SHANGHAI, Sept 9 Shanghai may offer tax
advantages to companies who operate in its free trade zone (FTZ)
the official Shanghai Securities News reported on Monday, as
leaks of potential reforms and industrial policies in the zone
fan stock market speculation.
The report cited anonymous insider sources saying that the
government will implement preferential policies related to the
taxation of assets in the free trade zone, without giving
"This should attract foreign and domestic companies to the
zone, and at the same time reduce their cash flow burdens," the
However, the report went on to quote other officials
specifically denying rumours in circulation that the zone would
feature a 15 percent corporate income tax rate, instead of the
current 25 percent rate for ordinary enterprises.
Mainland firms expected to benefit from the construction and
operation of the zone have seen their valuations juiced in
recent weeks by a steady drumbeat of leaked policy drafts and
insider speculation describing proposed policy changes and
industrial policies in the FTZ. These have ranged from deep
changes to the way financial markets will operate in the zone to
more minor industrial policies related to video game consoles
and "cultural relic" auctions.
However, the government has yet to formally commmit to any
of the policies or set out a timeline. Multiple regulatory
bureacracies will have jurisdiction over different aspects of
In early trade on Monday, Shanghai Pudong Development Bank
Co Ltd surged 8.2 percent in Shanghai, while China
Shipping Container Lines Co Ltd tested its highest
in nearly seven months, surging by the maximum 10 percent limit.
Other port and logistics companies have also outperformed the
Beijing has said that the FTZ will test yuan convertability
and interest rate liberalisation, changes long-awaited by
economic reformers, who consider them fulcrums for redirecting
the Chinese economy away from its focus on wasteful fixed asset
investment by state-owned firms.
But economists have expressed scepticism that regulations
can limit deep reforms to lending and currency markets to
companies within the zone without impacting the wider national
"You just open the door to massive arbitrage opportunities,"
said Mark Williams, chief China economist at Capital Economics
Corporate treasurers and other industry insiders have also
expressed concerns that the reform project could be distorted or
derailed by intensifying competition between different financial
regulators and local governments over who is in charge.
Foreign multinationals have said that friction between the
People's Bank of China and the State Administration of Foreign
Exchange over currency liberalisation pilot programmes has
discouraged them from committing too much capital to the
A free trade zone in Qianhai near Shenzhen last year was
launched to similar fanfare but so far the financial reforms
have not lived up to expectations, and a land auction failed to
attract much international investor interest.
In addition, other cities are proposing to create their own
FTZs. Guangdong is studying integrating its existing economic
zones, including Qianhai, into a unified zone that will
similarly test new financial and industrial policies. The cities
of Tianjin and Xiamen have also proposed similar zones to the
state council, domestic media have reported.
(Reporting by Pete Sweeney and Clement Tan; Editing by