NOW in its fourth year, the China (Shanghai) Pilot Free Trade Zone is moving from its initial experimental phase into more nitty-gritty areas of economic and financial reforms.
The State Council, China’s cabinet, last month approved a new phase of development, further relaxing regulations on commercial transactions and foreign investment.
Shanghai has listed 24 “missions” for the Free Trade Zone as part of its efforts to transform the city into an investment and financial hub for the national “Belt and Road” initiative — the 21st century version of the Old Silk Road linking East and West.
“The Shanghai zone wants to attract sovereign funds from countries along the Belt and Road route to invest in onshore yuan-denominated assets,” Li Jun, vice director of the Shanghai Financial Service Office, told a recent media briefing. “It will support the efforts of qualified foreign companies to develop and expand their businesses by making use of China’s capital market.”
A plan to create a new free trade port inside the zone has drawn widespread attention. Part of its aim is to encourage foreign investors to issue yuan-denominated financial products within the zone and serve projects related to the “Belt and Road” initiative.
Li said onshore bond insurance will be offered as a sweetener.
“The Belt and Road initiative is an important conveyor of financial reforms in the FTZ,” Li said. “It offers a possible extension of products to push forward internationalization of the yuan. This is where Shanghai’s strength lies.”
Russian aluminum giant UC Rusal last month issued 1 billion yuan (US$145.3 million) of seven-year yuan-denominated onshore bonds to fund equipment purchased in China, becoming the first foreign company set to offer so-called “panda bonds” on Shanghai’s stock exchange, Li said.
About 9 billion yuan in bonds will be issued in the future in Shanghai, he added.
In addition, Shanghai-based insurers will be encouraged to offer financial products such as construction insurance, life insurance and cargo insurance to provide risk protection services for key projects related to the “Belt and Road” program, according to Li.
Li told Shanghai Daily that the Free Trade Zone will participate in national efforts to allow easier access for foreign investors to trade onshore bonds, but no details were forthcoming.
As part of the efforts to open the Chinese debt market to foreign investors, China plans to introduce a bond-trading link between Hong Kong and mainland bourses by the year’s end, Premier Li Keqiang said at an annual media conference in March.
Shanghai Vice Mayor Zhou Bo said earlier that Shanghai will adopt the highest global standards for the city’s Free Trade Zone.
“By pushing forward reform measures on trade and investment, we want to send a clear message to the world that China is opening its market in all aspects,” Zhou said. “Institutional innovation should rely on relaxing rules, rather than making more of them.”
Shanghai FTZ was launched on September 2013. Its size has since quadrupled.
The 24 “missions” to accelerate reforms in the Free Trade Zone
1. Create consistent market access between domestic and foreign investment
2. Deepen reform of the trading registration system
3. Separate business licensing from administrative permits
4. Establish a high standard all-in-one approval process and service mode for international trade
5. Reform and innovate comprehensive customs supervision
6. Establish a comprehensive evaluation mechanism for inspection and quarantine risk classification
7. Strengthen links with the city’s construction of the innovation center of science and technology
8. Optimize the talent service system
9. Establish a system of intellectual property protection and application
10. Map out a construction plan for the port area within the free trade zone
11. Expand efforts to open up to the outside world
12. Promote the development of cross-border services and trade
13. Improve the efficiency of customs clearance
14. Deepen links with the city’s construction of a global financial center
15. Improve the service functions of the free trade account
16. Strengthen financial supervision and coordination
17. Create an overall plan to enhance governance of the free trade zone
18. Streamline and decentralize administration
19. Enhance mid-event control and subsequent supervision
20. Promote comprehensive law reform
21. Accelerate service-oriented government
22. Create bridgehead promotion for “Belt and Road” initiative
23. Strengthen the exit-service system for market players
24. Promote innovation in international financial services