In September 2013, the China (Shanghai) Pilot Free Trade Zone
(referred to more commonly as the Shanghai Free Trade Zone, SFTZ)
was opened with great fanfare, to further encourage foreign
investment and as a pilot area for economic experiments that would,
if successful, be copied in the rest of the country. Two years on,
has the zone lived up to its promise? And in particular, what
benefits does the SFTZ offer foreign investors that want to
establish in China?
Economic & Financial Reform
Pilot measures have been adopted regularly to allow corporations
in niche industries - especially in the area of finance and trade -
to try out new things. Paired with the expansion of the
geographical area of the SFTZ to include the Lujiazui Financial
Area, the Jinqiao Export Processing Zone and Zhangjiang High Tech
Park, the reforms have allowed companies to expand fundraising
channels and facilitate trade and investment.
Fewer Restrictions for Foreign Investment
For many foreign investors, however, the SFTZ provides
advantages in two other areas. First, the SFTZ has lowered barriers
to foreign investment in a number of industries which remain
restricted in the rest of China. An example is advertisement
business: in other parts of China foreign investors must partner
with a Chinese company or meet certain challenging requirements,
but in the SFTZ they foreign investors can establish a wholly
foreign-owned enterprise (WFOE) providing advertisement services
without meeting any requirements. In the medical industry, the SFTZ
has abolished the minimum total investment of CNY 20 million for a
foreign-invested company in healthcare and medical services, paving
way for foreign clinics and private practitioners.
The reforms are aimed to ease policies in favor of these 12
Banking & Financial Services
Shipping & Logistics
Engineering & Construction
Educational & Vocational Training
Video Game Console Sales & Services
For foreign investors in industries that are (more) restricted
elsewhere, the SFTZ thus offers an attractive place to start their
China business. Since the SFTZ is expected to always be the first
mover (pilot) when it comes to easing restricted / prohibited
industries, foreign investors active in a currently restricted /
prohibited industry, may benefit from having a presence in the
SFTZE already, as this would allow them to promptly anticipate on
Virtual Offices and Simplified Procedures
Another category of companies is also finding the SFTZ a good
place to start their China business: smaller trading and service
companies. An increasing number of smaller companies from Europe
and North America is finding its way to China, often to support
Chinese and multinational companies in areas such as recruitment,
multimedia services, design, sourcing and trading. One of their
priorities is often to keep initial costs down while they explore
Two features of the SFTZ contribute to its favorable
First, the option of having an (affordable) virtual office in the
SFTZ - not permitted in the rest of China - is a key reason to
choose for the SFTZ.
Second, procedures to establish a company in the SFTZ are also
simpler and quicker than in most other places, resulting to lower
incorporation fees. While this may not make much of a difference
for a manufacturing company, it does for a three-person service
company that wants to get started as soon as possible.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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