Move aimed at 'seamless transition' ahead of official launch on Sunday

The municipal legislature of Shanghai on Thursday endorsed the legal framework for the China (Shanghai) Pilot Free Trade Zone, paving the way for the official launch on Sunday, when the first batch of new laws and regulations are expected to be announced.

The Standing Committee of the Shanghai Municipal People's Congress said in a statement that it decided to adjust some of its local regulations and suspend the 1996 Regulations on Examination and Approval of Foreign Investment Enterprises of Shanghai Municipality, which are expected to be superseded by the new zone's regulations.

The statement said that the suspension wouldn't create a legal vacuum, because every effort would be made to ensure a seamless transition.

Foreign business executives said they welcomed the proposed changes and looked forward to an even more efficient regulatory environment.

Calling the general business environment the top factor in attracting foreign investment, Anders Paulsson, a partner at the Shanghai-based consulting firm SmithStreet, said the FTZ is expected to provide more business opportunities.

"Foreign enterprises will be given pre-establishment national treatment - treated the same as Chinese companies. Foreign investment will also be evaluated with a 'negative' list approach as opposed to a 'positive' list approach," said Jian Chang, an economist at Barclays China.

In a "negative" list approach, any industry that is not on the list is open to foreign investment.

"This new approach would greatly simplify the process because few industries are expected to be on the negative list," said Chang.

Although the ban on foreign capital in such industries as telecommunications is unlikely to be lifted, Yang Yuyi, an attorney at the Jingtian & Gongcheng Law Firm's Shanghai branch, said that the review and approval procedures for other sectors, including healthcare, have become more open and easier for foreign capital. It can be assumed that the FTZ will offer even easier procedures, she said.

Taxes are another major area of concern for foreign enterprises. Once a company qualifies for tax breaks in the FTZ, it will have a top income tax rate of 15 percent, compared with the present rate, which can be up to 33 percent, said Chen Li, chief securities analyst with UBS AG. That's a big saving for the foreign enterprises that qualify, he added.

Any other local regulations that aren't in line with the general plan of the FTZ will be adjusted accordingly for a three-year trial period, the Shanghai municipal legislature's statement said.

Legal and regulatory changes will take effect from Oct 1.

Central government departments that have responsibilities connected with the FTZ and the Shanghai municipal government will issue laws and regulations regarding the admission of foreign investment and registration of foreign-invested companies to ensure a smooth transition, according to Ding Wei, director of the legislative affairs commission of the Standing Committee of the Shanghai Municipal People's Congress.

Wang Xinkui, counselor of the Shanghai municipal government and a key architect of the FTZ plan, reportedly told a forum in Shanghai on Thursday that there will be no offshore duty-free policy in the zone.

Also, local authorities in Shanghai denied media reports that China will lift its ban on Facebook and Twitter in the FTZ, according to the State-owned media outlet people.com.cn.

Internet administration will remain unchanged in the FTZ. There will be no ideological arrangement in this area.

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