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China – New Liberalisations To Grow Shanghai Into International Financial Centre.

30 September, 2013

 

We look at some bold liberalisation measures recently announced in China that should widen the doors for doing business in China, and trigger new waves of investments into the fast-growing Chinese market.


1) Shanghai Free Trade Zone


While China continues to attract inward investments, and foreign businesses looking to capitalize on growth in the Chinese consumer market, it has always been challenging dealing with red tapes and bureaucracies in doing businesses in China. The new leadership in China is seeking to overcome the difficulties through further liberalizations, with the establishment of a pilot free trade zone in Shanghai. This is an ambitious project to cut away many red tapes and restrictions for foreign companies, as the government aims to re-position Shanghai into an international financial centre.


The new free trade zone covers 28.78 square kilometres, and combines the existing bonded zones in Waigaoqiao and Yangshan ports and the Pudong airport. While foreign exchange convertibility remains under tight restrictions in China, the new free trade zone will be given special treatment, with full convertibility of the Renminbi. In particular, foreign exchange connected with capital account, ie. investment inflows and outflows, which until now has been tightly regulated (compared with monies flowing into and out of China for trading purposes), will be relaxed. Details have yet to be released, but this signals a bold move for China, which has always been wary about foreign exchange speculations on the Renminbi.


Further, the draft plan would encourage the formation of foreign and joint venture banks and privately funded financial institutions. In addition, the free trade zone would seek to grow cross-border e-commerce transactions. Also on the agenda is to allow foreign companies to trade commodities futures.


While the details would be outlined in due course, the key areas are expected to include, among other things:


Banking services
• Allowing the formation of foreign-funded banks and joint venture banks.

• Allowing Chinese banks to conduct offshore business.


Health and medical insurance

• Pilot establishment of foreign-funded professional health and medical insurance firms.


Credit investigation
• Allowing the formation of foreign-funded credit investigation agencies.


Travel agencies
• Allowing joint venture travel agencies to conduct outbound tourist activities.


Employment agencies
• Allowing the formation of joint venture employment agencies, with foreign ownership of up to seventy per cent.


Investment management
• Allowing the formation of foreign-funded joint-stock investment companies.


Engineering design
• Reducing certain qualification requirements to operate in Shanghai.

 

Construction services
• Reducing certain limitations on foreign ownership in joint construction projects in Shanghai.


Education and vocational skills training
• Allowing the formation of joint-venture for-profit education and skill training institutions.


Medical services
• Allowing the formation of wholly foreign-owned medical institutions1.


2) Door widened for CEPA


The free trade agreement under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) between Mainland China and Hong Kong was signed in 2003. CEPA covers various items to promote free trade in goods and services, and to facilitate investments between the mainland and HK.


Last month, CEPA was further amended to increase the scope for mutual flows of trade and services. Supplement X to CEPA, signed on 29 August, 2013, provides for a total of seventy three areas of liberalisation in services and trade, and a total of eight measures to strengthen cooperation in areas of finance and to facilitate investments between the two places. To highlight some of these, technical testing and certification can be extended beyond food to other areas of voluntary product certification on a pilot basis in Guangdong Province. In the securities sector, qualified Hong Kong financial institutions are allowed to form joint venture fund management companies, which can exceed 50% ownership. In the logistics and transport sector, Hong Kong companies will be eligible for lower capitalisation requirement when investing in the construction of port facilities and undertaking port cargo handling and warehousing.


Further details can be found here.


1 Source: Shanghai Daily, 6 September 2013

 

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For further information, please contact:

 

CF Lui, Partner, Stephenson Harwood
cf.lui@shlegal.com

 

Homegrown International Trade Law Firms in China

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