Shanghai to Create China’s First Free Trade Zone

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Jan. 29 – Shanghai’s acting mayor, Yang Xiong, has stated that the city wishes to create Mainland China’s first free trade zone in a three-year development project that will link and upgrade the city’s existing bonded facilities in Pudong.

The plan has apparently already been approved by the central government and was introduced at the Shanghai People’s Congress on Sunday. The zone will incorporate the Yangshan Deep Water Port, Pudong Airport and the Waigaiqiao Port in a trial run expected to be implemented from late this year. Plans to extend this further could be approved by 2017. The trade volume of Shanghai’s bonded zones represented more than US$100 billion in 2012.

Free trade zones provide a more comprehensive range of tax friendly facilities than bonded zones, and the Shanghai Pudong Free Trade Zone is expected to offer foreign-denominated offshore banking, financial leasing, cross-border financing, and international trade settlements. Of particular note is the intention to operate foreign-denominated offshore banking, a move that would for the first time provide operational bank accounts in China with exemption from oversight and regulation by China’s banking authorities.

In order to fully instigate the proposed zone, the Shanghai government will need to coordinate with ministerial bodies including Customs & Excise, the Ministry of Finance, the Ministry of Commerce, and the National Reform & Development Commission. Opposition to the plan can also be expected from the Hong Kong Government. However, if implemented, the zone would make Shanghai an increasingly competitive location for international business and commerce, and would lift the city’s ease of conducting business rankings significantly, as tax burdens would decrease along with the need to settle transactions exclusively in RMB when trading with China.

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