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System innovation and development of the Shanghai Pilot Free Trade Zone

May 3, 2017

The Shanghai Municipal Government’s Information Office held a press conference on April 1 to brief the media on system innovation and development of the Shanghai Pilot Free Trade Zone. The following are the highlights:

Zhu Min, deputy director, Shanghai Development and Reform Commission
Peng Wenhao, deputy director, Shanghai Administration of Industry and Commerce
Yang Chao, deputy director, Shanghai Commerce Commission
Li Jun, deputy director, Shanghai Financial Service Office
Lu Fangzhou, deputy director, Pudong New Area
Wu Wei, deputy inspector, Shanghai Port Services Office

Wenhui Daily: This plan mentions that Shanghai will build free port areas. What detailed planning is being done for free port areas? What breakthroughs have you made? How are the preparations for this task getting along? The pilot zone’s separation of business licenses and other licenses and permits is a prominent highlight in the three-year reform of the zone. Will the administration launch integration of multiple licenses and permits into one license this year on the basis of the integration of five specific licenses and permits last year? What types of licenses and permits will be included in the new round of reforms?

Zhu Min: Shanghai’s plan for deepening reform has a relative complete framework for local free port areas but the framework still needs to be improved. The framework will refer to internationally-accepted mature and successful operation models for free trade port areas. Free trade ports are the most open in the world and have the strictest requirements. The Party has decided that China will develop free trade port areas according to the strictest standard in places that meet requirements. As a result, we have released the general blueprint for free trade port areas. The blueprint says that Shanghai will set up free trade ports in custom-supervised zones in Yangshan Port Area and Pudong International Airport, mainly to better promote the advantages of Shanghai’s efforts to become a global transportation hub and the gains from China (Shanghai) Pilot Free Trade Zone’s reforms on promoting trade. We have also learned that relatively good free trade ports in the world each have their own characteristics but also have something in common. The combination of highly open and efficient regulation, for example, is well done in a more mature free trade port. For example, the relationship between government and enterprise management, which means that the government should, in fact, impose higher requirements on enterprises. There is another requirement of convenient transportation, which should also have global settlement functions. Such transportation requirement is an essential basic support for free trade ports. At many free trade ports, this convenience is an integration of sea port and airport, such as Dubai. Dubai is relatively successful and it has one airport and another is under construction. It will build a fully closed-circuit logistics corridor. Singapore now has five ports and one airport, which belongs to three free trade port areas. Their operation model is receiving all cargos from the whole of Southeast Asia and delivering them to the whole world. Integrating sea ports and airports is a very important basic requirement for free trade ports.

Besides, we are also further studying and improving relative successful special policies that are custom-made for free trade ports while referring to international standards. Our free trade port areas should both learn from international standard practices and study the latest trends of international investment and trade development. The initial definition of “free ports” was introduced in 1970s but as world trade develops, its current connotation has been greatly redefined. The successful free trade ports in the world have all redefined the original definition and we also will study the latest trends of globalization along with China’s realities. What are China’s realities? We have a particular large number of trade varieties and have a particularly large trade volume. Although we are relatively successful in many fields the quantity in these fields is still not sufficient. Pudong International Airport ranked third in cargo transport volume in the world and Yangshan Deep Water Port ranked top in container turnover. Quantity will make quality improvements so we have to study the systematic problems relevant to operation and management of free trade port areas. We will carry out pilot programs inside existing bonded customs specially-supervised zones, which mainly focus on systematic innovation to generate a new supervision system both meeting Chinese reality and international standards.

The biggest difference between a free trade port and the current free trade zones is in the field of first line of administration, and we are still discussing the details with relevant departments of the central government. Various departments have given strong support and guidance to the blueprint, especially in the free trade port area. Enthusiasm is very high and we have carried out a lot of research, expert discussion and coordination among departments. We will follow the central government’s decision to generate a tailor-made and practical plan.

Peng Wenhao: Pudong’s free trade zone has achieved relatively good results in integration of five licenses and permits in the reforms to separate business license and other licenses and permits. We will conclude the previous period of work results and replicate relevant experiences to other places in the area. We will carry out tasks according to the central government and the State Administration for Industry & Commerce’s updated catalogue for relevant reforms and relying on the supervision platform in Shanghai. The department in charge, having given approvals to relevant companies, will use this platform to enhance supervision. The whole city has adopted the reform program of integrating five licenses and permits since October 1 last year. By February this year, more than 1.3 million companies had received new business licenses with unified codes. Each of such new business licenses has functions of a business license, taxation registry certificate, social security registry certificate, organization code certificate and statistics registry certificate. Recent surveys revealed that more than 97 percent of surveyed companies expressed their satisfaction with the new reform program.

We plan to further integrate more functions into the business licenses. Each business license will have a unique recognition code for all relevant supervisors. We actively negotiated with relevant local departments and did special studies in fields such as licenses for opening accounts issued by the People’s Bank of China, licenses for the seal of print issued by Public Security authorities, registry forms for foreign trade operators issued by commerce authorities and five licenses relevant to custom clearance as well as entry-exit inspection and quarantine. We are now thinking of abolishing licenses for the seal of print and plan to build a company information sharing platform to integrate the rest of the licenses and permits. Departments will share information through data network links to reduce companies’ visits to offline counters to relieve unnecessary burdens on them. Besides, we also want to use this reform scheme to improve information sharing and coordination among government departments to gain new experience through practices in Internet plus governance management models.

CCTV: Yesterday, a deputy commerce minister revealed that the reform program will focus more on risk control besides emphasizing opening up. He briefed the media on how to enhance supervision during the implementation of the negative list to prevent risks. This edition of the plan has raised the issue of making pilot zones bridge heads for China’s “Belt and Road” initiative. What measures will the China (Shanghai) Pilot Free Trade implement in this field?

Yang Chao: Shanghai is further improving its implementation of negative list for foreign investment while persistently putting risk control as its baseline. First, we will carry out national security reviews in relevant fields of foreign investment and set up a long-term responsibility system headed by the pilot zone administration along with directions from the city’s commerce commission and development and reform commission as well as cooperation with other departments. The system will carry out national security reviews for foreign investment and their coordination with foreign investment approvals and industry permits. The system will also enable connection between discovery before access of foreign investments and supervision of foreign investment after approval. The system will also clarify relevant procedures and focus on founding of companies and projects.

Secondly, a working mechanism of anti-trust coordination will be further improved. The pilot free trade zone will promote information sharing among its different members and share information and resources among different government agencies to integrate supervision and improve supervision effectiveness and efficiency. The pilot zone will further deepen anti-trust review cooperation mechanism for business operators and set up a cooperative mechanism for prior recognition, cooperation and post-incident supervision.

Third, the pilot zone will enhance risk control and supervision of the registry of foreign invested businesses. The zone will make reference to international standards with both emphasis on foreign investors and management of investment activities to enhance administration of investor information release: businesses will be ordered to reveal contents of their actual ultimate controller and the zone will beef up sharing of registry information to publicize the investors’ non-commercial secret information in the registry contents on the websites of the pilot zone administration and/or other relevant government agencies. The zone administration and government agencies will inter-link and share information through its online business platform to realize coordinated supervision. At the same time, the zone will submit information through registry and relevant departments’ supervision to the commerce ministry’s investment credit system for foreign investment for sharing with relevant departments.

Fourth, we will enhance risk control and supervision of projects brought in by expanded opening. We will carry out supervision through information delivery, information publication, information sharing, risk screening and department coordination on projects brought in by expanded opening in particular industries. From October 2016, commerce administration authorities have implemented registry management for newly-founded foreign-invested firms. The registry management excludes foreign investment that requires national access management. We will follow relevant regulations from the commerce ministry in the next step to supervise and inspect registry obligations of foreign-invested firms and their investors to ensure effective supervision.

As of now, pilot free trade zones have become a key channel for companies to invest overseas. Companies have such huge demands and we can construct the China (Shanghai) Pilot Free Trade Zone into a key hub for all types of companies and market elements to go abroad following the wave of serving the “Belt and Road” Strategy, targeting allocation of global resources and international production capacity cooperation as the core, while relying on inter-linking of infrastructure and supported by the public service system. Our major thinking has three points:

First, further improve to facilitate the core of foreign investment cooperation management system to promote the commerce ministry’s loosened requirements for investment in “Belt and Road” countries’ hi-tech, infrastructure construction, biomedicine and high-end manufacturing to explore a breakthrough on the existing operation credential management system.

Second, further improve the overseas investment service promotion system with five elements, namely risk control, asset assessment, projects’ financing, cross-border settlement and accounting services. All five services will be integrated into one highly effective and efficient service platform.

Third, we will improve the supervision system for overseas investment to put risk control as the bottom line. The system will regulate firms’ investment activities overseas, insure authenticity of investment projects, set up a credit management supervision system especially for overseas investment and set up special checks and random checks for key projects. We will cooperate with foreign exchange authorities, industry and commerce bureaus, taxation and other departments to establish dynamic monitoring of companies’ repatriation of funds to realize coordination and interaction between mechanisms for honest operation, tax paying and early warning. The press release mentions that the government will support quality overseas companies to use the Shanghai market to develop during the plan to enhance the “Belt and Road” financial services. What does this “using the Shanghai market” refer to? Getting listed on the A share market or issuing bonds?

Li Jun: We have carried out relevant tasks: first we are working together with the city’s commerce commission, development and reform commission, and state-owned assets supervision commission, as well as the Shanghai headquarters of the People’s Bank of China, and the Shanghai Office of the State Administration of Foreign Exchange to establish working mechanisms and research plans to focus on building the China (Shanghai) Pilot Free Trade Zone into the “Belt and Road” investment and financing service center. The plan will promote Shanghai’s financial market to deepen cooperation with financial markets of “Belt and Road” countries and regions. The plan will also support overseas institutions and companies to use Shanghai’s financial markets to issue yuan bonds and assets-backed securities. It will also enhance strategic cooperation between overseas offshore yuan markets and key cities of “Belt and Road” countries to attract these countries’ central banks, sovereign wealth funds and investors to invest in domestic yuan assets. It will support quality overseas companies to use Shanghai’s capital market to grow. Besides getting listed on the stock market, companies can use the bond market to develop: Russian Aluminum Co. Rusal issued 1 billion yuan in bonds on the Shanghai Exchange on March 16 to purchase equipment in China and its total volume is 10 billion yuan so it still has 9 billion yuan quota to further issue bonds. These measures will provide financing services to key projects in “Belt and Road” countries. We will also encourage insurance firms in Shanghai to provide risk guarantee for market bodies engaged in “Belt and Road” construction. These companies will also strive to offer comprehensive services for overseas investment, products and technology exports and key national projects in “Belt and Road” countries, including overseas project insurance, life insurance, export credit insurance and cargo transportation insurance.

Pudong TV: Many government departments are involved in government reinvention work. How (do you plan) to break the barriers and promote coordination among different district government departments?

Lu Fangzhou: We have put forward the “Internet plus” government service mode and are promoting three plans: Firstly, about 72 percent of enterprise market access matters can be handled online during the whole process. Next year, all of the 104 matters will probably be handled online.

Secondly, all 171 personal affairs will be handled at any one of the 36 community service centers by November, which will require us to integrate and share information. We are also considering building a comprehensive information platform of personal community affairs. Applications will be accepted on the platform and distributed to 36 community service centers for handling. The result will be returned to the service centers. This can help us realize the goal of information sharing among departments.

Thirdly, information on government affairs will be shared. The first step is to realize information sharing and coordinated working among government departments of Pudong New Area. The second step is to jointly establish an information-sharing system of enterprise credit information with port departments and Shanghai branches of the People’s Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission.

STV: This year, there are higher requirements for the construction of the single window platform at free ports. Will the city make institutional innovations for the integrated system? How about the scale of our international turnover pilot? Will there be any change in the pilot this year?

Wu Wei: Since the city launched the pilot in February 2014, the single window system of Shanghai international trade has been updated to the 3.0 version. We have made achievements in four aspects: system integration, simplifying clearance procedures, data coordination and simplification, and developing functions of goods import and export, transportation tools, trade qualification and payment and settlement. The achievements which improve clearance efficiency and reduce cost have gained popularity. By the end of 2016, 95 percent of the declared goods and declared boats at Shanghai port will be handled through the single window platform which has 5,000 members and serves more than 170,000 enterprises. The platform can save at least 2 billion yuan for firms every year.

In the next step, we will promote the construction of a single window platform in six aspects, based on top international standards.

First: To realize full coverage of port law enforcement and trade management.

The second is to link with the single window systems of national ministries and obtain more qualifications and licenses.

Thirdly, sections of port logistics will be linked up and integrated to a single window system of international trade. We will build a platform which allows enterprises to check the logistics and clearance processes at any time. Paperless operations of cargo checking, container interchange and taking delivery of goods will be realized. Besides, we will connect various supply chain systems of logistics and make them compatible with each other.

Fourthly, we will realize information sharing and exchange. A standardized system will be established to change Shanghai, Hunan and Wenzhou dialects into mandarin. Besides, we will build a unified enterprise identification system approved by different supervision departments.

Fifthly, we will strengthen the functional innovation of service trade and free ports.

Sixthly, we will strengthen regionalization and globalization of our single window platform for international trade. We will fully improve regional clearance and the logistics of Shanghai international trade to gradually connect with the Yangtze River Delta, the Yangtze River region, the Belt and Road regions and the APMEN to show the city’s functions and positions as a hub of international trade network.

Xinhua Agency: There is an offshore taxation system mentioned in the plan. Could you give us some details? Besides, can you share with us Pudong’s experience and future planning of super-ministry reform?

Zhu Min: Offshore taxation system is significant for us. What offshore taxation system shall we adopt to support our enterprises to compete in the global market? It depends on the actual situation of our economic strength and the development of our firms. We’ll not only establish a reasonable taxation system but also figure out a simple and effective implementation method. We have explored the implementation of offshore taxation system in certain areas, including R&D and traditional Chinese medicine, with the support of service trade innovation pilot policies.

Lu Fangzhou: According to the next-round planning of FTZ reform, Pudong will lead the improvement of governance capacity, which means that the transformation of government functions is an important part of the FTZ construction. In the last three years, we have promoted the transformation of government functions with the idea “Streamline Administration, Delegate Power, Strengthen Regulation and Improve Service” and institutional innovation. As for new planning, we have figured out five measures and four systems to improve the governance capacity of Pudong New Area.

Firstly, we will diversify main bodies of social management which means promoting joint participation of government markets, society and the public in social management. The second one is a networking governance structure which refers to transforming one-way management to the collaborative and network governance by multiple main bodies. Third is the legalization of the governance institution which refers to integrating specific one-way institutional measures into normative institutional systems. The fourth one is the integration of management systems which promotes seamless connection and integration of different departments and fields. The fifth is the modernization of management methods which means that the government will become a leading pioneer of informatization instead of passive adaptation.

We will also build four systems. The first is a government management system of market orientation and multi-governance, including the formation of a low-cost administrative examination and approval system as well as a halfway- and after-management system with the strongest risk preventing capacity. Secondly, we will build an intelligent, integrated and convenient government service system. Third, we will build a coordinated government organization system, including the formation of a flat government structure with scientific and reasonable rights and liabilities arrangement. Finally, we will build an effective and honest operation system.

International Finance News: Is there any special policy on equity financing and debt financing for innovative enterprises which introduce foreign capital and overseas investment? The negative list principle has been adopted in the examination and approval system in this aspect. Are there any examples? My second question is many overseas enterprises launched by Chinese are returning and listing on the domestic market. Is there any updated FTZ policy in this regard?

Li Jun: We welcome quality overseas enterprises to develop by making use of the domestic capital market. However, the work will be in accordance with the nation’s relevant arrangements.

Zhu Min: It is a big question. Detailed requirements vary according to different industries. At present, we are working on new regulations for equity financing of foreign-capital enterprises on the basis of specific conditions of different industries.

China National Radio: The new plan stresses collaborative development. What measures will the FTZ take to promote the collaborative development with the scientific innovation center and serve the development of the Yangtze River Economic Zone?

Lu Fangzhou: The FTZ and the construction of science and technology innovation center are two national strategies based in Pudong New Area. Firstly, we have established a work team to promote the collaborative mechanism of the development of the two national strategies. We launched the regular and special meeting system. Directors of the Shanghai FTZ Management Committee and Self-dependent Innovation Demonstration Area also participate in the work team.

Secondly, we have made arrangements for this year’s tasks which are centered on the collaborative development of Shanghai FTZ and the Shanghai Zhangjiang National Innovation Demonstration Zone. There are six aspects involving 29 specific tasks. The first aspect is to deepen institutional reform and build an open and inclusive environment for innovation. The second is the formation of a high-end industrial source. The third one is to gather energetic innovative institutions and build a scientific and technological innovation base. The fourth is to accelerate financial innovation pilot and support the development of science and technology innovation enterprises with finance. Fifthly, we will strengthen intellectual property protection. Finally, we will innovate talent policies and create a national talent reform pilot area.

Zhu Min: The plan stresses collaborative development which involves two aspects. The first is the collaborative reform of the FTZ, Pudong New Area and the city. Secondly, in terms of reform methods, we will strengthen collaboration between administrative management reforms and institutional mechanism reforms, which means to deepen the achievements of administrative management reforms through institutional mechanism reforms. For example, the plan puts forward the management and operation mechanism adjustment on the basis of streamlining administration.

The second is the collaboration of strategies. We launched the strategic collaborations with “The Belt and Road” initiative, the construction of Shanghai’s international financial center, the construction of the city’s world-class science and technology innovation center as well as the development of the Yangtze River Economic Zone.

Our strategic collaboration with the Yangtze River Economic Zone is an improvement on the former plans, including the departure port tax refund policy. Shanghai port has implemented the departure port tax refund policy with seven ports in the Yangtze River region. Next, another 12 ports will be included in the policy.

Besides, we will also offer convenience for cross-regional clearance and extend services as part of the construction of the single window platform. We will work on simplifying the operating procedures of trade among ports around the world. As for the construction of free ports, cities and enterprises in the Yangtze River Economic Zone will connect more closely with the global market through free ports, including Shanghai’s airports and Yangshan Port which are international hub ports connecting domestic and international markets. We will also take more measures to serve the Yangtze River Economic Zone.