| SHANGHAI, July 1
SHANGHAI, July 1 The Shanghai government has
shortened its list of sectors where foreign investment is be
banned or restricted within the new Shanghai free trade zone
(FTZ), but the changes show only slight relaxation for foreign
entrance into the Chinese markets.
A comparative study of the lists shows that the Shanghai
municipal government cut the length of the 2014 "negative list"
by 26.8 percent, to 139 items from 190 items in the 2013.
But the change was mostly the result of eliminating rules
repeated throughout the document rather than eliminating major
barriers to foreign investment in the zone, which was launched
to much fanfare last year.
The "negative list" approach was originally touted as a
major reform in itself, as previous lists had been full of gray
areas that gave the government wide latitude to encourage or
block investments on a case-by-case basis, seen as highly risky
for foreign investors.
But the first version of the negative list was so long and
comprehensive that the actually liberalisations it offered were
seen as minimal, and most major multinational investors have
held back from substantive investments in the zone, even as
commercial property prices there have seen heavy speculative
Even state media has publicly criticised the Shanghai
government for being too conservative in its approach after
promoting the FTZ as the most significant financial reform since
a zone in Shenzhen helped launch China's Reform and Opening
Movement in the 1980s.
The latest rules do offer some modest relaxations on foreign
investment in real estate, financing and service sectors.
For instance, a provision that restricts foreign investment
in the secondary property market and in real estate brokerages
was revised to allow investment in these areas by foreign
companies that also have other lines of business.
A provision restricting foreign investment in investment
banks, financing firms, trust firms and money brokers in the
zone was removed, but it was replaced by a statement that "all
investment in banking-style financial institutions must abide by
In the service sector, all provisions related to bans on
gambling and pornography have been abolished, but the abolition
does not mean that such businesses are now allowed in the FTZ,
as such activities are already illegal nationwide and dealt with
by the criminal code.
Some excessively detailed provisions, such as those related
to how Hong Kong and Macao companies should invest in
publishing, print material distribution and book chain stores
have also been deleted, among other changes.
China set up the Shanghai FTZ last September to test
ambitious plans for reforms in the country's currency, interest
rates, trade and industry policies.
The central government has permitted limited capital account
opening and eased restrictions on offshore lending in the zone,
and Beijing has said reforms in the zone will be experiments
that are aimed to be copied to larger Chinese regions and
eventually throughout the country.
In the first such duplication, China expanded a pilot
program on foreign exchange deposit rates from Shanghai's FTZ to
all of Shanghai last week.
But economists have repeatedly warned that such financial
liberalisation, if contained within the zone, do not constitute
useful tests of how the policy would work throughout the
Using the FTZ as a "test bed" for deep policy changes
interest rate liberalisation, for example, is a waste of time as
its success or failure in the zone will not be indicative.
The full text of the 2014 list can be viewed on the FTZ's
(Editing by Kim Coghill)