatory Commission
10
Circular of the Ministry of Culture on Implementing the Policies of Cultural Market Administration for the China (Shanghai) Pilot Free Trade Zone
Ministry of Culture
11
Opinions of People's Bank of China to Support China (Shanghai) Pilot Free Trade Zone in Financial Sector
People's Bank of China
12
Circular on the Reform Measures for the Quality and Technical Supervision in the China (Shanghai) Pilot Free Trade Zone
Shanghai Municipal Bureau of Quality and Technical Supervision
13
Circular on Piloting the Implementation Measures of Expanding the Proportion of Foreign Investment in the International Transportation and International Ship Management Business for the China (Sha Ministry of Transport
14
Opinions on Further Opening Up Value-added Telecom Services in the China (Shanghai) Pilot Free Trade Zone
Ministry of Industry and Information Technology and Shanghai Municipal P
15
Circular of Shanghai Head Office of People's Bank of China on Issuing Implementation Opinions on Developing Cross-border RMB Payment Business of Shanghai Payment Organizations
Shanghai Head Office of People's Bank of China
16
Circular of the Shanghai Head Office of the People's Bank of China to Promote Cross-border Use of Renminbi in the China (Shanghai) Pilot Free Trade Zone
Shanghai Head Office of People's Bank of China
17
Circular of Shanghai Head Office of People's Bank of China on Preparation for Anti-money laundering and Counter-terrorism financing in China (Shanghai) Pilot Free Trade Zone
Shanghai Head Office of People's Bank of China
18
Circular on Supporting Accounting Firm's Establishment of Branches and Pilot Operation in China (Shanghai) Pilot Free Trade Zone
Ministry of Finance
19
Circular of Shanghai Municipal Commission of Commerce, Shanghai Municipal Office of Finance and Management Committee of China (Shanghai) Pilot Free Trade Zone on Issuing Interim Rules on th Shanghai Municipal Commission of Commerce, Shanghai Municipal Office
Implementing Measures
Number Title
1
Circular on Trial Implementation of Coastal Shipping of Chinese-invested Foreign Ships of International Sails
2
Interim Measures for the Administration for Wholly Foreign-owned Medical Institutions in China
3
Interim Measures for the Administration of Sino-Foreign Cooperative Joint Venture Training Institutions in the China (Shanghai) Pilot Free Trade Zone
4
Administrative Measures on Commercial Factoring for the China (Shanghai) Pilot Free Trade Zone
5
Implementation Details of Culture Market Opening-up Programs in the China (Shanghai) Pilot Free Trade Zone
Issuing Authority
Ministry of Transport
Shanghai Administration of Industry and Commerce, Shanghai Health and
Shanghai Municipal People's Government
Management Committee of China (Shanghai) Pilot Free Trade Zone
General Office of Shanghai Municipal People's Government
Annex 2
Industries Removed in 2014 Negative List
Sectors
AAgriculture,
forest,
husbandry
and fishery
Sub-Sectors
A01Agriculture
Sub-Sector
Codes
A01
Removed Restrictive & Prohibited Items in 2014 Version
1.
Cotton (seed cotton) processing (restricted)
2. Atmospheric and vacuum oil refining below 10 million tons per
C25-Oil
processing,
coking and
nuclear fuel
processing
C251
C264
3.
Production of benzidine, dyes and coatings (restricted)
4. Production of chloramphenicol, penicillin G, jiemycin,
C27Pharmaceutical
manufacturing
C272
C28 Chemical
fibers
manufacturing
C282
gentamicin, dihydrostreptomycin, amikacin, totomycin,
oxytetracycline, mydecamycin, kitasamycin, ciprofloxacin,
norfloxacin, ofloxacin, analgin, paracetamol, vitamin B1, vitamin
B2, vitamin C, vitamin E, multiplex vitamin preparations and
oral calcium preparations (restricted)
5. Chemical fibers spinning of conventional chipper, production of
viscose fiber (restricted)
C321
C32-Nonferrous Metal
smelting and
rolling
processing
year; catalytic cracking below 1.5 million tons per year;
continuous catalytic reforming below 1 million tons per year
(containing aromatics extraction); and hydrocracking below 1.5
million tons per year (restricted)
6. Smelting of non-ferrous metals (e.g electrolytic aluminum,
copper, lead, zinc) (restricted)
C323
7.
Smelting of rare non-ferrous metals (e.g. tungsten,
molybdenum, tin (excluding tin compounds), antimony
(including antimony oxides and antimony sulphides) (restricted)
C34-General
equipment
manufacturing
C345
8.
Production of all types of ordinary level (P0) bearings and
parts (steel balls, retainers), blanks (restricted)
C35 Specialty
equipment
manufacturing
C355
9.
Manufacturing of equipment in respect of general polyester
filament, staple fiber (restricted)
Page1
Sectors
D-Electricity,
heating, gas
and water
production
and Supply
F-Wholesale
& retail
Sub-Sectors
D44Electricity and
heating
production
and supply
G53-Railway
transport
K-Real estate
K70-Real
estate
R-Culture,
sports and
entertainment
D44
Specific Administrative Measures in 2014
10. Within small power grids, construction and operation of coal-fired
condensing power plants with unit capacity of 300,000 KW or
below, and coal-fired power of condensing-extraction steam
plants with dual-use unit cogeneration whose unit capacity of
100,000 KW or below (restricted)
11. Outside small power grids, construction and operation of
coal-fired condensing power plants with unit capacity of
300,000 KW or below, and coal-fired power of condensingextraction steam plants with dual-use unit cogeneration whose
unit capacity of 100,000 KW or below (PROHIBITED)
F51 Wholesale F512
G-Transport,
warehouse
and postal
service
M-Scientific
research and
technology
service
Sub-Sector
Codes
12. Wholesale of salt (PROHIBITED)
G532
13. Investment in railway cargo transport companies (restricted,
equity or cooperative joint ventures only)
K701
14. Development of pieces of land (restricted, equity or cooperative joint
ventures only)
K704
15. Real estate agents or brokerage firms (restricted)
M74-Special
technology
service
M745
R89
Entertainment
R891
16. Certification service for import/export goods (restricted)
A foreign investor of a certification institution must be accredited
by authorities in its home country and have three years of
experience in certification activities.
17. Venues to provide internet access service (i.e. cybercafé)
(PROHIBITED)
*****
Page2
Annex 3
Newly Opened Service Industries in the China (Shanghai) Pilot Free Trade Zone
Financial Services
1.
Banking Services
(1) Permit qualified foreign-invested financial institutions to establish foreign-invested
banks. Permit qualified Chinese private investors to jointly establish Sino-foreign
equity joint venture banks with foreign-invested financial institutions. When conditions
are met, banks with restricted licenses may be established in the pilot zone at the
appropriate time.
(2) Subject to the strengthening of effective supervision and the improvement of
related administrative measures, permit qualified Chinese-invested banks in the pilot
zone to carry out offshore business.
2.
Professional Medical
Insurance
Establish foreign-invested professional medical insurance organizations on a trial
basis.
3.
Financial Leasing
(1) Remove the minimum registered capital requirement for financial leasing
companies establishing a single aircraft or single vessel subsidiary within the pilot
zone.
(2) Permit financial leasing companies to concurrently engage in commercial factoring
business that is associated with its principal business.
Shipping
4.
Ocean Cargo
Transportation
(1) Loosen equity restrictions for foreign investors in Sino-foreign joint venture
(cooperative or equity) international shipping enterprises. The relevant pilot
administrative measures shall be formulated by the competent department in charge of
transportation under the State Council.
(2) Ships operating under a foreign (Non-PRC) flag that are wholly Chinese-owned or
owned by an enterprise where the Chinese party is the controlling party are permitted
to carry foreign trade import/export containers between Chinese domestic coastal ports
and the Port of Shanghai on an initial pilot basis.
5.
International Shipping
Management
Permit the establishment of wholly foreign-owned international shipping management
enterprises.
Trade and Commerce Services
6.
Value-Added
Telecommunication
Sectors (Internet
information services, data
processing and storage
services, call centers, and
other telecommunication
services)
Subject to the guarantee of network information security, permit foreign-invested
enterprises to engage in certain designated sectors of value-added telecommunication
services. State Council approval shall be obtained where such business conflicts with
administrative regulations.
7.
Gaming Consoles
Permit foreign-invested enterprises to engage in the production and sale of game
consoles. Following content examination by the department in charge of culture, the
gaming consoles can be sold to the Chinese domestic market.
Professional Services
8.
Legal Services
Explore means and mechanisms to strengthen cooperation between Chinese and
foreign (including Hong Kong, Macao and Taiwan) law firms.
9.
Credit Investigation
Services
Permit the establishment of foreign-invested credit investigation companies.
10.
Travel Agencies
Permit qualified Sino-foreign equity joint venture travel agencies registered in the pilot
zone to engage in outbound tourism business (except to Taiwan).
11.
Human Resource
Agencies
(1) Permit the establishment of Sino-foreign equity joint ventures for human resources
intermediary agencies provided the foreign-owned equity does not exceed 70%; permit
service providers from Hong Kong and Macao to establish wholly-owned human
resources intermediary agencies.
(2) Reduce the minimum registered capital requirement for foreign-invested human
1
resources intermediary agencies from USD 300,000 to USD 125,000.
12.
Investment Management
Permit the establishment of joint-stock foreign investment companies.
13.
Engineering Design
The requirement to show engineering design achievements for the initial qualifications
application will be eliminated for foreign invested engineering design enterprises (not
including engineering surveying) established in the pilot zone and providing services to
the city of Shanghai.
14.
Construction
Wholly foreign-owned construction enterprises within the pilot zone carrying out Sinoforeign joint construction projects in the city of Shanghai will not be subject to equity
restrictions for the construction project.
Cultural Services
15.
Performance Brokerage
Agencies
Eliminate equity restrictions on foreign-invested performance brokerage agencies, and
permit the establishment of wholly foreign-owned performance brokerage agencies to
provide services for the Shanghai municipality.
16.
Entertainment Venues
Permit the establishment of wholly foreign-owned entertainment venues to provide
services in the pilot zone.
Social Services
17.
Educational and
Vocational Training
(1) Permit the opening of Sino-foreign cooperative commercial educational training
institutions.
(2) Permit the opening of Sino-foreign cooperative commercial vocational skills training
institutions.
18.
Healthcare
Permit the establishment of wholly foreign-owned medical agencies.
Translation by Covington & Burling LLP
2