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Legal Update

Shanghai Free Trade Zone Further Relaxes Foreign Investment Restrictions on First Anniversary

6 November 2014
Mayer Brown JSM Legal Update

Since its official launch in 2013, the China (Shanghai) Pilot Free Trade Zone ("Shanghai FTZ") has recently celebrated its first anniversary. Over the past year, various policies relating to foreign investment have been promulgated in the 29 square kilometre Shanghai Free Trade Zone in the outskirts of Shanghai, which has generally been viewed as an important testing ground for the country's policymakers. These policies include a "negative list" approach on company establishment, the reform on RMB liberalisation and the opening up of several industrial sectors to foreign investment (such as finance, telecommunication and shipping, etc).

Notwithstanding the above, the implementation of most of the reforms in the zone is slower than what has been expected. While setting up a presence in Shanghai FTZ is a lot easier for sectors falling outside the "negative list", 139 industries remain on the list even after a revision of the list in July 2014 – these sectors are either prohibited to foreign investors or subject to stringent government approval. Steps taken on financial liberalisation have also fallen short of the promised freeing of RMB and of interest rates. While the reform on capital account settlement for foreign-invested enterprises ("FIEs") is a welcome move to foreign investors, practical hurdles still exist which hinder the FIEs to fully benefit from the new policy.

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