The Waigaoqiao Free Trade Zone in Shanghai, which will be included in the new Shanghai free trade zone Photo: CFP

 
China on Friday unveiled the blueprint for its pilot free trade zone (FTZ) in Shanghai with a detailed list of reform tasks, easing restrictions on the yuan, investment and trade to spearhead the nation's future reforms.

The wide range of reforms will start as of Sunday when the zone is officially inaugurated.

China aims to lift the zone up to international standards featuring convenient investment and trade, free exchange of currencies, efficient supervision and a sound legal environment after two to three years of tests, according to the detailed plan published on the government's website.

DEEPENING FINANCIAL REFORMS

"Under the precondition that risk can be controlled, China will create conditions to test yuan convertibility under the capital account, market-set interest rates and cross-border use of the Chinese currency in the zone," the long-anticipated plan said.

The FTZ will allow the market to decide prices of financial institutions' assets, a process known as the securitization of those assets, as policymakers hope to catalyze further reforms in the world's second-largest economy through such an experiment.

Chinese banks in the zone will be permitted to conduct offshore business on the condition of effective oversight, under the plan. It means Chinese banks will be allowed to provide services to depositors who are residents in other countries.

The Shanghai FTZ will also allow eligible foreign-funded financial institutions to set up banks, and to team up with qualified private banks to establish joint-ventures.

The plan also pledged to establish a foreign exchange management mechanism adaptable to trade and investment reforms in the zone.

Enterprises can try the free cross-border financing while multinationals are encouraged to establish regional or global capital management centers in the zone.

The FTZ will also push for "a full-scale opening" of the financial service sector to eligible private capital and foreign financial institutions.

Foreign companies are permitted to gradually participate in commodities futures trading in the zone.

EASIER INVESTMENT ACCESS

The FTZ will suspend or scrap some previous access control concerning investor quality, investors' equity ratio, and fields eligible for investment, according to the plan.

A negative list approach will be explored in the zone, and foreign investors there will have no need of government approval before setting up, so long as they formalize their arrangements after the fact, and do not operate in any sectors on a "negative list."

Meanwhile, 18 service sectors will open wider to foreign and private capital ranging from finance, shipping, commerce to culture.

Foreign companies will be permitted to conduct "a portion of specific types of telecommunications value-added business on condition of ensuring information security."

Specifically, this means foreign companies could establish call centers, provide Internet information and related software technology services in the pilot zone.

They are also allowed to produce and sell video game gadgets in China, providing the contents pass the country's censorship.

In addition, foreign travel agencies registered in the FTZ can conduct overseas trip business except to Taiwan. Entertainment agencies will be allowed, for the first time, to solely provide performance brokerage business in Shanghai.

Foreign companies could also team up with Chinese partners to open educational and vocational training, provide healthcare insurance services, and establish independent medical institutions.

"The highlight of the Shanghai FTZ is that it is an open platform where foreign and Chinese companies can compete on a level-playing field," said Shen Minggao, chief economist at Citibank.

FAVORABLE TAX TREATMENT

Taxation policies that seek to boost investment and trade will be implemented in the zone, according to the plan.

Companies and individuals can pay income taxes by installment for the added value from non-currency asset outbound investment.

Subsidiary firms established by zone-based financial leasing companies (FLC) will be included in the tax rebate program. The FLCs registered in the zone will also enjoy favorable policies on value-added tax for import of planes with a net weight of above 25 tonnes, the plan said.

It added that tax exemption will be granted to companies registered in the zone concerning their imports of machines and equipment for production.

The State Council approved the pilot decision on July 3. Covering almost 29 square km, the zone will be modeled on existing free trade businesses in the country's economic hubs -- Waigaoqiao Bonded Area, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port Area and Pudong Airport Comprehensive Bonded Area.

Daily special: Shanghai pilot FTZ to be inaugurated on September 29