Shanghai free-trade zone

Shanghai mulls fivefold expansion of free-trade zone in bid to attract foreign capital

  • New zone to include Lingang, site of Tesla’s first international production facility
  • Further easing of restrictions on foreign investment and greater freedom in moving commodities and money in and out of China could follow expansion
PUBLISHED : Thursday, 20 December, 2018, 7:03am
UPDATED : Thursday, 20 December, 2018, 12:30pm

Shanghai is considering expanding its free-trade zone fivefold to as big as 600 square kilometres, and include two areas where US electric carmaker Tesla and Malaysian hospital operator IHH Healthcare are already active, to increase its appeal to foreign investors.

The new expanded area will include Lingang and Hongqiao, located to the west of the Huangpu River that cuts through the city, according to sources. The city government is expected to unveil detailed expansion plans for the 120 square kilometre zone in the first half of 2019, after it receives an approval from the central government in Beijing. The sources did not confirm the exact size of the expanded zone.

“Service sectors including finance and medicine will be a focus during the further development of the Shanghai free-trade zone,” said Chen Bo, professor at the Huazhong University of Science and Technology and an adviser to local governments, including that of Shanghai. “Generally, it will be easier for foreign investors to set up their operations in the zone.”

Tesla signed an agreement with the Shanghai government in July this year to build its US$2 billion Gigafactory 3, its first production facility outside the United States, in Lingang, which covers 360 square kilometres. The facility is expected to produce 250,000 electric vehicles a year.

IHH Healthcare is active in Hongqiao, which covers 90 square kilometres and hosted the China International Import Expo (CIIE) in November. The company is building a US$200 million hospital with 450 beds, which is expected to open in 2020.

Chinese President Xi Jinping announced at the CIIE that Beijing would let Shanghai expand its free-trade zone, highlighting China’s commitment to globalisation by widening access to its domestic markets amid a trade war with the United States.

It will be easier for foreign investors to set up their operations in the zone
Chen Bo, professor, Huazhong University of Science and Technology

Also at the CIIE, a six-day event organised with the aim of increasing China’s imports, Wu Qing, a Shanghai vice mayor, said the free-trade zone’s expansion would be matched by large-scale liberalisation.

Last weekend, Wu told a forum at the Shanghai Advanced Institute of Finance that the mainland’s most developed metropolis was still aiming to be an international financial centre and that the expanded free-trade zone would reinforce its ambitions.

The zone, China’s first, was set up in 2013 and initially covered 28.78 square kilometres. It was started with the ambition of turning Shanghai into an investment magnet and free-trade port similar to Hong Kong and Singapore. The zone was expanded to 120 square kilometres in 2015, but still failed to live up to investors’ expectations of becoming a free marketplace. To date, the yuan has yet to become fully convertible under capital accounts in the free-trade zone.

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The Shanghai government has set up a special task force to come up with detailed plans for the expansion of the free-trade zone, and these plans will be submitted to top authorities in Beijing for a final review and endorsement.

While Lingang is viewed as an ideal area to attract more foreign investment and international companies’ mainland China production operations, Shanghai wants to turn Hongqiao into an international medical centre by drawing top hospital chains and talent from across the globe.

China State Council guideline prioritises land use for free-trade zones, sets stage for further liberalisation

Sources said the expanded free-trade zone will further ease restrictions on foreign investment and grant foreign companies greater freedom in moving commodities and money in and out of mainland China.

The new free-trade zone will also enable more foreign businesses to open free-trade accounts, a major experimental move in the zone aimed at easing trade and investment. These accounts are viewed as a preliminary step in liberalising capital accounts, and were first introduced to the Shanghai free-trade zone in 2015.

President Xi breathes new life into Shanghai FTZ as he hopes to replicate reforms across China

These are considered offshore accounts for official purposes, with banking authorities allowing free capital flows between free-trade accounts and accounts outside mainland China.