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Shanghai trade zone publishes restrictions for foreign investment

A woman walks with her pet dog at Lujiazui financial district of Pudong in Shanghai September 30, 2013. REUTERS/Aly Song
A woman walks with her pet dog at Lujiazui financial district of Pudong in Shanghai September 30, 2013. REUTERS/Aly Song

SHANGHAI (Reuters) - The Shanghai government published a list of sectors on Monday where foreign investment will be banned or restricted within its new free trade zone (FTZ), but in a departure from usual practise, no permission will be required to invest in other sectors.

The China (Shanghai) Pilot Free Trade zone officially opened for business on Sunday, and officials have outlined ambitious plans for bold reforms in the country's currency, interest rates, trade and industry policies in the zone, but without giving details on implementation.

The "negative list," published on the FTZ's website, http://zbw.sh.gov.cn, closely resembles the central government's current catalogue of nationwide restrictions on foreign investment.

Officials have said the list will be shortened over time as zone liberalizations gain steam and risks are better understood.

Top leaders were not present at the zone's opening, and state media has tried to manage expectations by quoting unnamed officials saying dramatic reforms are unlikely to be rolled out this year, while also discouraging property speculation around the zone that has already seen prices for some commercial properties rise 20 percent over several months.

The list is the first of its kind in China and a step forward compared with China's national "foreign investment catalogue", that divides investment permissions into broad categories - encouraged, allowed, restricted, or banned - which foreign companies complained were too vague and inconsistently interpreted to be of use.

The "negative list" approach means that if a sector is not on the list, foreign companies can invest in it without any restriction or joint-venture requirements; overseas entities just need to register for their projects without applying for approval.

"For all fields not on the negative list, an approval system for foreign investment projects is now replaced by a registration system," the Shanghai municipal government said in a statement accompanying the list.

"Those (projects) related to national security, censorship and anti-trust investigations must also comply with related regulations."

The negative list for the Shanghai FTZ is composed of hundreds of line-item restrictions in 16 major industrial categories, ranging from culture to hydropower to telecommunications, many of which trade partners argue China committed to opening up long ago when it was allowed to join the World Trade Organization.

For example, foreign firms are still banned from investing in China's tightly controlled media organizations; from publishing newspapers, magazines or books; and from producing electronic publications.

Similarly, they are banned from setting up internet cafes, conducting gambling businesses or opening pornographic venues, according to the list.

Foreign firms are also proscribed from the production and development of genetically modified (GM) seeds.

The list however includes items which allow limited foreign firms investment in new economic areas, such as the exploration of shale gas.

For the first time foreigners will be permitted to invest in projects exploring non-traditional national gas resources, such as shale gas and sea-bottom natural gas, but only via joint-ventures with Chinese partners.

The FTZ will also be bound by provisions in national laws that set restrictions for foreign participation in insurance brokerages and commodity futures trading companies.

The list, which comes into effect immediately, will be subject to timely changes in line with developments of the zone, the statement said without elaborating.

(Reporting by Lu Jianxin and Pete Sweeney; Editing by Raju Gopalakrishnan)

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