Shanghai Free Trade Zone: negative list

Shanghai Municipal Government release Free Trade Zone negative list

shanghai-61900(2)Three days following the State Council release of the General Plan for the Shanghai free trade zone on 27th September, which will serve as the policy framework for the zone, the Shanghai municipal government today released a number of administrative measures relating to foreign and overseas investment filing.

The hotly-anticipated Municipal Government Announcement of the Special Administrative Measures on Foreign Investment Access into the Free Trade Zone (hereafter Negative List) was also included in today’s batch of notices released by the Shanghai municipal government. Investments to establish companies in the zone producing goods or services not included in the negative list will no longer require government approval, but will instead only require a filing.

The development of a negative list for foreign and private investment is a pre-condition for participation in the Trans-Pacific Partnership free trade agreement negotiations currently ongoing between the US, Canada, Mexico and Peru and numerous countries in the Asia Pacific region, including Japan, Malaysia, Singapore, Vietnam and Australia.

The European Chamber of Commerce in China has developed a translation of the Negative List which is available to download free of charge for Chamber members.

no-68481The Negative List vs the Foreign Investment Catalogue

The Negative List contains nearly 200 items for which foreign investment will still require approval. Of these, 80 are included in the most recent Foreign Investment Industrial Guidance Catalogue (hereafter Foreign Investment Catalogue) that was released in 2011. Twenty-five of the items are included in the list of ‘prohibited’ sectors in the Foreign Investment Catalogue, while the remaining 55 are included in the list of ‘restricted’ sectors. The remaining 120 items in the Negative List are newly introduced.

Nearly all of the items that are currently included in the ‘prohibited’ list of the Foreign Investment Catalogue are also included in the Negative List. Likewise, most of the sectors listed as ‘restricted’ in the Foreign Investment Catalogue are also included in the Negative List. Only approximately 10 per cent of the sectors that are ‘restricted’ in the Foreign Investment Catalogue are not included in the Negative List. These include items such as ‘construction and the operation of large-scale agricultural products’, the ‘distribution of video products’ and ‘performance agencies’, amongst others.

While most restricted items in the Foreign Investment Catalogue are included in the Negative List, some barriers have been removed. For example, while all ratings agencies were restricted in the Foreign Investment Catalogue, only investment rating agencies are included in the Negative List. Likewise, while the printing of publications was not allowed in the Foreign Investment Catalogue, only publication printing companies with less than RMB one million of investment are included in the Negative List.

In the European Chamber’s meeting with the Chairman of the Shanghai Commission of Commerce on 26th September, it emerged that while the Negative List is currently long, there are assurances that the list will become gradually shorter, in particular in view of a gradual liberalisation of the tertiary sector. The Negative List will be updated annually and the European Chamber has been invited to give input to the Shanghai authorities regarding which items should be removed.

In addition to the six sectors included in the Free Trade Zone Service Industry Opening-up Measures that was included as an attachment to the State Council’s General Plan released on Friday, another positive development is that the registration process for foreign investments should be much simpler due to the removal of three key foreign investment laws in the zone.

The six notices released today by the Shanghai municipal government are: