Shanghai cuts negative list to woo foreign investment

Overseas firms will gain access to more sectors but free-trade zone's limited geographic size poses obstacle in sparking investment spree

PUBLISHED : Wednesday, 02 July, 2014, 1:45am
UPDATED : Wednesday, 02 July, 2014, 2:02am

Shanghai has widened access to sectors such as oil refining and tea processing for foreign investors registered in its free-trade zone as the city steps up efforts to woo overseas capital.

But the incentives might not be enough to spark an investment spree due to the limited geographic size of the zone.

The municipal government unveiled yesterday an upgraded version of the zone's "negative list" - sectors off-limits to foreign investors - touting it as a move to reinforce the development of the zone and facilitate cross-border investment.

The number of items on the list was cut from 190 to 139.

The attempts to further open the sectors are significant for … overall reforms

Foreign companies based in the 28.78 sqkm zone, the first of its kind on the mainland, will now be given access to a range of significant sectors including cotton processing, salt distribution and motorcycle manufacturing.

Shanghai's government took seven months to compile the new list, following sharp criticism from foreign businesses of the first version of the negative list, published in September, which they said was too "lengthy".

The central government gave Shanghai its endorsement to develop the Hong Kong-style free port in late September, billing it as a test bed for further economic reforms on the mainland.

However, long-heralded major liberalisations in the zone, including full convertibility of the yuan and the introduction of a market-based interest rate mechanism, have yet to take effect.

The shortened negative list is being viewed as "symbolic" rather than "substantive" since there is a limited supply of land in the free-trade zone.

Dai Haibo, an executive deputy director of the zone's administrative committee, admitted at a press conference yesterday that some of the newly opened sectors might not be able to attract foreign investors because of the zone's geographic limitations.

Only about 5 sqkm of untapped land was available in the zone, the committee said.

"It's true that not all newly opened sectors will see real foreign investment in the zone," Dai said. "But the zone still welcomes investments into those lucrative businesses such as design and research. The attempts to further open the sectors are significant for the country's overall reforms."

It is understood that some ministry-level authorities, including the banking and securities regulators, are wary of drastic liberalisations in the zone owing to concerns that they could prompt a surge in hot money flows.

"The [zone] is just a much-hyped topic since no strong policies have been made to support us to do business there," said a chief financial officer with a foreign bank's China operations. "It's far from becoming a truly free marketplace."