As part of China’s strategy and long-term goal to further open up China to the world economy and international trade, China has set up a “Free Trade Pilot Area” or FTPA in Shanghai.
The intent is to observe and learn from Shanghai’s experience for nationwide application later on in China.
According to Deloitte the focus will be on policy reforms rather than preferential treatment. This should result in trade, investment and financial liberalization.
Details of the rules are expected to be announced shortly with full implementation of those rules to be accomplished by the end of 2013.
Business Sectors Likely to Benefit from the FTPA
The FTPA will give wholly foreign-owned banks the opportunity to set up shop in China for the first time.
Two foreign banks (Citigroup and Development Bank of Singapore) and eight Chinese banks have received approval to open branches in the zone.
According to the Wall Street Journal banks in the zone are expected to have more freedom to set interest rates and trade in foreign exchange. If foreign currency is allowed to flow freely into the zone, regulators will have to implement measures to prevent it from flowing into the domestic economy, which is subject to strict controls on foreign capital.
Other pilot sectors likely to benefit include modern service industries and regional headquarters.
Potential Reforms to be Implemented Include the Following:
• RMB being fully convertible within the FTPA
• Simplified inbound foreign investment approval and registration procedures.
• Simplified and modernized customs supervision procedures.
• Internationally competitive tax regime.
Takeaway
Chinese and multi-national corporations should keep a close watch on the upcoming FTPA rules and review their business models so as to take full advantage of the benefits offered in the FTPA and stay competitive in their China business strategy.
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