Outlook · Chronicles of Governance and Governance | Shanghai Free Trade Zone Experimental Field Breeding of Good Varieties

We must firmly grasp the international prevailing rules, accelerate the formation of a basic institutional system and regulatory model that is connected with the international investment and trade prevailing rules, fully leverage the decisive role of the market in resource allocation, and better leverage the role of the government. We must boldly explore, experiment, and make independent changes, and quickly form a batch of replicable and promotable new systems, accelerating the first batch of practical and effective achievements in promoting investment and trade facilitation, efficient and convenient supervision, and standardized legal environment.

In September 2013, the State Council issued the Overall Plan for China's Pilot Free Trade Zone. In 2019, the State Council issued the Overall Plan for the Lingang New Area of China Pilot Free Trade Zone.

Standing at a new starting point, the Shanghai Free Trade Zone will continue to leverage the "leading goose" effect of institutional innovation, take the lead in connecting with international high standard economic and trade rules, and promote high-level and all-round institutional opening up; Strengthen innovation leadership, accelerate the cultivation of industrial clusters and ecosystems with stronger international competitiveness, and better play the exemplary and leading role of the new era of reform and opening up as a new highland.

Among the 302 institutional innovation achievements replicated and promoted at the national level, from the negative list of foreign investment in the field of investment and trade, the single window of international trade, the free trade account in the financial sector, to the reform of the commercial registration system and the "one industry, one certificate" reform in the field of government function transformation, Shanghai's pioneering or synchronous pilot projects account for nearly 50%.

◇ Build "experimental fields" into "high-yield fields". Starting from the pain points of enterprises, industry bottlenecks, and regulatory difficulties, the Shanghai Free Trade Zone promotes the better combination of institutional innovation and advantageous characteristic industries, and makes efforts at the forefront of the innovation chain, high-end value chain, and key industrial chain to create multiple industry clusters with influence nationwide and globally.

◇ Establishing the first "single window" for international trade in the country, opening the first batch of free trade accounts in the country, establishing the first foreign-owned hospital, the first foreign-owned public fund company, and the first foreign-owned automobile manufacturing enterprise in the country... In the past decade, Shanghai Free Trade Zone and Lingang New Area have created several "national firsts", achieving the landing of a number of national pioneering projects in dozens of open fields such as manufacturing and finance.

Article | Wang Yongqian, Yang Jinzhi, and He Xinrong, reporters from Outlook Newsweek

In September 2023, China's first pilot free trade zone, the China Pilot Free Trade Zone, celebrated its tenth anniversary of operation.

Ten years ago, the Shanghai Free Trade Zone made its debut on the coast of the East China Sea, attracting global attention. The negative list management of foreign investment, the single window of international trade, the free trade account, and the reform of the commercial registration system have brought a series of innovative achievements to the whole country from here.

The construction of free trade pilot zones is a strategic initiative of the Party Central Committee to promote reform and opening up in the new era, and has milestone significance in China's reform and opening up process.

We must firmly grasp the international prevailing rules, accelerate the formation of a basic institutional system and regulatory model that is connected with the international investment and trade prevailing rules, fully leverage the decisive role of the market in resource allocation, and better leverage the role of the government. We must boldly explore, experiment, and make independent changes, and quickly form a batch of replicable and promotable new systems, accelerating the first batch of practical and effective achievements in promoting investment and trade facilitation, efficient and convenient supervision, and standardized legal environment.

In September 2013, the State Council issued the Overall Plan for China's Pilot Free Trade Zones. In 2019, the State Council issued the Overall Plan for the Lingang New Area of China Pilot Free Trade Zone. In July 2023, the State Council issued the "Several Measures for Pilot Connection with International High Standards and Promoting Institutional Opening up in Conditional Free Trade Pilot Zones and Free Trade Ports", proposing to take the lead in coordinating opening up and security in Shanghai, Guangdong and other eligible free trade pilot zones and Hainan Free Trade Port, and building an institutional system and regulatory model that is connected with high-level institutional opening up.

A good seed can sow hope; A new seedling can grow into a big tree. After ten years of operation, the Shanghai Free Trade Zone has flourished: by the end of 2022, a total of 84000 new enterprises have been established, which is 2.35 times that of the same region in the previous 20 years. More than 14000 new foreign investment projects have been established, with a total of 58.6 billion US dollars in actual foreign investment, equivalent to over 10000 US dollars in actual foreign investment being received every minute. Across the country, 21 free trade zones and Hainan Free Trade Port have been established, covering 51 cities and the entire island of Hainan. 302 institutional innovation achievements have been replicated and promoted nationwide, forming a new pattern of high-level reform and opening up that covers the east, west, north, south, and central regions, and coordinates coastal, inland, and border areas.

Nowadays, the Shanghai Free Trade Zone has become an experimental field for deepening reforms, a pioneer in institutional opening up, and an important carrier for deep integration into economic globalization.

The report of the 20th National Congress of the Communist Party of China proposed to implement the strategy of upgrading free trade pilot zones. Standing at a new starting point, the Shanghai Free Trade Zone will continue to play a leading role in institutional innovation, take the lead in connecting with international high standard economic and trade rules, and promote high-level and all-round institutional opening up; Strengthen innovation leadership, accelerate the cultivation of industrial clusters and ecosystems with stronger international competitiveness, and better play the exemplary and leading role of the new era of reform and opening up as a new highland.

Aerial View of China's Pilot Free Trade Zone Lujiazui Area by Fang Zhe/This Magazine

Promote the transformation of nurseries into forests and establish a national trial system

The free trade zone is a national experimental field, not a local reserve; It is a highland for institutional innovation, not a depression for preferential policies; It's a nursery, not a bonsai plant. During a visit to the Shanghai Free Trade Zone, many grassroots cadres and business entities expressed that these three sentences have been consistent throughout the past decade of operation of the free trade zone.

The national trial system is deeply engraved in the growth genes of the free trade zone.

——From investment and trade to government reform, nearly half of the 302 innovative achievements in the free trade zone system came from Shanghai or were simultaneously piloted.

The negative list of foreign investment is a major reform measure launched after the establishment of the Shanghai Free Trade Zone. "The transition from a positive list management model to a negative list management model is a groundbreaking reform." In an interview with a reporter from Outlook Newsweek, Zhang Yong, Vice Dean of the Shanghai School of Advanced Finance at Shanghai Jiao Tong University, who has been paying attention to the reform of the free trade zone, said that the concept of "anything can be done without prohibition" contained in the negative list helps to fully leverage the decisive role of the market in resource allocation.

In recent years, the negative list of foreign investment initiated by the Shanghai Free Trade Zone has been decreasing year by year. According to data from the Ministry of Commerce, the negative list of foreign investment in the free trade zone has been reduced 7 times, with the original 190 items reduced to the current 27 items. The manufacturing industry has been reduced to zero, and the opening up of the service industry continues to expand. From the negative list of foreign investment in the field of investment and trade, the single window of international trade, the free trade account in the financial sector, to the reform of the commercial registration system and the "one industry, one certificate" reform in the field of government function transformation, among the 302 institutional innovation achievements replicated and promoted at the national level, Shanghai's pioneering or synchronous pilot projects account for nearly 50%.

Zhu Zhisong, member of the Standing Committee of the Shanghai Municipal Party Committee, Secretary of the Pudong New Area Committee, and Director of the Shanghai Free Trade Zone Management Committee, stated that the institutional innovation achievements of the Shanghai Free Trade Zone and the Lingang New Area are mainly reflected in four aspects: firstly, benchmarking against international high standard economic and trade rules and promoting high-level institutional opening up. The second is to adhere to the direction of market-oriented reform of factors and enhance the global ability to allocate resources and factors. The third is to strengthen the government's own reform and improve the modernization level of governance. The fourth is to focus on the supply of innovative systems required for industrial development, and enhance new impetus for high-quality development.

Meiankang Quality Testing Technology Co., Ltd. is the first foreign testing and certification institution established in the Shanghai Free Trade Zone. "Before 2013, when I worked in the United States, I had a dream of using advanced testing and certification technology to serve domestic consumers' transition from 'having enough to eat' to 'having good food'," recalled Si Rong, CEO of MeiAnkang. In 2014, the Shanghai Free Trade Zone launched the second batch of 31 measures to expand opening up, officially opening up the access of foreign certification institutions. The original approval cycle of 2 months was shortened to a filing cycle of 2 weeks. Meiankang obtained its business license in just half a month and has now landed and operated in areas such as the Jinqiao area of the Shanghai Free Trade Zone and the Hainan Free Trade Port.

——From "standing alone" to "chasing after each other", it has prompted the nationwide opening up of the "wild goose formation".

Over the past decade, the construction layout of China's pilot free trade zones has gradually improved. In six rounds, 21 free trade zones have been established nationwide, involving 51 cities in 21 provinces and the entire island of Hainan, totaling 67 areas. From Shanghai's "one point" to the eastern "one line" and then to the national "one surface", a new pattern of high-level reform and opening up has been formed, covering the east, west, north, south, and central regions, and coordinating the coastal, inland, and border areas.

The Shanghai Free Trade Zone has repeatedly played a pioneering role, taking the lead in introducing innovative customs supervision systems such as first line "advanced zone, later customs declaration", interval "self transportation", and second line "batch entry and exit, centralized declaration" in China. Build and operate a "single window" for international trade in Shanghai, serving over 600000 enterprises and supporting data processing for over 1/4 of the country's goods trade volume.

"The reform of the free trade zone has accelerated the formation of a 'championship' atmosphere where various regions are competing to open up," said Yin Chen, Secretary General of the Shanghai Free Trade Zone Comprehensive Research Institute at Fudan University.

——From "physical expansion" to "functional expansion", create a special economic function highland.

One of the three major tasks assigned by the central government to Shanghai at the first China International Import Expo is to establish a new Lingang area in the China Pilot Free Trade Zone. In August this year, the Lingang New Area celebrated its fourth anniversary of establishment. In accordance with the requirements of the central government, the Lingang New Area has initially formed an institutional open system with "five freedoms and one convenience" as the core, including free trade, free investment, free funds, free transportation, free personnel and employment, and fast information connectivity.

"Unlike the expansion of the Shanghai Free Trade Zone from Waigaoqiao to areas such as Lujiazui and Zhangjiang in 2015, the addition of a new Lingang area is not only an expansion of physical area, but also a functional expansion, with the goal of creating a special economic functional zone," said Sun Yuanxin, a professor at Shanghai University of Finance and Economics.

Dust removal, appearance repair, deep cleaning... In the production workshop of Shanghai Puqing Electronics Company in the Yangshan Special Comprehensive Bonded Zone of Lingang New Area, after a series of operations, a batch of old computers from overseas have completed green remanufacturing, labeled as "remanufactured" products, and will soon be transported back to the place of import, with prices only one-fifth to one-third of the new machines.

"Before we settled down, there was no such business model in the Yangshan Special Comprehensive Bonded Zone," said Wang Wenxi, General Manager of Puqing Electronics. To provide guarantees for enterprises to carry out new businesses, the Lingang New Area relies on an integrated information management service platform to implement precise supervision of inbound goods. Taking the green remanufacturing business of Puqing Electronics as an example, the serial numbers of each old computer and accessory can be queried on the platform. This extremely granular regulatory approach ensures that products "come from where they come from and go back to where they go".

Statistics show that in the past four years, the main economic indicators of the new Lingang District have risen against the trend, with the average annual growth of regional GDP of 21.2%, the average annual growth of gross industrial output above designated size of 37.8%, and the average annual growth of fixed assets investment of the whole society of 39.9%.

Intensive cultivation and innovation of "high-yield fields", adding momentum to development

Free trade zones are both experimental fields for reform and high-yield fields for development. The dual drive of institutional innovation and technological innovation has injected strong momentum into regional development.

Driven by the Shanghai Free Trade Zone, Pudong New Area achieved a regional GDP of 1.6 trillion yuan and a total industrial output value of over 1.3 trillion yuan in 2022, which is 2.5 times and 1.5 times higher than in 2013, respectively; A total of 432 regional headquarters of multinational corporations and over 250 foreign-funded research and development centers have been recognized, accounting for nearly half of the total in Shanghai.

——Attracting domestic and foreign talents, activating the primary resource.

"More than a decade ago, if foreigners wanted to work in the securities industry in China, they needed to 'do as the Romans do' to apply for the China Securities Industry Qualification Certificate, which made it difficult for many international financial talents. Now, Pudong has established an international financial professional qualification certificate recognition list system, creating conditions for attracting international talents." Speaking of the reform of the free trade zone, Park Xueqian, Chairman of JPMorgan Securities Co., Ltd., talked about such a change.

Talents are the primary resource for development. The Shanghai Free Trade Zone has taken the lead in implementing a more open and convenient international talent introduction policy in China. As early as 2017, the Pudong New Area established the Overseas Talent Bureau and issued the first permanent residency ID card recommended by the Free Trade Zone Management Committee in China. Nowadays, the "direct train" system for recommending foreign high-level talents for permanent residency has covered the entire Pudong New Area. At the same time, an international talent port will be established to open a single window for foreigners to work and reside in China, achieving parallel processing of two certificates. Publish a list of recognized overseas professional qualification certificates, and the overseas work experience of certified personnel in the list shall be deemed as domestic work experience.

Including the Shanghai Free Trade Zone, the current total number of talents in Pudong New Area has reached over 1.7 million, with international talents in key industries accounting for over 4%.

The Li Zhengdao Research Institute, located in Zhangjiang Science City and focusing on basic research, clearly feels the attraction of the Shanghai Free Trade Zone to domestic and foreign talents. As of the end of 2022, the Li Zhengdao Research Institute has gathered 80 full-time researchers from 16 countries and regions. All full-time scholars have overseas first-class institutions for study or research experience, with international scholars accounting for nearly 40%.

——Facing cutting-edge fields, building industrial clusters.

Xingyiang Biotechnology Co., Ltd., located in the bonded area of Shanghai Free Trade Zone, was established in 2021. In the cell bank building and differentiation amplification rooms of Xingyiang, busy figures of scientific researchers can be seen everywhere. From personnel recruitment, office decoration, laboratory construction to advancing research and development of products to the animal experiment stage, Xingyiang has only spent two short years creating a "free trade zone speed" in the field of biotechnology.

Xingyiang is engaged in the cell and gene therapy industry, which is at the forefront of the biopharmaceutical industry. In addition to standardized factories and a good industrial ecosystem, bold and innovative independent reform measures are also important factors that attract Wang Liqun, the founder of Xingyiang, to start a business in the free trade zone.

In November 2022, the Action Plan for Promoting the Development of Cell and Gene Industries in Pudong New Area was officially released to the public. At the same time, Pudong has also launched a medical industry integration innovation strategy platform to help innovative drugs bridge the "last mile" of clinical application. "The policy supply is in place, and we are confident in promoting the cell and gene therapy industry to a higher level on the existing foundation, so that more patients can benefit from it," said Wang Liqun.

Building "experimental fields" into "high-yield fields", the Shanghai Free Trade Zone starts from the pain points of enterprises, industry bottlenecks, and regulatory difficulties, promotes better integration of institutional innovation and advantageous characteristic industries, and makes efforts at the forefront of the innovation chain, high-end value chain, and key industrial chain, creating multiple industry clusters with national and global influence.

According to the plan, the industrial scale of the three leading industries, including integrated circuits, biopharmaceuticals, and artificial intelligence, in the Pudong New Area where the Shanghai Free Trade Zone is located, will increase to over 750 billion yuan this year. Including Tesla, the annual output value of the new energy vehicle industry in the Lingang New Area has exceeded 230 billion yuan, becoming a prominent landmark on the global new energy vehicle map.

——Improve legal protection and build an innovative ecosystem.

At the 2023 World Artificial Intelligence Conference, which opened in July this year, 15 cars of three enterprises Baidu Zhixing, AutoX Antu and Xiaoma Zhixing won the first batch of road test licenses for driverless intelligent connected vehicles in Pudong New Area, marking that the autonomous vehicle in Pudong New Area really ushered in the "dehumanization" phase.

At the 4th China International Import Expo, an intelligent lipstick printer that can mix thousands of lip colors according to individual needs became a "hit". Not long after, Shanghai consumers can also enjoy the same customized cosmetics at the counter.

From the "future car" driving onto the "fast lane" to personalized customization leading a new consumption model, there is a guarantee of the rule of law behind it. The National People's Congress authorizes the Shanghai Municipal People's Congress and its Standing Committee to formulate regulations for the Pudong New Area based on the needs of reform and innovation practices in Pudong. At present, Shanghai has successively formulated and promulgated 18 regulations for the Pudong New Area, paving a new path for legislation to lead and promote reform and innovation.

To build a good ecosystem for technological innovation, in addition to improving legal protection, the Shanghai Free Trade Zone has made significant progress in providing key institutional supply related to industrial development

Take the lead in carrying out innovative pilot projects for integrated circuit supervision, reducing the time for goods to be stored by two working days compared to the past; Take the lead in implementing the system of medical device registrants and drug marketing license holders, and launch 21 Class I new drugs; Launch pilot programs to facilitate the entry of biopharmaceutical special items and research and development items, achieving efficient and convenient customs clearance for specific research and development items; Deepening the demonstration application of intelligent connected vehicles, the open testing road for autonomous driving in the area has exceeded 500 kilometers. China's independently developed Donghai Bridge intelligent heavy-duty truck project has launched "true unmanned" testing, becoming the world's longest commercial operation scenario for autonomous driving

Yang Chao, Executive Deputy District Mayor of Pudong New Area in Shanghai, stated that Pudong will take the 10th anniversary of the construction of the free trade zone as an opportunity to deepen reforms in key areas and create a comprehensive demonstration zone for a business environment.

Staff working on the assembly line of Tesla's Shanghai Superfactory assembly workshop, photographed by Ma Ning/This magazine

Intensify risk and stress testing efforts to explore new paths for openness

Establishing the first "single window" for international trade in the country, establishing the first foreign-funded hospital, the first foreign-funded public fund company, and the first foreign-funded automobile manufacturing enterprise... In the past decade, Shanghai Free Trade Zone and Lingang New Area have created several "national firsts", achieving a number of national pioneering projects in dozens of open fields such as manufacturing and finance.

The consistent path of Shanghai Free Trade Zone is to promote reform, development, and innovation through openness.

——Continuously enhancing global resource allocation capabilities.

The free trade account is a major institutional innovation of the Shanghai Free Trade Zone. Over the past decade, financial institutions within the Shanghai Free Trade Zone have opened a total of 144000 free trade accounts and processed cross-border settlements equivalent to RMB 142 trillion, providing strong support for enterprises to carry out global operations.

"Last April, we had a relatively tight demand for purchasing ships and needed to complete the payment before May Day. If payment could not be made in a timely manner, we would have to bear a penalty of $20000 per day. Relying on the free trade account system of Pudong Development Bank, we only completed the fund exchange and payment in 3 days." Speaking of the situation at that time, the financial manager of a shipping company located in Pudong still remembers it vividly.

Liu Kai, President of the Lianyang Branch of Shanghai Pudong Development Bank, said that relying on the financial reform of the free trade zone, Shanghai Pudong Development Bank has assisted shipping companies in applying for a cross-border two-way RMB fund pool, which has solved the bottleneck of cross-border fund transfer for enterprises. Thanks to the convenient cross-border settlement services provided by the free trade zone, the company's ship purchase plan has been fully funded, and overseas business has been able to develop rapidly.

The free trade account is a microcosm. Focusing on cross-border flows of capital, data, technology and other elements, the Shanghai Free Trade Zone has successively launched China's first international financial asset trading platform - the Gold International Board, recruiting a total of 99 international members with a total transaction amount of 23.35 trillion yuan; Establishing the Shanghai International Energy Trading Center to list and trade China's first international futures product - crude oil futures. The international influence of Shanghai prices such as "Shanghai Gold", "Shanghai Oil", and "Shanghai Copper" is increasing day by day; The Shanghai Stock Exchange, located within the Shanghai Free Trade Zone, has successively launched the "Shanghai Hong Kong Stock Connect" and "Shanghai London Stock Connect", opening up the interconnection of China Japan ETFs, making significant progress in financial market interconnection, and continuously enhancing global resource allocation capabilities.

——It is linked with China International Import Expo, the "the Belt and Road" initiative and other major opening initiatives.

The cultural relics and artworks section, which has appeared at the China International Import Expo for two consecutive sessions, will continue to appear in the consumer goods exhibition area of the 6th China International Import Expo this year. Recently, Shanghai Free Trade Zone International Cultural Investment Development Co., Ltd. officially released this news.

It is reported that the "Cultural Relics and Art" section of this year's CIIE is still full of highlights: the exhibition area exceeds 3000 square meters, the largest in history; Nine new art exhibitors have been added, with internationally renowned top galleries such as Perth Gallery and Li Weige Gallery among them; Christie's, Sotheby's, and Forbes, the world's three largest auction houses, will make three appearances on the same stage.

Tan Yi, General Manager of Shanghai Free Trade Zone International Cultural Investment Development Co., Ltd., said that with the support of many institutional innovations in the free trade zone, overseas cultural relics and artworks have completed a complete set of processes in the bonded zone, including customs clearance, entry, exhibition, transaction, agency, tax exemption, delivery, and settlement. In 2022, there were 6320 cultural relics and artworks imported and exported from here, with a total value of approximately 11 billion yuan. The Shanghai Free Trade Zone has become a functional highland for domestic cultural relics and artworks trading.

At the same time, the Shanghai Free Trade Zone continued to strengthen its function of serving the construction of the "the Belt and Road", and promoted the mutual recognition of inspection and testing results and certification agencies of the "the Belt and Road" countries. The Middle East Branch, Southeast Asia Branch, and East Asia Branch of the "the Belt and Road" Technology Exchange and International Cooperation Center of the Shanghai Free Trade Zone were successively inaugurated. The country center of the Shanghai Free Trade Zone covers 14 countries and regions, giving full play to the spillover effect of the Expo and expanding the import of high-quality goods.

——Fully integrate CPTPP and DEPA, and enhance the ability to connect international rules.

Cui Weijie, Vice President of the International Trade and Economic Cooperation Research Institute of the Ministry of Commerce, believes that the ten years of construction of the Shanghai Free Trade Zone have been a decade of continuous innovation and breakthroughs, and a major original practice for China to promote high-level opening-up to the outside world. Remarkable achievements have been made in both the open model and the promotion methods and specific results. Against the backdrop of the rise of anti globalization trends, independent opening has made important contributions to promoting the construction of an open world economy.

Looking towards the future, the strategy of free trade zones will continue to be enhanced. Ruan Qing, Deputy Director of the Shanghai Development and Reform Commission, stated that a key to implementing the strategy of upgrading free trade pilot zones is to focus on enhancing the ability to connect international rules. In the future, the Shanghai Free Trade Zone will fully integrate with international high standard economic and trade rules such as the Digital Economy Partnership Agreement, focusing on key areas such as trade freedom and convenience, expanding foreign investment market access, cross-border data flow, and the implementation of "post border" rules, continuously enriching test samples and content, and creating a good environment for various business entities to invest and start businesses.

Chen Jining, Secretary of the Shanghai Municipal Party Committee, proposed to take the 10th anniversary of the establishment of the Shanghai Free Trade Zone and the promotion strategy of the Free Trade Zone as an opportunity to benchmark against the highest international standards and the best level, strengthen proactive planning and systematic design, deepen integrated reform and institutional opening up, identify gaps, strengths and weaknesses, and elongate the board, and quickly form a new round of construction action plan for the Free Trade Zone, creating a new highland for reform and opening up in the new era.

All the past is a preface. In the future, the Shanghai Free Trade Zone and the Lingang New Area will adhere to institutional innovation as the core, with replicability and promotability as the fundamental requirements, and carry out greater pressure testing at a deeper level, continuing to explore new paths and accumulate new experience for comprehensively deepening reform and expanding opening up.