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Shanghai free trade zone attracts 1,400 companies

A woman runs in front of a signboard for the China (Shanghai) Pilot Free Trade Zone in Shanghai, China, Thursday, Nov. 28, 2013. Photo: AP

More than 1,400 companies have registered in Shanghai’s free trade zone within two months of its launch, allowing the official in charge of the new area to claim progress at this crucial testing ground for Chinese economic reforms was on track.

Expectations jumped ahead of the launch of Shanghai’s free trade zone in late September, but companies were initially disappointed when they found that a long list of sectors were still out of bounds for investment.

A lack of clarity about promised measures for lightening China’s financial regulations also deterred banks from entering the zone at its inception.

But Ai Baojun, head of the free trade zone’s administrative committee, dismissed the view that it had been a disappointing start, saying his office had been inundated by visits from companies interested in setting up shop there.

He said that 1,434 companies had already registered in the zone, with a further 6,000 in the process of applying. Just two foreign banks established branches in the zone on its opening day, but that has risen to 12, with HSBC and Deutsche Bank among the recent entrants, he added.

“We’re doing things according to our plans, and progress has been smooth so far. In some areas we’re actually ahead of our expectations,” said Mr Ai.

Reforms have so far focused on easing the path for foreign investors looking to enter China and Chinese companies going abroad. Foreign companies are now able to obtain business licences in four days, down from an average of 29 days outside the zone.

Chinese companies investing in projects have won approval within five days, down from the multi-month wait that had previously been the norm in China.

Mr Ai emphasised the broader significance of the Shanghai free trade zone, saying it was being used by China’s top leaders as a vehicle to experiment with aggressive reforms that are designed to be rolled out on a nationwide basis if successful.

Rather than preferential policies such as lower taxes, the main purpose was to experiment with administrative innovations, Mr Ai said. He expected to see results “within two or three years, or even less than that”.

A “negative list” for foreign companies had been touted as one of the zone’s major innovations, specifying the sectors in which they cannot invest, with the rest theoretically left open to them. That approach had been expected to give them more freedom than China’s existing system of permitting investment in a defined range of sectors.

But with 190 industries still on the negative list, companies have complained that the free trade zone looks much like the rest of the country. Mr Ai said the negative list was merely its first iteration and that next year’s version would be shorter.

Companies are also still waiting for more details about financial reforms in the free trade zone. The government has said it will be used to push forward China’s capital account opening and currency convertibility, but the central bank has yet to issue detailed rules governing the zone.

Mr Ai said a draft was under discussion and would be published soon. Bankers in Shanghai have said they expect the rules will make it easier for companies to take renminbi out of the country, but that there are likely to be extensive controls in place to limit the inbound flow of foreign currencies.

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