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Guidelines on further expanding opening-up and accelerating the construction of the new system of open economy

Jun 6, 2017

The Shanghai Municipal Government’s Information Office held a press conference on April 27 on guidelines on further expanding opening-up and accelerating the construction of the new system of open economy. The following are the highlights:

Shang Yuying, director, Shanghai Commerce Commission
Chen Xi, deputy director, Pudong New Area; and deputy director, China (Shanghai) Pilot Free Trade Zone Administration
Qin Liping, chief economist, Shanghai Development and Reform Commission
Shen Weihua, deputy director, Shanghai Commerce Commission
Shi Wenjun, deputy inspector, Shanghai Commission of Economy and Informatization

International Business Daily: I have a question for director Shen. What new measures will be taken on development pattern innovation, serving The Belt and Road strategy and pushing forward the going overseas strategy for main market players of Shanghai?

Shen Weihua: In the comprehensive deepening of reforms and opening-up plan for the Shanghai Pilot Free Trade Zone by the State Council, the central government requires that Shanghai take the lead in serving and strengthening The Belt and Road strategy, which means that we should take the responsibility in ensuring that Shanghai is the leading point for the strategy.

It’s a very difficult task as it requires us to lead, assemble, support and guarantee the smooth implementation of the strategies. Under the strong leadership of the CPC Shanghai Committee and the Shanghai municipal government, government departments, including SCC, the Shanghai Development and Reform Commission, the Shanghai Transport Commission, the Shanghai Finance Office and the Shanghai Foreign Affairs Office, have done some work in transportation, finance, economic and trade cooperation as well as cultural and educational exchanges. For example in foreign trade, Shanghai had 553.5 billion yuan (US$81.4 billion) worth of imports and exports with nations along The Belt and Road last year, rising 2.6 percent from 2015. The import and export volume was 20 percent of the total import and export in Shanghai, with exports reaching 265 billion yuan, up 2.9 percent. The contractual investment from nations along The Belt and Road reached US$2.2 billion. And the volume of newly signed project contracts reached US$8.9 billion, soaring 66.5 percent year-on-year, which was 75 percent of the total in Shanghai. And the business volume reached US$4 billion. In the 1st quarter of the year, the trade and investment with nations along The Belt and Road increased rapidly. From this point of view, the construction of the strategy has made rapid development and progress in transportation and financial cooperation. In the next step we plan to do the following to cooperate with nations in order to keep our leading position in the initiative.

First of all, a foreign investment management system with the core of facilitation must be set up. We have been pioneers in China in foreign investment facilitation on the basis of the construction of the pilot free trade zone. In the next step we will try to find the shortcomings and weaknesses in order to further improve foreign investment in the areas of high and new technology, biological medicine and cooperation of production capacity. Of course, we need to make use of the function of main market players on allocation of resources. We need to improve the construction of service system, including the human resources service system and the financial service system. As the countries that we will go to are unfamiliar and emerging markets, we need to set up an information service system. There are differences in the nature, resources and management of the nations of The Belt and Road, so we also need a dispute resolution system. Other service systems include financing, accounting, taxation and risk management. They are among the five comprehensive service systems we are pushing forward to ensure smooth construction in the host countries.

For sure we won’t forget the supervision system with risk prevention as our bottom line during the process. On the one hand we will require the enterprises to shoulder social responsibilities, and strive for joint development with host countries according to the guidance of the Ministry of Commerce. On the other hand, we will safeguard the risks facing the enterprises in host countries with the evaluation and risk supervision system to ensure safety of people and property. We will make full use of main market players in allocating resources to carry out investment with various modes, including stock rights transfer, industry cooperation, setting up marketing networks and accelerating industry upgrading to fulfill the development of our own enterprises.

Jiefang Daily: I have a question for director Shang. In the 1st quarter the actual use of foreign investment dropped by 9 percent from the same period last year, while the nation witnessed a 1 percent rise in the same time. Does it mean the introduction of foreign investment in Shanghai faces pressures and what are your measures to tackle the problem?

Shang Yuying: In the 1st quarter, both the actual foreign investment and contractual investment dropped in Shanghai, which is lower than the average in China, bringing high pressure on us for sure. It was the first time in 17 years that we have witnessed a drop in foreign investment for three consecutive months. We did a deep analysis on the two main challenges; one is the challenge from global economic and commercial situation, especially the recession of global investment and protectionism. So it is a challenge to keep our share in the shrinking foreign investment globally.

The second challenge is brought by the change in industry structure and transformation development in Shanghai, including energy, land and human resources. The typical example is the manufacturing industry, in 2004 foreign investment in the manufacturing industry accounted for around 60 percent, while in 2013 it dropped to less than 10 percent. In the 1st quarter of the year, it accounted for only 5.2 percent. Shanghai is now focusing on the development of strategic and advanced manufacturing industry, and it is a huge challenge for us to strengthen foreign investment in the high-end manufacturing industry in the new round of structural adjustment.
The several opinions on the further expanding opening-up and accelerating the construction of the new system of an open economy insist on problem-based and need-oriented solutions, which represent the guideline on strengthening the attraction of foreign investment and its usage in the short-term and long-term future. They are mainly reflected in further expanding the opening-up and improving the level of opening-up, as well as taking the lead to set up a system compatible with international investment and trade rules, taking the lead to set up a fair, unified and highly-efficient business environment governed by the law, internationalization and facilitation. The document is a concrete measure to tackle the drop in foreign investment.

To our joy, the use of foreign investment in Shanghai has entered a period of shifting to the service economy, headquarters economy and R&D economy, which means that the use of foreign investment will improve in level and scale, amid the assembling of innovative factors. It represents the direction and level of the use of foreign investment in Shanghai. Thank you!

Economic Daily: I have a question for director Shi of the Shanghai Economic Information Commission. In the 1st quarter the economic performance of Shanghai was quite good. Could you please tell us what measures you implemented? In the newly published opinions, there is mention of the use of foreign investment in the manufacturing industry. Could you tell us the key areas for development in the manufacturing industry during the 13th five-year plan period in foreign investment?

Shi Wenjun: As to the first question, the manufacturing industry is the main part of the real economy, the main area for supply-side structural reforms. We have been striving to lower the cost for the real economy, expand the opening-up and actively use foreign investment according to the requirement of the CPC Shanghai Committee and the Shanghai municipal government, as well as the spirit of “Made in China 2025” plan of the State Council, to ensure stable operation of the economy.

First, the industrial performance in the 1st quarter was very promising. The output value of industries above designated scale rose by 7.1 percent in the first three months of the year, which continued the rebound from the second half of last year. The added value of industries above designated scale increased by 6.4 percent, 10.7 percent higher than the same period last year. The industrial performance was better than expected.

Second, we have pushed forward the implementation of a basket of supply side reform policies. We published implementation opinions on pushing forward supply side structural reforms to promote stable development of the industry, as well as adjust the structure and enhance transformation to make numerous supporting policies on intelligent manufacturing, the first version of software, the first version of new material, and optimization of the approval process for technically improvement projects.

Third is to organize the pushing forward of key industrial projects. We set up an integrated circuit industry foundation to start construction of key projects of SMIC, second phase of Everdisplay Optronics and Shanghai Huali Microelectronics Corporation. We have been investing in a number of key industrial projects, including C919, China's first domestically-developed narrow-body jet, preliminary orders of the first large cruise ship made in China, Roewe RX5 sport-utility Internet-connected vehicle, etc. In 2016 Shanghai saw 45,000 new energy vehicles hitting local roads.

As to the second question, last year the Shanghai municipal government published the Shanghai Manufacturing Industry Transformation and Upgrading Plan for the 13th Five-year Plan Period to accelerate construction of the new industrial system with the lead of strategically new industry, support by advanced manufacturing industry and coordination of producer services.

We whole-heartedly welcome and encourage investment from foreign companies in the advanced manufacturing industry in nine strategic new industries, five producer services and four manufacturing sectors with traditional advantages. The nine strategic new industries are new generation of information technology, intelligent manufacturing equipment, biological medicine and high-performance medical apparatus and instruments, new energy and intelligent vehicles, aerospace, ocean engineering equipment, high-end energy equipment, new energy, energy saving and environmental protection. The five producer services are R&D and design, total integration and general contracting, supply chain management, e-commerce and testing, detection and certification. And the four manufacturing sectors with traditional advantages are automobile, steel, chemical engineering and ship, in which we fully support foreign investment to participate, transform and upgrade.

We are implementing the Shanghai Promoting Foreign Investment in Manufacturing Industry Three-year Action Plan (2017-2019) and attracting investment in strategically new industries and high-end producer services. Eligible foreign invested companies can enjoy supportive policies according to the “Made in China 2025 Shanghai Action Plan”. We will actively attract multinational companies and leading enterprises in industries to join the transformation and upgrading of the manufacturing sectors with traditional advantages and push forward key foreign invested manufacturing enterprises to increase investment. The investment of industrial enterprises above designated size in Shanghai accounts for over 60 percent of industrial investment, so we encourage foreign invested enterprises to carry out industrial transformation, upgrading and technical transformation.

Oriental Financial Pudong Channel: Mr. Chen, we know that Pudong is one of the 12 cities and regions to pilot the open economic system. According to the Opinions released this time and the plan to deepen the transform in the Free Trade Zone, what measures will be launched in Pudong New Area and the Free Trade Zone?

Chen Xi: Last year, the Ministry of Commerce and the National Development and Reform Commission decided to pilot the open economic system in Pudong New Area and 11 other cities and regions. The area has followed the instructions and made relevant plans. Work has been going on well and has yielded certain outcomes with support from Shanghai municipal commerce and development authorities. We will continue to push forward the pilot scheme, carry out the “Opinions to Further Implement New Open Economic System Pilot Scheme” and build a new open economic system that matches the new economic development normal and international trade rules. Here are some of several perspectives we are focusing on:

First we will move faster to change the government’s role and improve its management capacity. Second we will make haste to complete the technological innovation system and put emphasis on the construction of the science and innovation center. Third we will set up the investment management system based on the Negative List management and invigorate commercial entities. Fourth we will accelerate the innovation on the trade monitor system in order to facilitate trade. Fifth we will develop the free trade account system to support innovation in the financial system and make finance serve the real economy better. Six we will promote communication across multiple fields in a broad range to make breakthroughs.

China Business News: There are development zones of different types and on different levels in Shanghai that have attracted plenty of foreign investment. How do they contribute to the new economic system in the future?

Shen Weihua: Shanghai now has national development zones, including Hongqiao, Minhang, Caohejing, Shanghai Chemical Industry Park, Songjiang and Jinqiao and national hi-tech development zones like the Zhangjiang and Zizhu. Meanwhile, Zhangjiang and Jinqiao are also a part of Shanghai Pilot Free Trade Zone. There are also plenty of municipal development zones. Foreign and domestic invested enterprises are based here. Statistics in 2016 show that these development zones have taken advantage of over 40 percent of the foreign investment and yielded more than 80 percent of the city’s industrial value. Indeed these zones have become important entities in the construction of the new open economic system. Next the zones will play a role in industry, manufacturing services and modern services. For example, development zone companies can introduce social and private capital and be transformed into mixed ownership. The successful and well-implemented policies in the Pilot Free Trade Zone can be transferred to other development zones. The development zones on two levels can use their advantages in brand and management to extend to the Yangtze River Delta and even the middle to west part of China to carry out nationwide cooperation. Shanghai’s development zones can also learn from and work with advanced international development zones to transform and upgrade.

The special customs controlling zone is a special type of development area. We will also try to turn the qualified export processing zones into comprehensive bonded areas. In this period of transformation we can also promote the new business mode in the special customs controlling zones. In cross-border e-commerce, for example, we have launched such demonstration parks in Qingpu, Songjiang and Jiading development zones. The bonded exhibition trade, leasing trade and modern services can be expanded to special controlling zones. Songjiang now has a trial on general taxpayers. These are all important efforts made to build the new open economic system as well as to cultivate Shanghai’s strengths in competition. Generally we hope to construct our development zones into leading industrial development areas and demonstration for high-level business operations where people can start their business, make innovations and experience the updated system. Ms. Qin, the Opinions make a few mentions about fair competition between foreign and domestic investment. What are the features in creating fair competition?

Qin Liping: Fair competition is the basic rule for the market economy. It is an important content written in the opinions to create a fair business environment, which is also a soft strength for Shanghai. We hope that fair competition is a brand of investment in Shanghai and can thus attract more foreign investors. These are some of the efforts to ensure fair competition:

First to guarantee fairness in policy-making. Shanghai has released regulations, following the State Council’s instructions, on building a fairness supervision market system; the city will need to listen to foreign investors first when designing significant policies related to foreign investment. The national policies will be strictly followed and there will not be random limitation on foreign investment companies. The mechanism ensures that the policies are transparent, stable, predictable, and consistent in execution. This is what the foreign investors have been concerned about.

The second aspect pertains to fairness in access approval. Shanghai led the piloting of the Negative List for market access in 2016. Pudong New Area has been set as a sample to connect with the Negative List system in the Free Trade Zone and the pilot of license registration reform. Other reforms are under way at the same time and market entities can be legally allowed to enter the industry and business off the list.

Third is promoting a fair operation. The opinions explicitly support the standardization of foreign capital and insist that foreign capital should enjoy fair access to governmental procurement. The financing channel for foreign capital should be expanded so as to facilitate trade.

Fourth, in improving the protection of investment, the opinions discuss the establishment of a protection mechanism for foreign investors’ rights. Through cooperation with different departments, the enterprises can be better protected. Meanwhile a series of measures have been taken to enhance protection of intellectual properties.

Overall we hope to build Shanghai into a popular investment destination through the reforms and innovation in various aspects.

The Enterprise Observer: I have three questions. The first one, how do we strike a balance between foreign investment and capital export? The second, how will the Shanghai Free Trade Zone be influenced as the United States backs out of the TTP? The third, what does The Belt and Road bring to Shanghai, opportunity or risk?

Shang Yuying: Last year we saw a deficit, with exports going beyond imports. Here are the statistics. Shanghai beat Shenzhen last year to rank first in the country with the most investment abroad. Seventy percent of Shanghai’s overseas investment is acquisitions gathering on high-end global investment brands, channels or other investments that eye global layout in the industry, innovation and supply chain.

For the second question, the integration is still the mainstream in the future even though the global pattern is constantly changing. Shanghai will be an active part of this process. We have been talking about Shanghai becoming a joint city for global supply chain and value chain, so we need to arrange our mechanisms to adapt to the global supply and value chain management mode, which should be already mature in transnational corporations. Whether it is Fortune 500 firms or Chinese transnational corporations, the supply chain should be the core for their global layout. This is an irreversible trend. One project introduced or removed is not likely to form a global supply chain system. Thus Shanghai should adapt itself to globalization. For example, Shanghai now leads the Asia-Pacific Model E-Port Network, in the hope that the joint cities in the region can have a unified standard in investments and trade and break down the walls in economy communication. So far the network has been operating well and is supported by the main countries and regions involved.

To answer the third question, The Belt and Road is an important opportunity for Shanghai, for China and for many other countries. Chinese transnational companies will further improve their capacities in investment and operation so as to be more competent to grab the chance. There are developed and less developed countries along The Belt and Road. For the developed ones, we need to join forces and take full advantage of their strengths while for the less developed ones, we need to prevent risks and make up for the each other’s shortage. As for enterprises, they should have their own options, strategies and purpose in investment, so that they can develop with mutual benefit as well as extend China’s influence. We have been endeavoring to go abroad. After two decades of construction, the development zones are quite mature. We are actively promoting the development of enterprises as well as these zones abroad. It might be easier to succeed by investing in less developed countries and regions. Thank you!

Qin Liping: I would like to say something about the first question. GDP and GNP are two professional terms. Gross Domestic Product is calculated on a regional basis and stresses the value of final products and services. Gross National Product is based on the nation’s residents, including the GNP produced at home and abroad. This is a concept on income. The two might be related in different ways in different stages. For developing countries, the GDP is usually higher than the GNP while for developed economic entities, the GNP is higher than the GDP. Our country, including Shanghai, is still in the developing phase. Foreign capital will be greatly helpful in boosting our comprehensive economic strength. Shanghai started using foreign capital in the 1980s and has so far utilized US$200 billion on 88,000 projects. Our GDP last year was more than 2,500 billion yuan. Only when we have certain capital accumulation can we invest abroad and make more GNP.