The Shanghai Free Trade Zone has attracted $58.6 billion in foreign investment over the past decade, and a negative list has brought disruptive innovation

In 2013, the Shanghai Pilot Free Trade Zone formulated and issued the first negative list for foreign investment access. After 7 rounds of reduction, the number of special management measures items was reduced from the initial 190 to the current 27, achieving zero manufacturing items, continuous expansion and opening up of the service industry, and continuous improvement of investment liberalization level. Over the past decade, the Shanghai Pilot Free Trade Zone has implemented a number of national pioneering projects in 60 open fields, including automobile manufacturing, financial services, medical services, tourism services, value-added telecommunications, testing and certification, and credit rating. The total amount of foreign investment received has reached 58.6 billion US dollars, making it an open hub gateway for foreign investment to enter China.

Negative list 7 times "slimming down"

Reduce special management measures to 27 items

Negative list is an internationally recognized method for managing foreign investment, which is a list of industries where foreign investment is prohibited or the proportion of foreign investment is limited. More than 70 countries internationally adopt pre admission national treatment and negative list management models. On this list, the country clearly lists the areas that are not allowed for foreign investment access or have restrictive requirements, while areas outside the list are fully open and enjoy pre admission national treatment. In the fifth round of the China US Strategic and Economic Dialogue held in 2013, China agreed to negotiate an investment agreement with the United States based on pre admission national treatment and negative lists.

Zhang Lei, a researcher at the Institute of International Economics and Trade at Shanghai University of International Business and Economics, believes that the establishment of the Shanghai Pilot Free Trade Zone is a choice of the times. "After the setback of the 2008 WTO Doha Round negotiations, regional economic cooperation showed a rapid evolution trend. The United States attempted to reshape the value chain of the Asia Pacific region by promoting negotiations on the Trans Pacific Partnership Agreement. In order to adapt to changes in the international situation, China actively engaged in bilateral investment agreement negotiations with the United States after the 18th National Congress, and urgently needed to pilot a new model of negative list supervision for foreign investment."

Zhang Lei said, "With the official operation of Yangshan Port in Shanghai, the Waigaoqiao Bonded Zone is also actively exploring the construction of a higher-level free trade park. It is in this context that the Shanghai Pilot Free Trade Zone was established in September 2013, closely focusing on institutional innovation and carrying out a series of reform and opening up pilot projects."

On September 30, 2013, the second day after the establishment of the Shanghai Pilot Free Trade Zone, Shanghai introduced the Special Management Measures for Foreign Investment Access in the China Pilot Free Trade Zone. Subsequently, in 2014, 2015, 2017, 2018, 2019, 2020, and 2021, the negative list was revised a total of 7 times. The number of special management measures was reduced from the initial 190 to the current 27, achieving zero entries in the manufacturing industry. The service sector continued to expand and open up, and the level of investment liberalization continued to improve.

Expanding opening-up in the field of foreign investment access

A large number of "firsts" settling in free trade zones

Meiankang Quality Testing Technology Co., Ltd. was established in July 2015. Thanks to the revised negative list in 2014, the Shanghai Pilot Free Trade Zone has added 31 measures to expand its opening-up to the outside world, including lifting restrictions on foreign investment import and export commodity certification companies and lifting qualification requirements for investors. The company settled in Jinqiao, Pudong in just half a month, becoming the first foreign-funded certification agency after the expansion of the Shanghai Pilot Free Trade Zone. "At that time, I heard that the Shanghai Pilot Free Trade Zone allowed foreign investment to conduct testing and certification. My partner and I immediately decided to return to China to invest and start a business," said Si Rong, CEO of Meiankang Quality Testing Technology Co., Ltd

Si Rong revealed that after settling in Jinqiao, Meiankang's business has made significant progress. The company relies on international advanced food safety concepts, scientific product innovation research and development technology, professional testing technology, and authoritative certification to provide one-stop services for the Chinese food and agricultural product industry, helping domestic food production and food, agricultural products, and food ingredient raw material enterprises exporting to the United States to conduct localized testing and certification, shorten the certification cycle, and save certification costs.

As an international asset management giant with a total asset management value of over 900 billion US dollars, Schroder Investment Group established its first representative office in mainland China in Shanghai in 1994 and jointly established the Bank of Communications Schroder Fund with the Bank of Communications in 2005. In January of this year, Schroder Fund Management Co., Ltd. was approved by the China Securities Regulatory Commission for establishment, becoming the fourth newly established foreign-owned public fund management company in the country.

All four foreign-owned public fund management companies approved for establishment nationwide have settled in the Lujiazui Financial City, which has become the most concentrated area for well-known overseas asset management institutions to establish wholly-owned subsidiaries in China. There are more than 120 wholly-owned subsidiaries or joint ventures engaged in asset management business established by more than 80 overseas well-known asset management institutions from more than 10 countries, including the United States, the United Kingdom, France, Germany, South Korea, and Singapore. The financial industry continues to expand its opening-up to the outside world. In addition to foreign-funded public funds, the first foreign-funded wholly-owned securities company and the first foreign-funded insurance holding company in China have also settled in the Shanghai Pilot Free Trade Zone.

"With the implementation of a series of opening measures such as the Shanghai Hong Kong Stock Connect and the Bond Connect, we are firmly optimistic about the Chinese market, will continue to bring various advantageous resources to Shanghai, and explore new models for asset management companies to develop in China," said Zhang Lan, general manager of Schroder Fund Management Co., Ltd.

Disruptive innovation rising to law

Accumulated foreign investment received over the past decade is 58.6 billion US dollars

The negative list management model for foreign investment is a disruptive innovation of the previous "approval system" management models such as government approval of foreign investment item by item and substantive review of contract and articles of association. It is the core of investment management system reform and a landmark institutional innovation in the free trade zone. It is of great significance for promoting a new round of high-level opening up to the outside world and building a new open economy system.

In 2016, the Standing Committee of the National People's Congress made amendments to the "Three Laws on Foreign Investment", establishing a management system of pre admission national treatment and negative list for foreign-invested enterprises in the law, and promoting the pilot reform experience of free trade zones to the whole country. The Foreign Investment Law, promulgated in 2019 and implemented in 2020, clearly stipulates that the state implements a pre admission national treatment plus negative list management system for foreign investment, and elevates the reform achievements of the Shanghai Pilot Free Trade Zone, which has been piloted and gradually matured, into law.

"Over the past decade, the Shanghai Pilot Free Trade Zone has been focusing on institutional opening up, aligning with international practices, continuously exploring the expansion of opening up in fields such as telecommunications, healthcare, cultural tourism, commerce, shipping, and professional services, building a high-level open economic system, and elevating the expansion of opening up to a new height." said Wang Guo, Director of the Reform and Innovation Research Institute of the Shanghai Development and Reform Research Institute.

Since the construction of the Shanghai Pilot Free Trade Zone ten years ago, a total of 4669 enterprises have expanded their open projects, accounting for one-third of the total number of newly established foreign-funded projects. A batch of national pioneering projects have been implemented in 60 open fields. In the service industry, more than a thousand projects have been implemented in fields such as financing leasing, online retail, and engineering design, attracting a group of leading enterprises in medical services, value-added telecommunications, international ship management, and vocational skills training. In terms of manufacturing, a number of leading projects such as Tesla and Fincantini have been introduced in advanced manufacturing fields such as new energy vehicles, aircraft manufacturing, and yacht design.

Since the establishment of the Shanghai Pilot Free Trade Zone until 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. A total of 14000 new foreign investment projects have been established, and the registered capital of foreign investment is 186.298 billion US dollars, with a total of 58.6 billion US dollars in actual foreign investment. Driven by the Shanghai Pilot Free Trade Zone, Pudong New Area has established a total of 18691 new foreign-funded projects, with a total registered capital of 217.274 billion US dollars and a total actual foreign investment of 74.994 billion US dollars, which is 1.12 times, 2.43 times, and 2.2 times higher than before the establishment of the Shanghai Pilot Free Trade Zone.

Text: Xu Sufei

Official WeChat from Pudong