General Plan for the China (Shanghai) Pilot Free Trade Zone

(Issued by the State Council on September 18 2013.)

Guo Fa [2013] No.38

The establishment of the China (Shanghai) Pilot Free Trade Zone (the Pilot Zone) is a major decision of the Central Committee of the Communist Party of China and the State Council and a major move to intensively implement the spirit of the 18th National Congress of the Communist Party of China and promote reform and liberalisation under the new situation. This Plan has been formulated in order to comprehensively and effectively promote the work associated with the Pilot Zone.

I. General requirements

The Pilot Zone shoulders the important mission of accelerating the transformation of government functions, actively exploring innovation in administration models and promoting the facilitation of trade and investment processes in China during the new period, and exploring new means and accumulating new experiences in order to comprehensively intensify reform and increase liberalisation. It is a strategic requirement of the state.

(1) Guiding philosophy

Lifting high the great banner of socialism with Chinese characteristics, taking Deng Xiaoping's theory, the important thought: the “Three Represents”, and a scientific outlook on development as the guide, tightly centring on national strategy, further liberating thinking, insisting on being the pioneer in stepping out and trying, using liberalisation to promote reform and development, taking the lead in establishing a system of rules for cross-border investment and trade that satisfies the requirements of internationalisation and establishment of the rule of law, causing the Pilot Zone to become an important medium that permits China to further amalgamate into the globalised economy, creating an upgraded version of the Chinese economy and contributing to the Chinese dream of the great revival of the Chinese people.

(2) General objectives

Following two to three years of pilot reform, accelerating the transformation of government functions, actively promoting the increased liberalisation of the service industry and reform of the system for the administration of foreign investment, vigorously developing a headquarters economy and a new trade situation, accelerating the exploration of capital account convertibility and comprehensive liberalisation of the financial services sector, exploring the establishment of a regulatory model based on a categorisation of the condition of goods, endeavouring to give rise to a policy support system that promotes investment and innovation, striving to foster a business environment that is internationalised and ruled by law, exerting every effort to establish a pilot free trade zone that has investment and trade facilitation, currency exchange freedom, regulatory effectiveness and efficiency and a compliant legal environment that is of an international level and seeking new approaches for, and new ways of, increasing liberalisation and intensifying reform so as to better serve the entire nation.

(3) Scope of implementation

The Pilot Zone encompasses the four zones under special customs surveillance of the Shanghai Waigaoqiao Free Trade Zone, the Shanghai Waigaoqiao Bonded Logistics Zone, the Yangshan Free Trade Port Area and the Pudong Airport Comprehensive Free Trade Zone and, depending on the results of “pioneering in stepping out and trying” and based on industry development and radial stimulation needs, the scope of implementation and the scope of pilot policies will be gradually expanded, giving rise to a mechanism whereby it will grow in tandem with the establishment of Shanghai as an international economic, financial, trade and shipping centre.

II. Main tasks and measures

Tightly centring on the strategic requirements of facing the world and serving the entire nation and the strategic task of establishing Shanghai's “Four Centres” and, in line with the method of pioneering in stepping out and trying, bearing controllable risk, advancement in stages and gradual improvement, combining further liberalisation with system reform and combining the fostering of functions with policy innovation so as to give rise to a basic system framework that dovetails with prevailing international investment and trade rules.

(1) Acceleration of the transformation of government functions

1. Intensifying reform of the administrative system: the transformation of government functions will be accelerated, the methods of government administration will be reformed and innovations made thereto, in view of the requirements of internationalisation and the rule of law, the establishment of an administrative system that is consistent with international high-standard systems of investment and trade rules will be actively explored and the move in government administration from one that emphasises prerequisite approval to one that emphasises regulation both during and after the event will be promoted. A centralised application acceptance, comprehensive examination and approval and efficient operation service model will be established and information network platforms will be improved so as to give rise to a mechanism for the synergy of administration among different departments. A comprehensive assessment mechanism that tracks, oversees and collates industry information will be established and the tracking, administration and monitoring of the business activities of Pilot Zone enterprises outside the Pilot Zone throughout the whole process will be strengthened. A centralised and unified comprehensive law enforcement system for market regulation will be established, highly effective regulation in administration sectors such as quality and technical supervision, food and drug regulation, intellectual property, industry and commerce, and taxation will be realised and the participation of non-governmental forces in market monitoring will be actively encouraged. Administrative transparency will be enhanced and an information disclosure mechanism that manifests investor participation and is in keeping with international rules will be improved. The mechanism for effective protection of the rights and interests of investors will be improved, fair competition between all types of market entities will be realised and qualified foreign investors will be permitted to freely transfer their investment returns elsewhere. Mechanisms for the resolution of intellectual property disputes, such as mediation and aid will be established.

(2) Further liberalisation of the investment sector

2. Further liberalisation of the service industry: the financial services, shipping services, commerce and trade services, professional services, cultural services and social services sectors have been selected for further liberalisation (see the Appendix for the list of specific liberalisation measures) and access restriction measures such as investor qualification requirements, shareholding percentage restrictions and scope of business restrictions (except those on banking institutions and information and communication services) will be suspended or abolished, so as to create a market environment that is conducive to equitable access by various types of investors.

3. Exploring the establishment of a “negative list” administration model: in light of prevailing international rules, pre-approval national treatment will be offered to foreign investment on a trial basis, the formulation of a negative list of incompatibilities between Pilot Zone foreign investment and national treatment, etc. will be studied and the foreign investment administration model will be reformed. With respect to sectors not on the negative list, foreign investment projects will, in accordance with the principle of equal treatment of domestic and foreign investment, cease to be subject to the check and approval system and instead be subject to the record filing system (with the exception of those domestic investment projects for which the State Council has specified the retention of check and approval), with Shanghai Municipality responsible for the handling thereof; the examination and approval of the contracts for, and articles of association of, foreign-invested enterprises will instead be subject to administration by record filing by Shanghai Municipality, and after record filing, relevant procedures will be carried out in accordance with relevant state provisions; reform of the business registration and commercial registration systems will be dovetailed and the registration procedures gradually optimised; the state security review system will be improved with state security reviews of foreign investment conducted on a trial basis in the Pilot Zone so as to establish a secure and effective liberalised economic system. On the basis of a summary of the experience gathered from the pilot project, a foreign investment administration system that is consistent with the international one will gradually take shape.

4. Building an outbound investment service promotion system: the method for the administration of overseas investment will be reformed, an administration method mainly using the record filing system will be implemented for the offshore investment in and establishment of enterprises, the record filing system will be implemented for ordinary offshore investment projects, with Shanghai Municipality responsible for such administration by record filing, and offshore investment will be further facilitated. Innovations will be made in the investment service promotion mechanism, after-the-event administration of, and services for, offshore investment will be enhanced, an information monitoring platform shared by multiple authorities will be created and the statistical and annual inspection work for offshore direct investments will be duly carried out. Support will be given to various types of investment entities in the Pilot Zone to engage in various forms of offshore investment. The establishment in the Pilot Zone of project companies exclusively engaging in offshore equity investment will be encouraged and support will be given to qualified investors to establish equity investment funds of funds for overseas investments.

(3) Promotion of transformation in the trade development method

5. Promotion of transformation and upgrading of trade: a new industry situation and functions in trade will be actively fostered so as to give rise to new foreign trade competitive advantages centred on technology, brands, quality and service and the raising of the status of China in the global trade value chain will be accelerated. Multinational corporations will be encouraged to establish Asia-Pacific regional headquarters and operational centres that integrate trade, logistics, settlement and other such functions. The pilot project of the international trade settlement centre will be intensified and cross-border receipt, payment and financing functions of dedicated accounts for service trade will be developed. Support will be given to enterprises in the Pilot Zone to develop offshore business. Enterprises will be encouraged to organise the engagement in international and domestic trade so as to realise integrated development of domestic and international trade. The establishment in the Pilot Zone of an international mass commodities trading and resource allocation platform and launch of international trade in energy products, basic industrial raw materials and bulk agricultural products will be explored. The pilot project for bonded futures delivery will be expanded and improved, and such functions as financing secured with warehouse receipt pledges developed. The establishment of a foreign cultural trade base will be accelerated. Development of outsourcing business in biopharmaceuticals, software, information, management, consulting, data services, etc. will be promoted. Various types of lease financing companies will be permitted and given support to establish project subsidiaries in the Pilot Zone and engage in domestic and foreign leasing business. The establishment of third party inspection and expert assessment institutions will be encouraged with their testing results admitted based on international standards. A pilot project for domestic and foreign hi-tech, high valued-added repair and maintenance services will be launched. The fostering of cross-border e-commerce service functions will be accelerated and support systems, such as customs regulation, inspection and quarantine, tax and duty refund, cross-border payment, and logistics that are compatible therewith will be established on a pilot basis.

6. Enhancement of the international shipping service grade: the effect of the movement in tandem of Waigaoqiao Port, Yangshan Deepwater Port and Pudong Airport international transportation hubs will be actively leveraged and the formation of shipping development systems and operation models that are internationally competitive will be explored. Industries such as shipping finance, international shipping, international vessel management and international shipping brokerage will be actively developed. Development of the ocean freight index derivatives trading business will be accelerated. Development of the transshipment and consolidation business will be promoted and foreign-flagged vessels owned or controlled by Chinese-invested shipping companies will be permitted to engage on a pioneering and pilot basis in the transport between domestic coastal ports and Shanghai Port of foreign trade import/export containers. Pudong Airport will be given support to increase the number of international transshipment cargo flights. The regional strengths of Shanghai will be fully leveraged to use preferential tax policies for Chinese-invested “flag of convenience” vessels to promote the basing and registration of qualified vessels in Shanghai. The international vessel registration policy implemented on a pilot basis in Tianjin will be implemented in the Pilot Zone. The procedure for securing permits for engaging in international shipping will be simplified so as to give rise to an efficient vessel nationality registration system.

(4) Intensification of liberalisation and innovation in the financial sector

7. Acceleration of innovation in the financial system: provided that risks are controllable, conditions may be created for the pioneering and pilot trial of convertibility of the renminbi on the capital account, market determination of interest rates in the financial market, cross-border use of the renminbi, etc. in the Pilot Zone. For asset side prices of financial institutions, market-determined pricing will be implemented in the Pilot Zone. A pilot project for internationally oriented exchange control reform will be explored, an exchange control system compatible with the Pilot Zone will be established and facilitation of trade and investment will be comprehensively realised. Enterprises will be encouraged to fully utilise both domestic and foreign resources and both domestic and foreign markets to realise cross-border financial liberalisation. Reform of the foreign debt administration method will be intensified and facilitation of cross-border financing will be promoted. The pilot project for the centralised operation and administration of foreign exchange funds by the headquarters of multinational corporations will be intensified, and the establishment of regional or global fund management centres by multinational corporations will be promoted. A mechanism linking financial reform and innovation in the Pilot Zone with the establishment of Shanghai as an international financial centre will be established.

8. Strengthening of financial service functions: comprehensive opening of the financial services industry to qualified private capital and foreign-funded financial institutions will be promoted, and support will be given to the establishment of wholly foreign-owned banks and Sino-foreign equity joint venture banks in the Pilot Zone. The financial market will be permitted to establish an internationally oriented trading platform in the Pilot Zone. Foreign enterprises will gradually be permitted to participate in commodity futures trading. Innovation in financial market products will be encouraged. Support will be given for the establishment of comprehensive financial service platforms in the Pilot Zone by equity custody and trading firms. Support will be given to engagement in cross-border renminbi reinsurance business and development of the reinsurance market will be fostered.

(5) Improvement of system protection in the legal field

9. Improvement of legal protection: the formation of a system of investment and trade rules of high standard responding to the development needs of the Pilot Zone will be accelerated. In respect of the content of the pilot projects, where implementation of certain provisions of relevant administrative regulations and State Council documents needs to be suspended, matters will be handled in accordance with specified procedures. Following authorisation by the Standing Committee of the National People's Congress, the relevant administrative examinations and approvals specified in the PRC Wholly Foreign-owned Enterprise Law, the PRC Sino-foreign Equity Joint Venture Law and the PRC Sino-foreign Cooperative Joint Venture Law will be temporarily revised and implemented on a trial basis for three years commencing on October 1 2013. All departments are required to give their support to the intensification of the pilot reforms in areas such as greater liberalisation of the service industry, the implementation of pre-approval national treatment and the negative list administration model in the Pilot Zone and promptly resolve system protection problems that arise in the course of the pilot projects. Shanghai Municipality is required, through local legislation, to establish Pilot Zone administration systems that are in keeping with the requirements of the pilot projects.

III. Creation of the environment for the appropriate regulatory and taxation system

As required for the establishment of an investment and trade service system of high international standard, innovative regulatory models will be created, the free flow of factors such as goods and services in the Pilot Zone will be promoted and the further liberalisation of the service industry and the intensive development of trade in goods will be pushed forward so as to give rise to open and transparent administration systems. Additionally, while maintaining the fairness, uniformity and compliance of the current tax system, relevant policies will be improved, with the fostering of functions as a guide.

(1) Innovation in the regulation service model

1. Promotion of the implementation of “opening on the front line”: enterprises will be permitted to have goods directly enter the Pilot Zone on the strength of an import manifest before carrying out declaration procedures with the competent customs on the strength of the recorded inbound goods list. Simplification of the entry/exit record filing lists and the entry/exit procedures for the international transshipment, consolidation, distribution and other such business will be explored. An “entry quarantine and appropriate relaxation of import/export inspection” model will be implemented and innovations made in regulatory technologies and methods. The establishment of a relatively independent area for trade in goods, the main objective of which is to facilitate trade, and a relatively independent area for trade in services, the main objective of which is to increase liberalisation of the service sector, will be explored. Provided that effective regulation is ensured, the establishment of a regulatory model based on a categorisation of the condition of goods will be explored. The development of functions will be intensified, and, subject to the strict implementation of import/export tax policies on goods, the establishment of a bonded exhibition and trading platform in a specified area will be permitted.

2. Resolute implementation of “secure and effective control on the second line”: checkpoint administration will be optimised, the internetworking of electronic information will be strengthened, through the strengthening of regulation by way of comparing entry/exit lists, account book control, verification of physical goods at checkpoints, risk analysis, etc., the dovetailing of the second line regulatory model with the front line regulatory model will be promoted, and an inspection and quarantine regulatory model that “facilitates entry and exit while stringently guarding against quality-related safety risks” will be implemented. Control of electronic account books will be strengthened, and the convenient and rapid flow of goods in the Pilot Zone between zones under special customs surveillance and between customs areas will be promoted. In principle, enterprises in the Pilot Zone will not be subject to territorial restrictions, permitting them to re-invest and engage in business outside the Pilot Zone, however, if the carrying out of relevant procedures to do so is required by particular provisions, such procedures will need to be carried out in accordance with such provisions. Connection of enterprise operation information with the regulatory system will be promoted. Efficient regulation will be implemented through risk monitoring, third party management, requirements for the payment of guarantees, etc. and full advantage will be taken of the establishment of Shanghai Municipality's integrity system so as to give rise at an accelerated pace to a system for enterprise business integrity administration and exclusive governing of business activities.

3. Further strengthening of cooperation in regulation: based on the principles of duly safeguarding national security and fair market competition, coordination between relevant departments and the Shanghai Municipal Government will be strengthened and the service protection capacity to ensure socioeconomic security will be enhanced. The Pilot Zone will cooperate with relevant State Council departments in stringently conducting anti-monopoly reviews of concentrations of business operators. Coordination of the customs, quality inspection, industry and commerce, tax, exchange control and other such departments will be strengthened. Improvement of the integrated regulation method will be accelerated and the establishment of a uniform and efficient port regulation authority will be promoted. Administration through uniform electronic monitoring of the Pilot Zone will be explored and a customs regulatory mechanism capable of controlling risks will be established.

(2) Exploration of tax policies that complement the Pilot Zone

4. Implementation of investment promoting tax policies: enterprises and individual shareholders registered in the Pilot Zone may pay income tax in instalments over not more than five years on the appraised increase in the value of assets arising as a result of the investment in third parties of non-monetary assets and other such asset reorganisation. With respect to bonuses paid by enterprises in the Pilot Zone to their skilled personnel in short supply and high-end personnel in the form of equity, such as shares or investment percentage, the policy implemented on a pilot basis in areas such as Zhongguancun of payment of individual income tax in instalments on equity incentives will be implemented.

5. Implementation of trade promoting tax policies: project subsidiaries established in the Pilot Zone by lease financing companies and financial leasing companies registered in the Pilot Zone will be included within the scope of the pilot project for the export refund of taxes and duties in connection with lease financing. Domestic leasing companies registered in the Pilot Zone and project subsidiaries established by leasing companies will, subject to the approval of relevant state departments, be eligible for relevant import stage value-added tax incentive policies on the purchase from abroad of aircraft with an empty weight of at least 25 tonnes that they lease to domestic airline companies. The goods produced, processed and sold in China outside the Pilot Zone via the “second line” by enterprises in the Pilot Zone will, in accordance with provisions, be subject to import stage value-added tax and consumption tax. Pursuant to applications by enterprises, a policy of levying customs duties on such goods based on their corresponding imported materials, parts and components or their actual condition when reported for inspection will be implemented on a trial basis. Under the current policy framework, taxes and duties will be exempted on the import of required machinery, equipment and other such goods by production enterprises and production-type service enterprises in the Pilot Zone. However, goods imported by enterprises in the consumer service business, etc. as well as goods that laws, administrative regulations or relevant provisions expressly state are not exempt from taxes and duties will be excluded. The pilot policy for the refund of taxes at the port of embarkation will be improved, and expansion of the scope of the pilot project to places of embarkation, carriers and means of transport will be studied at the appropriate time.

Furthermore, while remaining consistent with the direction of tax system reform and international practice, and not giving rise to profit diversion and erosion of the tax base, improvements to the tax policies appropriate for overseas equity investment and offshore business development will be actively studied.

IV. Duly arranging for implementation

The State Council will organise, lead and coordinate the promotion of the Pilot Zone. Shanghai Municipality will be required to meticulously arrange for implementation, improve work mechanisms, put in place work responsibilities and, based on the objectives expressly set forth in the Plan, the task of “being the pioneer in stepping out and trying” and the requirements of “that which is mature can be done first, followed by gradual improvement”, formulate a practicable specific plan, promote implementation as soon as possible, and in the course of implementation earnestly study new circumstances, solve new problems, and report major problems in a timely manner to the State Council for instructions. All relevant departments are required to give their vigorous support, actively carry out work such as coordination, cooperation, guidance and assessment and jointly promote innovation in relevant systems, mechanisms and policies so as to establish and administer the Pilot Zone well.

Appendix : Measures for Increasing Liberalisation in the Service Sector of the China (Shanghai) Pilot Free Trade Zone