China government revamps free trade zone regulations

The central government on Monday modified a series of regulations for the China (Shanghai) Pilot Free Trade Zone, in a bid to allow greater involvement of foreign investors in formerly restricted areas such as telecommunications. Thirty-two legal clauses from various FTZ laws and regulations were suspended in the 28.78 sq km zone, which is a test field for future economic reforms, according to a statement on the website of the State Council, China's cabinet. Among them, 24 clauses, most of which are requirements for investment approval, will be replaced by the FTZ's negative list, which covers the areas that are off-limits to foreign investors. Foreign companies are allowed to invest in any of the sectors that are not on the negative list. The other eight clauses, which restrict foreign investment in areas such as shipping, credit investigation, entertainment venues, telecoms, and game consoles, will await further regulation measures from related ministries, according to the statement. Following the announcement, the Ministry of Industry and Information Technology released a statement on its website to further open the value-added telecoms sector. According to the MIIT, foreign investors will be allowed to hold larger stakes in information services and data-processing companies. Foreign investors will now be able to own 55 percent of the e-commerce units of data-processing companies, and will have no limits for the app stores and data storage businesses of IT companies. Meanwhile, the MIIT also opened four new businesses - call centers, multiparty communications, Internet access and virtual private networks - to foreign investors. The first three will have no restrictions on the proportion of foreign investment, but VPN businesses will still have a 50 percent limitation. These companies must be registered in the Shanghai FTZ, but their services, apart from network access services, can be sold nationwide. Ji Chendong, a telecom analyst at KPMG, said that the move will help to attract foreign operators to the value-added telecom sector in the FTZ. "This has also sent a signal that, in general, such groundbreaking policies will be firstly launched in the FTZ," Ji said. The State Council also lifted a 13-year ban on the production and sales of game consoles, although market players are still waiting for detailed policies from the Ministry of Culture. Chen Bo, a professor at the Shanghai University of Finance and Economics and an expert on the FTZ, said that with the legal barriers removed in these sectors, ministries will draw up and release detailed operation rules as soon as possible. However, Chen said, the fact that foreign investors still have to follow the guidelines reflects a major flaw of the 2013 version of the negative list system. "The negative list is supposed to indicate only the forbidden areas, and the rest should be fully opened to foreign investors without intervention from ministries," he said, adding that, currently, foreign investors have to deal with restrictions from 16 ministries and departments in various sectors. Chen suggested that the 2014 version of the negative list in the FTZ should be drawn up by both the Shanghai local government and the Ministry of Commerce, to make it shorter and remove a layer of complexity.