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6 White Paper on the Business Environment in China
1.5 Pilot Free Trade Zones
In April 2015, China released details regarding the es- Shanghai FTZ, an indication that there will be greater openness
tablishment of pilot free trade zones (FTZ) in Guangdong, and transparency. 20
Tianjin and Fujian as well as long-awaited plans to further re-
form and open up the Shanghai FTZ. The State Council said Recent Developments
in a statement that “the plan is a crucial step for the country
to promote reform and opening up as well as boost trade and In a move to liberalize its capital account after the yuan was
facilitate investment.” 20 admitted to the IMF’s reserve basket, China announced in
December 2015, that it will allow limited convertibility of the
Each of the three new FTZs will make full use of its geo- yuan in three free trade zones (FTZ) in Guangdong, Fujian and
graphic location. According to Wang Shouwen, assistant min- Tianjin. 21
ister of commerce, the Guangdong FTZ aims to deepen eco-
nomic cooperation between the mainland and Hong Kong and In new documents outlining plans to support FTZs, the
Macao, the Tianjin FTZ is part of a push to coordinate devel- People’s Bank of China (PBOC) said it was seeking to deep-
opment of the Beijing-Tianjin-Hebei region, while the Fujian en reforms of foreign exchange management and to assist firms
FTZ is focused on deepening economic cooperation between looking to borrow yuan overseas. Onshore institutions that are
the mainland and Taiwan. According to the plan, the Guang- registered and that do not fall into negative lists each will be
dong FTZ will consist of three parts in the cities of Guangzhou, able to freely convert up to $10 million worth of yuan annu-
Shenzhen and Zhuhai while the Fujian FTZ will cover three ally, as part of its reforms of cross-border currency trade. Mul-
areas in Xiamen, Fuzhou and Pingtan, a new industrial park tinational companies (MNC) based in these FTZs also will be
targeting investment from Taiwan. 20 allowed to do cross-border two-way cash pooling within a cor-
porate group, the central bank said. 21
The country plans to spend three to five years in developing
the three FTZs. Mr. Wang said the three FTZs will be launched Cash pooling helps enhance multinational companies’ cap-
soon, but did not give a specific timeline. 20 ital efficiency and enables greater visibility, control and flexibil-
ity in managing their onshore and offshore yuan-denominated
The State Council statement said the country will use the fund flows.
FTZs to test a “negative list” approach, which specifies invest-
ment sectors off-limits to foreign investors. The approach will Earlier, in November 2015, Premier Li Keqiang declared
allow foreign investors access to the same regulation rules for that the free trade account reform currently being tested in the
new investment as domestic firms, as long as the business is not China (Shanghai) Pilot Free Trade Zone as of June last year, that
on the “negative list.” Under the “negative list”, FTZ foreign allows businesses to conduct easier cross-border transactions
investments will be prohibited in sectors such as non-ferrous could be expanded when conditions mature, in a move to push
metal mining, air traffic control systems management, postal for bolder financial reforms in a risk-controlled environment.
enterprises and production of radio and television programs. Calling the free trade account system “an important measure to
Foreign investments are restricted to joint ventures with domes- leverage both offshore and onshore markets,” Li went on to say
tic companies in sectors such as oil and natural gas exploration the trial could be introduced to other places when conditions
and development, general-purpose airplane design, manufac- were right. He said: “Economic statistics show that the FTZs
ture and maintenance as well as rare earths smelting, according are the trailblazers of China’s reforms.” 22
to the list. 20
Shanghai FTZ: Background
The list also maintained the existing 49 percent cap for for-
eign companies investing in securities business joint ventures (This section “Shanghai FTZ” was incorporated from our 2015
and restricted foreign investments in air cargo operations, stat- White Paper.)
ing that air cargo operations had to be controlled by a Chinese
party and a single foreign investor could not hold more than 25 At the end of 2009, the Shanghai Free Trade Zones Admin-
percent stake. The list, effective in May, will be applied to the istration was established and since then, the organization has
four FTZs. 20 been overseeing three free trade zones in Shanghai’s east coast,
including Waigaoqiao Free Trade Zone, Yangshan Free Trade
Wang Shouwen said the new FTZ “negative list” detailed a
total of 122 items, 17 less than a 2014 list put in place for the
62
1.5 Pilot Free Trade Zones
In April 2015, China released details regarding the es- Shanghai FTZ, an indication that there will be greater openness
tablishment of pilot free trade zones (FTZ) in Guangdong, and transparency. 20
Tianjin and Fujian as well as long-awaited plans to further re-
form and open up the Shanghai FTZ. The State Council said Recent Developments
in a statement that “the plan is a crucial step for the country
to promote reform and opening up as well as boost trade and In a move to liberalize its capital account after the yuan was
facilitate investment.” 20 admitted to the IMF’s reserve basket, China announced in
December 2015, that it will allow limited convertibility of the
Each of the three new FTZs will make full use of its geo- yuan in three free trade zones (FTZ) in Guangdong, Fujian and
graphic location. According to Wang Shouwen, assistant min- Tianjin. 21
ister of commerce, the Guangdong FTZ aims to deepen eco-
nomic cooperation between the mainland and Hong Kong and In new documents outlining plans to support FTZs, the
Macao, the Tianjin FTZ is part of a push to coordinate devel- People’s Bank of China (PBOC) said it was seeking to deep-
opment of the Beijing-Tianjin-Hebei region, while the Fujian en reforms of foreign exchange management and to assist firms
FTZ is focused on deepening economic cooperation between looking to borrow yuan overseas. Onshore institutions that are
the mainland and Taiwan. According to the plan, the Guang- registered and that do not fall into negative lists each will be
dong FTZ will consist of three parts in the cities of Guangzhou, able to freely convert up to $10 million worth of yuan annu-
Shenzhen and Zhuhai while the Fujian FTZ will cover three ally, as part of its reforms of cross-border currency trade. Mul-
areas in Xiamen, Fuzhou and Pingtan, a new industrial park tinational companies (MNC) based in these FTZs also will be
targeting investment from Taiwan. 20 allowed to do cross-border two-way cash pooling within a cor-
porate group, the central bank said. 21
The country plans to spend three to five years in developing
the three FTZs. Mr. Wang said the three FTZs will be launched Cash pooling helps enhance multinational companies’ cap-
soon, but did not give a specific timeline. 20 ital efficiency and enables greater visibility, control and flexibil-
ity in managing their onshore and offshore yuan-denominated
The State Council statement said the country will use the fund flows.
FTZs to test a “negative list” approach, which specifies invest-
ment sectors off-limits to foreign investors. The approach will Earlier, in November 2015, Premier Li Keqiang declared
allow foreign investors access to the same regulation rules for that the free trade account reform currently being tested in the
new investment as domestic firms, as long as the business is not China (Shanghai) Pilot Free Trade Zone as of June last year, that
on the “negative list.” Under the “negative list”, FTZ foreign allows businesses to conduct easier cross-border transactions
investments will be prohibited in sectors such as non-ferrous could be expanded when conditions mature, in a move to push
metal mining, air traffic control systems management, postal for bolder financial reforms in a risk-controlled environment.
enterprises and production of radio and television programs. Calling the free trade account system “an important measure to
Foreign investments are restricted to joint ventures with domes- leverage both offshore and onshore markets,” Li went on to say
tic companies in sectors such as oil and natural gas exploration the trial could be introduced to other places when conditions
and development, general-purpose airplane design, manufac- were right. He said: “Economic statistics show that the FTZs
ture and maintenance as well as rare earths smelting, according are the trailblazers of China’s reforms.” 22
to the list. 20
Shanghai FTZ: Background
The list also maintained the existing 49 percent cap for for-
eign companies investing in securities business joint ventures (This section “Shanghai FTZ” was incorporated from our 2015
and restricted foreign investments in air cargo operations, stat- White Paper.)
ing that air cargo operations had to be controlled by a Chinese
party and a single foreign investor could not hold more than 25 At the end of 2009, the Shanghai Free Trade Zones Admin-
percent stake. The list, effective in May, will be applied to the istration was established and since then, the organization has
four FTZs. 20 been overseeing three free trade zones in Shanghai’s east coast,
including Waigaoqiao Free Trade Zone, Yangshan Free Trade
Wang Shouwen said the new FTZ “negative list” detailed a
total of 122 items, 17 less than a 2014 list put in place for the
62
