Keeping Shanghai Company

By+Zhou+Xiaoyan

Zijie Tiaodong Technology is a mobile Internet company headquartered in Beijing. Headline Today， a mobile news app developed by the company， boasts over 230 million users and is one of the most popular mobile apps in the country. In March， Zhang Yiming， founder and CEO of the company， made a decision to set up a research and development center as well as an opera-tion center in Tianjin， a port city adjacent to the capital.

Zhangs decision followed the approval from central authorities to set up new free trade zones （FTZs） in the northern municipality， and in south Chinas Guangdong Province and southeast Chinas Fujian Province.

Following the success of the Shanghai FTZ， which was established in September 2013， the Central Government decided to expand the institutional innovation to a wider area. Successful experiences and milestones achieved by the Shanghai FTZ will be accessible elsewhere， and booming FTZs will become a new driving force for the slowing economy. However， in order to achieve differentiated development， the three newcomers should strive to find their own strengths.

Duplicating the success

An overall plan for three experimental FTZs in Guangdong， Fujian and Tianjin and expansion of the Shanghai FTZ were approved on March 24 by the authorities.

Experimental FTZs are important for exploring new paths and acquiring new experiences， a statement released after the meeting explained.

The statement said the Shanghai FTZ had made “positive progress” over the past more than a year， generating a model that can be replicated elsewhere. The new zones， as well as the Shanghai FTZ， will continue striving for institutional innovation， according to the statement.

Designed as a testing ground for further reforms， the Shanghai FTZ features lower thresholds for corporate establishment and liberalized foreign exchange. The zone also offers special benefits to certain industries， including e-commerce， legal services and logistics.

Liang Qi， Dean of the School of Economics with Tianjin-based Nankai University， said successful experience accrued in the Shanghai FTZ should be promoted across the nation， including the creation of an investment management system based on the negative list， a more convenient trading environment， a financial innovation system with the aim of yuan convertibility under the capital account and the opening up of financial services， and a transformation of government functions featuring present- and post-establishment supervision instead of pre-establishment approvals.

According to Chen Yin， Deputy Secretary General of Shanghai Municipal Government and former deputy director of the administrative committee of the Shanghai FTZ， 27 results concerning institutional innovation have been promoted either all over China or in specific areas of the country so far.

Another 28 policies， which have been successfully implemented in the FTZ to facilitate investment management， trade， finance and service industry development， is under final scrutiny of the State Council and will be promoted soon. Six other policies concerning institutional innovation in customs as well as inspection and quarantine will be duplicated and promoted in other areas in the country.

One of the biggest achievements of the FTZ is to make foreign investment in China easier by adopting the negative list.

A negative list is a management model for foreign investment that works by defining areas that are restricted for foreign investment. Foreign investments outside the lists scope do not require government approval and enjoy national treatment.

The negative list was derived from the United States. To date， over 70 countries have adopted this approach to managing foreign investment， and it has become a new trend in investment rules globally.

Upon its inauguration， the Shanghai FTZ adopted the negative list for the first time in Chinas history， so as to increase openness and transparency in foreign investment management. The 2014 version of the negative list of the Shanghai FTZ has been pared down to cover 139 areas， compared to 190 in 2013. Encouraged by this， foreign companies have flocked to the zone in large numbers.

In 2015， the three new FTZs will use the same list as Shanghais， which is currently being formulated by the National Development and Reform Commission， Chinas top economic planner.

“The four FTZs will adopt the same negative list but the list will be slightly different，”said Wang Shouwen， Assistant Minister of Commerce.

Sun Yuanxin， Vice President of the Free Trade Zone Institute of the Shanghai University of Finance and Economics， said those differences should be based on local conditions.

The negative-list approach is in line with the principle of “everything which is not forbidden is allowed.” Gong Baihua， a law professor with Shanghai-based Fudan University， said Chinas negative-list approach has a long way to go to reach that ultimate goal.

“In terms of restrictive areas， the 2014 version negative list is not detailed enough， therefore some parts are very difficult to implement，” Gong said.

Gong also suggested the list should be shortened. “As long as opening up a certain sector doesnt crush local industry or pose a threat to national security， it should be done，” Gong said.

Maintaining individuality

Li Guanghui， Vice President of Chinese Academy of International Trade and Economic Cooperation， said the three new FTZs should develop their own strengths while following the steps of the Shanghai FTZ.

For example， the Guangdong FTZ will carry out programs on economic integration with Hong Kong and Macao， the Fujian FTZ will stress trade ties with Taiwan， and the Tianjin FTZ will highlight coordinated growth with its neighbors—Beijing and Hebei Province， Li elaborated.

Zhou Linsheng， President of Guangdong Society of Economic Reform， said the Hong Kong and Macao economies are highly complementary to Guangdongs economy.

“Guangdong has a lot to learn from the financial， logistics， technology industries in Hong Kong and Macao， whereas the vast market in Guangdong Province offers a great opportunity for Hong Kong and Macao，” said Zhou.

Pei Changhong， Director of the Institute of Economics with the Chinese Academy of Social Sciences， said financial innovations in Fujian Province should prioritize cooperation with Taiwan.

“As for Fujian， its biggest edge lies in promising cross-Straits financial cooperation with Taiwan， such as yuan convertibility under the capital account. For instance， Fujian residents should be allowed to buy assets or financial products denominated in Taiwanese currency， and the other way around.”

Fei also stressed originality as a key to success in FTZs.

“When opening up the service sector in FTZs， everyone is excited about financial reforms， but some experiences in Shanghai can hardly be replicated elsewhere. Each FTZ should have its own features，” Fei said.

According to the Tianjin Municipal Government， the three sub-zones of the Tianjin FTZ will have different focuses—the Tianjin airport will be dedicated to high-end manufacturing and logistics industries， the Tianjin port will develop modern service industry such as international trade and financial lease， and the Binhai New Area will serve as a platform for the development of financial industry and service trade.

Liu Enzhuan， Executive President of the Tianjin Academy of Free Trade Area， said financial innovation in Tianjin will be mainly focused on financial lease， the yuan offshore market and cross-border use of the Chinese currency.

The Guangdong FTZ includes three subzones in Hengqin， Qianhai and Nansha， while the Fujian FTZ includes three sub-zones in Xiamen， Pingtan and Fuzhou. The logistics of achieving differentiated development between different sub-zones within the province and between provinces becomes a key issue facing those districts.

The three sub-zones of the Guangdong FTZ have their own development strategies—Nansha will be dedicated to developing the shipping industry， Hengqin will develop the biochemical and tourism industries and Qianhai will focus on modern service and cross-border financial industries. However， some parts of the overall design overlap.

Chen Bo， Deputy Director of the Research Center on Free Trade Zone under the Shanghai University of Finance and Economics， said the government should refrain from too much intervention with formation of specialties in different FTZs.

“Those features should be a natural product of local conditions， instead of government policies，” Chen said.