Eased rules planned for trade zones

State Council update talks of 'innovative' ways of opening the economy through free-trade zones, though statement lacks timetable and details

PUBLISHED : Monday, 19 August, 2013, 12:00am
UPDATED : Monday, 19 August, 2013, 3:40am

The mainland plans to suspend some laws on foreign investment in proposed new free-trade zones including Shanghai as part of Premier Li Keqiang's drive to open up the economy to sustain growth.

The changes would provide "innovative" ways of opening up the economy, remove unnecessary administration and help transform the state's role in the economy, according to a State Council statement after a meeting on Friday led by Li.

China is boosting efforts to attract foreign companies after investment from abroad fell last year for the first time since the global financial crisis.

"The Chinese government knows that having foreign investment is a very good thing and they want this to be an attractive market for strategic and financial investors," said Kent Kedl, managing director for Greater China and North Asia for risk consulting firm Control Risks. "Many foreign investors are concerned about the bureaucracy and lack of clarity around regulations, that's probably the biggest concern when they come in" to China, he said.

Foreign direct investment in China fell 3.7 per cent last year to US$111.7 billion from a record US$116 billion in 2011, government data shows. Investment rose 4.9 per cent in the first half of this year to US$62 billion.

The State Council would submit a draft document to the Standing Committee of the National People's Congress, the statement on Friday said. If approved, the State Council would be allowed to suspend some laws on foreign investment, Sino-foreign joint ventures and co-operative enterprises in the free trade areas, it said.

The statement did not give a time frame or additional details about the changes, which will apply to the proposed zone in Shanghai and any potential new ones. While the State Council and mainland media use the term "free-trade zone", the meaning is more akin to a free-market zone subject to less regulation and interference rather than an area of duty-free trade.

The State Council said on July 3 it approved a pilot programme to set up the mainland's first free-trade zone in Shanghai, describing it as an important move to adapt to global economic and trade developments and further open up the economy.

Shanghai Mayor Yang Xiong said the city would accelerate the building of the trial zone in the second half of this year, including creating laws to regulate the project, the Shanghai Daily reported on July 14.

One part of the plan includes ending a 13-year ban on the manufacturing and sale of video-game consoles in China, on the condition that companies such as Sony and Nintendo make their products in the new Shanghai area, the South China Morning Post reported on July 10.

HSBC expects policy trials in the Shanghai zone would involve financial reforms including interest-rate liberalisation and full convertibility of the yuan. Such moves were "seen by the State Council as an "essential step towards upgrading China's economy", HSBC economists Qu Hongbin and Ma Xiaoping wrote last month.

The government said in June last year that it would make Qianhai, in Shenzhen's west, a test ground for freer yuan usage and capital account convertibility. Other mainland cities, including Tianjin and Xiamen, are seeking approval for free-trade zones.