Shanghai opens free trade zone

Area envisioned as role model and pilot project for economic reform

The Shanghai municipal government unveiled the China (Shanghai) Pilot Free Trade Zone on Sunday, which is widely expected to create an efficient market environment for domestic and foreign enterprises in a wide variety of businesses.

The move seeks to free up the overloaded administrative approval system and introduce measures to encourage innovation and internationalization.

Shanghai's top leader Han Zheng attends the inaugural ceremony of the Shanghai pilot free trade zone on Sunday. Thirty-six companies were given licenses to operate in the zone, which covers more than 28 square kilometers.[Gao Erqiang / China Daily]

Commerce Minister Gao Hucheng said the zone is set to become a pilot project for economic reform and a role model in efforts to upgrade the Chinese economy.

Dai Haibo, deputy secretary-general of the Shanghai municipal government and vice-director of the zone's management committee, said the guiding principle is to shift the overriding role of the government from administrative to supervisory. Enterprises will no longer need to seek government approval for many of the things they want to do in the zone.

In three years, the country will build on the experience gleaned from the Shanghai free trade zone, and further reform targets may be set, Dai said.

These include, in certain areas, no administrative approval required for company registration, no restrictions in equity ratios and limited disclosure requirements.

The cornerstones are the reform of power structures and government transparency, with positive changes in policy coordination, information tracking and effect evaluation.

A case in point is the treatment of foreign investors as nationals in economic sectors that are not specifically restricted, said Liu Yajun, director of the department of foreign investment administration with the Ministry of Commerce.

To encourage and simplify foreign investment, an Internet-based registration system will be introduced for enterprises whose business portfolios do not fall in the restricted areas, Liu said.

That would effectively shorten the registration period from the current 29 days to a minimum of four days, Dai said.

A fast-track channel has also been established to lure financial institutions with strong profitability and risk-control capabilities to enter the zone, said Liao Min of the Shanghai branch of the China Banking Regulatory Commission.

He confirmed that banking regulators will adjust loan-to-deposit ratios and other regulatory requirements for banks operating in the area.

A series of customs clearance and supervision policies have been initiated to offer more complete, convenient and transparent foreign trade services, said Zhang Wansheng, director of the General Administration of Customs' processing trade and bonded system department.

For instance, companies can have their cargo transported into warehouses before they declare customs, said Zhang, adding that a unified information monitoring system will be set up to supervise entrants.

The government vowed to enhance the efficiency of customs administration, improving the speed and ease with which imports and exports can clear customs and the quality and range of services national customs authorities provide, according to Liu Deping, director of the border check department of the General Administration of Quality Supervision, Inspection and Quarantine.

"To facilitate easier trade, authorities have lowered the threshold for inspection and quarantine to avoid rigorous inspections and customs assessments and therefore reduce companies' costs," said Liu.

He noted that 18 directives, including the launch of an information sharing platform and an early warning system, are being rolled out to relieve administrative burdens for companies.

"The waiver or less restricted export product examinations will save companies time and money spent renting warehouses," said Zhao Pei'en, a certified public accountant in Shanghai, adding that such reform spells a "substantial bonus" for a wide range of industries.

This will simplify the registration process in setting up a business, said Liu Jun, China chief representative of Northern Melbourne Institute, one of Australia's leading vocational training institutes.

"In our case, the new framework saves us time and efforts to turn to the Ministry of Education each time we wish to get our programs approved," said Liu, who was cheered by the fact that joint venture educational and job-training institutions are included in the 18 sectors open to foreign investment.

Liu said he is seeing a decentralized government structure, and hopes that the zone encapsulates all the functions companies need to get businesses going.

China's economic and social development requires more intense reforms, as unnecessary government intervention in the private sector has resulted in abuses of power, said Sun Lijian, vice-dean of the School of Economics at Fudan University.

"I think the zone is imperative in carrying out bolder experiments in relaxing the control of the public sector and making the government leaner and efficient," Sun said.