Shanghai FTZ: A magnet for trade and investment

Li Qian
Shanghai FTZ has drawn 84,000 new enterprises since its inception ten years ago, which is 2.35 times the number attracted in the same zone 20 years ago.
Li Qian

For many enterprises, especially foreign investors, the establishment of free trade zones is inextricably linked to their corporate footprints in China.

FTZs, hailed as a hotbed of policy experimentation and innovation, have substantially energized company development. As a result, 21 FTZs and a free trade port have sprouted up in China over the last decade. And it all started in Shanghai.

The China (Shanghai) Pilot Free Trade Zone, the first of its kind in China, was established in September 2013 and served as a model that was later successfully duplicated throughout the country.

By the end of 2022, Shanghai FTZ had attracted 84,000 new firms, which was 2.35 times the number attracted in the same territory 20 years earlier.

Meanwhile, it has received US$58.6 billion in actual foreign investment, nearly 30 percent of the city’s total, and, more importantly, pioneered nearly half of the 302 institutional innovation achievements that were first rolled out in FTZs and then extended nationwide.

They included more simplified customs procedures, easier currency exchange, and fewer regulatory restrictions.

For all these reasons, Shanghai FTZ has become a real magnet for trade and investment.

A third-party survey finds that more than 80 percent of enterprises believe the establishment of Shanghai FTZ has significantly improved the business environment, and more than 90 percent feel the administration is more streamlined.

Here, in celebration of the 10th anniversary of the Shanghai FTZ, 100 enterprises have been recognized as “classic sample enterprises of institutional innovation.” Let’s take a look at 10 of them.

Shanghai FTZ: A magnet for trade and investment

One hundred enterprises have been recognized as “classic sample enterprises of institutional innovation” to mark the 10th anniversary of the Shanghai FTZ.

J.P. Morgan Securities (China) Co Ltd

Highlights: The first wholly foreign-owned securities firm in China

The establishment of J.P. Morgan’s Chinese securities company marked a watershed moment in the US investment bank’s presence in Shanghai since 1921, as well as in China’s incremental improvements in investment liberalization, especially the gradual removal of ownership limits to open its financial sector to foreign investment.

The company moved to the Lujiazui financial hub in December 2019, nearly 20 months after the China Securities Regulatory Commission raised the foreign ownership limits to 51 percent in securities.

It began as a joint venture, with J.P. Morgan owning 51 percent and five domestic corporations owning the rest.

The possibility of having a fully-owned securities company in China arose following a CSRC announcement in April 2020 to abolish ownership limits. J.P. Morgan acquired 100 percent control of the company on August 21.

COMAC Shanghai Aircraft Manufacturing Co Ltd

Highlights: Designer and manufacturer of China's first homegrown wide-body passenger jet

COMAC developed China’s first homegrown wide-body passenger jet, the C919.

Some of the credit for its progress toward becoming a world-class airplane assembly production center must go to a constructive scheme to reduce regulatory restraints.

Besides its registered address in the Yangshan bonded zone, COMAC also has a site outside the bonded area.

The two production facilities are inextricably linked, with one responsible for aircraft R&D and assembly and the other primarily producing components and parts.

However, different regulations within and outside the bonded area created a possible impediment to business operations.

To pave the way for the company to move forward, Shanghai Customs and the FTZ’s Lingang Special Area, which administers Yangshan, adopted a constructive strategy to manage the two sites in an integrative approach, which has substantially improved production and ensured seamless logistics.

Tesla Shanghai Co Ltd

Highlights: First wholly foreign-owned new-energy vehicle manufacturer in China

The term “Tesla Speed” was coined after the American electric auto giant drove into the Shanghai FTZ in 2019 and incrementally increased its production capacity.

Tesla’s 865,000-square-meter Shanghai plant, its first outside the United States, was completed within a year of development from scratch, with the first vehicles delivered in December of that year.

The first million vehicles were produced in 33 months, with the second million produced in 13 months. In other words, it has reached a 2 million production milestone in less than four years, making it one of the most efficient Tesla operations in the world.

It has also evolved into a global export base for Tesla, whose vehicles are now popular in Asia-Pacific, Europe, and North America.

To expedite “Tesla Speed,” a slew of new constructive measures have been implemented, including in-house synergy, one-stop full-process administrative services, and integration of real estate registration and construction work acceptance.

WuXi AppTec (Shanghai) Co Ltd

Highlights: Forerunner of bonded R&D

WuXi AppTec grew from a 650-square-meter lab in Waigaoqiao to a global company with operations in Asia, Europe, and North America, dedicated to providing new drug R&D and manufacturing services that enable pharmaceutical giants such as Pfizer, Eli Lilly, and Roche to deliver groundbreaking treatments to patients.

It epitomizes Waigaoqiao, which has developed to become a prominent biomedical center, accounting for over one-third of the city’s entire industrial scale. Waigaoqiao, which is home to over 900 biomedical and medical device enterprises, has developed a complete industrial chain.

Waigaoqiao has implemented a number of favorable regulations to encourage innovation and simplify commerce, including a “white list” method that simplifies customs clearance procedures and permits enterprises like WuXi AppTec to use unauthorized imported chemicals in R&D.

Siemens Healthcare Diagnostics Manufacturing Ltd

Highlights: First to benefit from customs clearance facilitation for special goods

Siemens Healthineers’ first in-vitro diagnostic production center in the Asia-Pacific area opened in June, with a total investment of 3 billion yuan (US$410 million).

The facility, located in Zhangjiang Science City, will manufacture a wide range of diagnostic reagents, with an expected annual capacity of 600 million tests.

More importantly, about 90 percent of Siemens Healthineers’ immunological reagents sold in China will be domestically made. As a result, the facility was placed on a white list to become the first to enjoy the customs clearance facilitation for special goods as part of its localization plan.

Microbes, biologicals, human tissues and blood, and other specialized commodities are critical in biomedical research and development. However, visiting many government departments and going through intricate bureaucratic procedures takes a long time.

A closed-loop management approach has been developed to reduce red tape by simplifying customs clearance operations and integrating multiple authorities.

Kintetsu World Express (China) Co Ltd

Highlights: First joint venture in Shanghai Pudong Airport Free Trade Zone

Following its approval in July 2009, KWE China became the first joint venture in the Pudong airport’s comprehensive bonded zone.

Since then, the logistics services provider has consistently contributed to the zone’s development through scale expansion, such as establishing a new air import warehouse in late 2020 that is roughly 1.7 times larger than the old one.

It currently claims to run one of the largest warehouses in the Shanghai FTZ, offering full supply chain solutions.

Volvo Construction Equipment Investment (China) Co Ltd

Highlights: Leader in carrying out new forms of international trade

The company has experienced several FTZ institutional innovations, the most recent of which occurred earlier this month when it imported a reconditioned engine from Sweden, becoming the first to do so in China.

Previously, used engines were banned from being imported into China. While it is, in fact, highly beneficial in facilitating the green and high-quality transition of the construction machinery sector.

The company has also greatly benefited from the cross-border offshore trade settlement, which allows its local personnel in the Shanghai office to conduct international trade settlements without leaving the office.

As an added advantage, the company relocated its Asian headquarters to Shanghai.

Rio Tinto Mining Commercial (Shanghai) Co Ltd

Highlights: Innovation in international commodity trade models

The company was founded in the Shanghai FTZ in June 2019 as a wholly-owned subsidiary of metal major Rio Tinto to begin portside iron ore sales in China, the group’s largest consumer.

But then there was a dilemma. Iron ore is traded worldwide in US dollars, but the company sells in Chinese yuan, increasing the exchange cost. A month later, a two-way, cross-border renminbi cash pooling system was established as a remedy.

Since then, the company has performed admirably. It had imported 58.2 million tons of iron ore to China by May 2023.

Shanghai Microport Medical (Group) Co Ltd

Highlights: Pioneer to become a Marketing Authorization Holder (MAH)

As a premium medical device group from Zhangjiang Science City, the company was born with an innovation spirit imprinted in its DNA. Notably, it was the first to implement the Marketing Authorization Holder program.

The pilot program was designed to segregate R&D and production, allowing medical device innovators to enable contract manufacturers to build samples and products, which was banned previously.

In January 2018, Shanghai began to pioneer the program, and a month later, the company was awarded a contract to manufacture a portable ECG monitor. It reduced 82 percent of the amount of time it was supposed to take to go to market.

In July 2018, the program was expanded to include the entire city.

Shanghai Lingang Special Area International Data Port Co Ltd

Highlights: Key platform in Shanghai's advancement toward an international data hub

The company serves as a pioneer in cross-border data flows and assists Lingang in becoming a powerful engine driving Shanghai’s growth toward being an international data hub.

Lingang is well on its way to becoming an international data port, having released a set of development plans, examining the possibility of constructing a cross-border data flow management system, strengthening information infrastructure, expediting the creation of a global digital economy innovation island, and so on.

It now has over 370 enterprises in integrated circuits, artificial intelligence, and other vital industries, as well as 20 functional platforms like an industrial Internet of Things innovation center, an electronics research institution, and a smart manufacturing platform.

Special Reports