Shanghai FTZ ‘Negative List’ Disappoints Analysts

A closer examination of the Shanghai Free Trade Zone (FTZ) “negative list” in comparison with the policy that guides foreign investment elsewhere in the country has left many observers disappointed.

Supposedly a big step toward greater openness, the list has aroused criticism for containing too many items – 190 special regulatory measures for roughly 17.8 percent of all industries in the country.

Foreign investors involved in industries outside the list will be granted pre-establishment national treatment, meaning that they will not face requirements any tougher than domestic companies while preparing to start a business in the FTZ.

Hailed as innovative, analysts say the list has fallen short of market hopes because it hardly reflects any improvement on existing foreign investment restrictions. Detractors argue that it is more restrictive than the Foreign Investment Industrial Guidance Catalog, which divides foreign investment into encouraged, restricted and prohibited categories that apply in general nationwide.

The government admits the shortcomings. Wang Xinkui, director of the Shanghai Councilor’s Office, said at a press conference that the list, which he helped draft, is “of poor quality” at this moment and “to some extent a replica” of the catalog. Revisions will be made, he said.

That would give the public renewed hope. Many say they were frustrated to learn that the current list reproduced all the restrictive and banned measures in the catalog, some in greater detail. One example would be that the legal representative of a company specializing in air transport of cargo and passengers must be a Chinese national. The catalog does not specify required nationality.

Items that are not addressed in the catalog but are off limits to foreign investors on the list include running Internet data centers, operating games and organizing auctions of antiquities.

Certain restrictions in the list are apparently a blend of requirements in the catalog and other industry-specific regulations. One stipulates, for example, that foreign investors must cooperate with Chinese companies or form a joint-venture with a local business to invest in crop seeds. This represents a combination of requirements in the catalog and a narrowly focused administrative policy that governs the review and approval procedures of foreign investment into crop seeds.

*Read the full article at Caixin.