(Adds comments from Shanghai FTZ official)
By Lu Jianxin and John Ruwitch
SHANGHAI, July 1 The Shanghai government has
shortened its list of sectors where foreign investment is to be
banned or restricted in the new Shanghai free trade zone (FTZ),
but the changes show only a slight relaxation for foreign
entrance into the Chinese markets.
A comparison shows that the Shanghai municipal government
cut the 2014 "negative list" by 27 percent, to 139 items from
190 items in the one issued last year.
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
with 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. Most major multinationals have held back from
substantive investments in the zone, even as commercial property
prices there have seen heavy speculative inflows.
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.
APPROACH IS DEFENDED
FTZ officials, speaking at a press conference on Tuesday
afternoon, defended their approach.
"The pilot FTZ, as a major part of reform and opening, on
the one hand must bravely charge ahead and bravely try things
and make its own reforms," said Dai Haibo, standing vice
chairman of the FTZ management committee. But he added that
reforms must progress "in accordance with the law" and with
The Shanghai municipality does not have sole authority to
implement financial reforms in the zone. It must seek approval
from powerful central regulatory agencies including the China
Banking Regulatory Commission, the central bank, the State
Administration for Foreign Exchange, not all of whom always
agree about how and when to liberalise the financial system.
"We are not in an era in which we can simply cross the river
by feeling the stones," said Dai. "We can't just do whatever we
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 have other lines of business.
A provision restricting foreign participation 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
SUPERFLUOUS BANS REMOVED
In the service sector, all provisions related to bans on
gambling and pornography have been abolished, but that does not
mean that such businesses are now allowed, as such activities
are illegal nationwide and dealt with by China's 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 in September to test ambitious
plans for reforms in the country's policies on currency,
interest rates, trade and industries.
The central government has permitted a limited capital
account opening and eased restrictions on offshore lending in
the zone. Beijing has said reforms in the zone are experiments,
and the aim is to apply them to larger regions and eventually
throughout the country.
In the first such broader application, China last week
expanded a pilot program on foreign-exchange deposit rates from
Shanghai's FTZ to all of Shanghai.
The full text of the 2014 list can be viewed on the FTZ's
(Writing by Pete Sweeney; Editing by Richard Borsuk)