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Shanghai Free Trade Zone’s Negative List

Since the launch of China (Shanghai) Pilot Free Trade Zone (FTZ) launched by the Chinese government ministry of commerce, foreign investors have questioned what reforms in the new zone has Shanghai Free Trade Zone’s Negative List is regarding restrictions on foreign investment in China and in the Shanghai Zone (FTZ)
The Shanghai Free Trade Zone (FTZ) negative list still has many current restrictions on foreign investment and includes prohibited items.
There are 190 measures listed in the FTZ negative list, industry-specific investment regulations like the Regulations on Foreign Investment in Civil Aviation with special administrative measures by the Chinese party state council. While the FTZ negative list is longer than the restricted and prohibited sections of the CGFI, it does not add new restrictions. Instead, the FTZ negative list combines existing restrictions from multiple regulations in one place.

Further, the FTZ restrictions deal mainly with ownership caps and registered capital requirements instead of listing the areas that are either “encouraged” or “restricted.”
The negative list that has been adopted in the zone is mainly considered a positive first step in the right direction to expanding market access for foreign investment in the long term.

Shanghai Free Trade Zone’s Negative List – Origins of the Negative List

 

The Shanghai government has placed 18 major industry sectors on its negative list, but only 16 sectors reagarding China negative list 2022. The Key sectors include agricultural, automobile manufacturing processing, automobile manufacturing like Tesla, electricity generation, electronic game consoles, air transportation financial services, and medical institutions and devices.

The negative list includes 190 restrictions, at least 50 of which are either different from or not included in the policy. Many of these items are about registered capital requirements and other rules regarding the legal representation, duration of operations, and the Chinese ownership proportions of a joint venture. 

 

The Shanghai Free Trade Zone aims to generate a regulatory environment for better cross border investment and trading. There is a tariff free area, it is mainly used as a testing area for various investment, trade, finance, administration and legal changes. SFTZ and the other free trade zones may have unique policies in place that might be expanded outside the zones. Shanghai Free Trade Zone Company Formation is a  negative list approach and faster company registration for foreign direct investment
Now the Shanghai Free Trade Zone covers 120 square kilometers and as for now is composed of seven bonded zones 1) Waigaoqiao Free Trade Zone. 2) Waigaoqiao Free Trade Logistics Park. 3) Yangshan Free Trade Port Area: deep-water port, major component of Shanghai Port. 4) Pudong Airport Comprehensive Free Trade Zone. 5) Lujiazui Finance and Trade Development Zone: a financial services hub. 6) Jinqiao Economic and Technological Development Zone: an advanced  manufacturer services area 7) Zhangjiang High-tech Industrial Development Zone: an area specializing in high-tech manufacturing and medical services

The restrictions in the FTZ negative List

  • Printing The minimum registered capital for a foreign company is RMB 10 million ($1.63 million) according to the  Shanghai Free Trade Zone’s Negative List policy
  • For automobile and motorcycles Joint ventures ( JV) registered in the FTZ zone, foreign manufacturers are restricted to a maximum of fifty percent share in the company. However, a foreign entity can establish two joint ventures that manufacture the same automobile products. These two requirements are from the National Development and Reform Commission Auto Development 2014 Policy.
  • Air transportation services Foreign companies have to invest together with a Chinese company and operate for longer than 30 year period. The foreign company shareholding ratio of not more than 25% and the joint venture ( JV) representative must be a Chinese national and controlled by the Chinese and limited to joint ventures. The Regulations on Foreign Investment 2002were issued by the China Civil Aviation Administration.

 

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Categories that have different restrictions:

  1. Agriculture, forestry, animal husbandry, fisheries
  2. Mining
  3. Electricity, heating, gas, water production, and supply
  4. Wholesale and retail
  5. Transport, warehousing, and postal services
  6. Information transmission, software, and information technology services
  7. Leasing and business services
  8. Scientific research and technology services
  9. Education
  10. Health and social work
  11. Culture, sports, and entertainment