Shanghai FTZ: 'First in the nation and benchmark for the whole nation'
The China (Shanghai) Pilot Free Trade Zone, which is officially celebrating its 10th anniversary today, has established itself into a benchmark for the whole country, characterized by a succession of groundbreaking policies, the diligent pursuit of innovative practices, and the continuous emergence of numerous landmark achievements.
It is noteworthy that among the 302 institutional innovations that have been replicated and adopted in the country’s 21 pilot free trade zones, nearly half of them have been nurtured in the Shanghai FTZ, which has underscored its pivotal role as a testing ground for the comprehensive deepening of country’s reform and the expansion of opening-up.
It has also played an active role in promoting the stability of Shanghai’s foreign investment and trade during the past decade.
Over the course of nearly 10 years through the end of 2022, the paid-in value of foreign direct investment in the FTZ totaled US$58.6 billion, constituting some 30 percent of the city’s total during the same period. In terms of foreign trade activities, the total import and export volume posted by the Shanghai FTZ in 2022 accounted for about 30 percent of the combined volume registered by the country’s 21 pilot FTZs.
“The effectiveness of the Shanghai FTZ’s 10 years of reform can be summarized as ‘the first in the nation and the benchmark for the whole nation’,” said Sun Yuanxin, a professor at the Shanghai University of Finance and Economics.
“The first in the nation” is reflected in two aspects: the construction period was the earliest; and the zone took the lead in advancing pioneering and integrated system innovations, such as the management of foreign investment access negative lists, the reform of enterprise registration, the social credit system, administrative service centers, and government interdepartmental information sharing, among others.
“The benchmark for the whole nation” means that the zone has a strong demonstration effect, with nearly half of the 302 institutional innovations replicated and promoted at the national level being pioneered and experimented first by Shanghai, Sun explained.
Driven by the Shanghai FTZ, the Pudong New Area achieved a regional gross domestic product of 1.6 trillion yuan (US$223 billion), 1.5 times more than in 2013. Pudong now hosts 432 regional headquarters of multinational companies and over 250 foreign-funded research and development centers, both accounting for nearly half of the city’s total.
“Currently, China is actively promoting accession to high-standard economic and trade agreements such as the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and the Digital Economy Partnership Agreement (DEPA),” said Shen Weihua, deputy director of the Shanghai Commission of Commerce.
“The requirements of relevant rules are highly aligned with the key issues faced by China’s reform and opening-up. In the new era, adhering to the integration of international high-standard economic and trade rules and deepening the high-level institutional opening-up is a major mission entrusted to the Shanghai FTZ by the central leadership and the State Council.”
The Shanghai FTZ is studying institutional regulations in areas such as service trade, digital trade, intellectual property, government procurement, and post-border management systems in CPTPP and DEPA, and conducting comprehensive research on rules, regulations, management, standards, and other aspects, he added.
Shen noted that by implementing the country’s first special management measures for foreign investment access (negative lists), implementing a filing system for general overseas investment projects, and the construction of “single window” services for international trade in Shanghai, and other pioneering institutional innovations in the field of investment and trade, the Shanghai FTZ explored paths and accumulated experience for the country to promote high-level openness and comply with international economic and trade rules.
As of the end of last year, Pudong had established nearly 19,000 new foreign investment projects, with a total registered capital of over US$200 billion and nearly US$75 billion in foreign investment.
The scale of goods trade increased from 1.5 trillion yuan in 2013 to 2.5 trillion yuan in 2022, a significant rise over the past decade.
National 'testing ground'
The Shanghai FTZ has also been at the forefront of deepening financial openness and innovation with great achievements made in institutional reform, becoming a national “testing ground” for new policies and mechanisms.
And the city’s banking and insurance industry has played a crucial role in this journey, with the number of banking institutions in the FTZ reaching 588 and insurance institutions hitting 135 as of June 2023.
At a press conference held recently by the Shanghai Banking Association and the Shanghai Insurance Association celebrating the 10th anniversary of the FTZ, Wang Xinze, deputy director of the Shanghai Regulatory Bureau of the National Administration of Financial Regulation (NAFR), noted that “the banking and insurance industry is conducting further stress tests at a higher level of openness, aiming to inject new energy and advantages into the strategic advancement of the pilot FTZ.”
Looking back, institutional innovation has been a driving force behind the progress of the Shanghai FTZ. Regulatory authorities, including the former China Banking Regulatory Commission and the former China Insurance Regulatory Commission, issued eight guiding opinions to support the construction of the zone, providing a framework for financial openness and innovation.
The Shanghai Regulatory Bureau of the China Banking and Insurance Regulatory Commission has further strengthened regulatory policies by focusing on market access, special business authorization, and statistical risk monitoring.
The special business authorization has allowed banks within the FTZ to expand their offshore business, and conduct interbank and wealth management activities through the free trade account (FTA) system. As of June 2023, 49 banking financial institutions had established an FTA accounting system, accumulating total assets of 1.06 trillion yuan.
The NAFR’s Shanghai Bureau has also implemented bold trials and independent improvements to serve the high-quality development of the real economy, Wang observed.
As an example, collaborating with the Lingang Special Area Administration Committee, it has established a tech-financial innovation pilot base, piloting new products, tools, and models to match the financing needs of technology enterprises.
Furthermore, the bureau has provided precise risk protection for industries by establishing a technology insurance innovation leading area in the Lingang Special Area. With the help of an insurance pool, integrated circuit enterprises have been provided with insurance coverage totaling 1.9 trillion yuan, ensuring comprehensive risk protection for the industry.
In terms of promoting investment and facilitating finance, the bureau has launched an “Innovative Regulatory Interaction Mechanism.” This approach has supported 46 innovative pilot projects with a total amount exceeding 110 billion yuan, nurturing a favorable environment for businesses in the FTZ.
Meanwhile, various financial institutions within the FTZ have actively made efforts and scored achievements in serving the real economy.
For example, Industrial and Commercial Bank of China’s Shanghai branch, one of the first pilot banks in the Lingang area, has opened 27,000 FTAs and actively promoted cross-border facilitation trials. The Shanghai branch of Shanghai Pudong Development Bank has provided internationalized professional services for nearly 5,000 customers in the FTZ, while China Export and Credit Insurance Corp’s Shanghai branch has supported over 5,000 enterprises with exports and overseas investments worth US$165 billion.
The banking and insurance industry has also embraced reform and innovation in serving high-level openness. Bank of China’s Shanghai branch, for instance, has pioneered various methods of account reconciliation and facilitated offshore processing and trade business. Similarly, Bank of Communications Financial Leasing Co has introduced collateral management mechanisms and expanded asset allocation scope for global offshore RMB investors.
“The banking and insurance industry is set to further enhance its role in supporting the development of the FTZ, the Shanghai International Financial Center, the Belt and Road Initiative, and the integrated development of the Yangtze River Delta region,” Wang reiterated.