MOFCOM’s comments on Shanghai Pilot Free Trade Zone

On September 29, Mr. Gao Hucheng, Minister of Commerce of PRC, attended the opening ceremony for China (Shanghai) Pilot Free Trade Zone (the “Zone”). During the ceremony, Mr. Gao Hucheng granted an interview on establishment of Shanghai Pilot Free Trade Zone.

Q: Establishment of Shanghai Pilot Free Trade Zone is a major initiative to promote reform and opening up under the new circumstances. What is the significance?

A: Establishment of Shanghai Pilot Free Trade Zone is a major initiative for implementation of a more active strategy of opening up under the new circumstances of reform and opening to follow the new global trend of trade and economic development. The key tasks are to accelerate the transformation of government functions, exploration of innovation in management modes, expansion of opening of service industry and intensification of opening and innovation in the financial sectors. The significance of establishment of Shanghai Pilot Free Trade Zone is reflected in three aspects: the first is to form a basic system framework that connects the general international rules of economy and trade through early and pilot implementation in the Zone and make it an important carrier for further integration of China into economic globalization; the second is to be favorable to cultivate new globally-oriented competitive advantages of China, expand new space for the economic growth and create an “updated version” of Chinese economy; the third is to fully intensify the reform, expand opening and explore new methods and thoughts to form replicable and extendable experience to establish a foundation for further intensification of reform and opening and for serving the development of China in a better way.

Q: Why establish the pilot free trade zone in Shanghai in the first place?

A: Establishing Shanghai Pilot Free Trade Zone is a major initiative to promote reform and opening under the new circumstances by the Party Central Committee and the State Council based on the trend of domestic and foreign development and the overall planning for domestic and international situations. The reason to choose Shanghai for the pilot zone is out of the following three considerations: firstly, Shanghai has a favorable foundation. The large scale of opening economy, wide connection of domestic and foreign economic contacts and high clustering of international enterprises provide Shanghai with a high starting point for pilot with relatively strong risk resistance. Shanghai Pilot Free Trade Zone consists of four existing special customs regulatory zones with good infrastructures, which has attracted 12,000 various investment enterprises including 230 projects invested by world top 500 enterprises. The import and export value in 2012 was USD 113 billion. Secondly, Shanghai has mature regulatory system and management experience. In 2009, the People’s Government of Shanghai Municipality set up a comprehensive management committee for bonded zones in 2009 with efficient and standardized management and much experience in management of zones with high level of opening, which is conducive to further innovation of regulatory and service modes and promotion of free flows of various factors. Thirdly, Shanghai boasts of outstanding geographic advantage. It is located in the Yangtze River Delta with vast economic hinterland that may bring along opening and development in a larger range and a wider area through radiation effects.

Q: What features does Shanghai Pilot Free Trade Zone have in terms of the contents of the Plan?

A: The State Council released the Overall Plan for China (Shanghai) Pilot Free Trade Zone (the “Plan”) on September 27. In terms of the contents of the Plan, Shanghai Pilot Free Trade Zone has three features: First, the proactive and intrinsic opening is reflected. At present, China has faced the key moment of reform and opening. Facing with new circumstances and new tasks, there must be new methods, new modes and new trials to realize the promotion of development, reform and innovation through opening. Shanghai Pilot Free Trade Zone is a new trial for China to expand reform and opening. Second, the core is the innovation of system. Shanghai Pilot Trade Zone reflects the national strategy, and is of high level of reform and innovation. In the pilot policies, there are a lot of aspects concerning innovation of systems. For example, to promote reform of foreign investment management mechanism and to pilot negative list management mode that, in sectors beyond the negative list, the approval system is altered into filing system based on the system of consistency between domestic and foreign investment. This is a major breakthrough in the reform of administration system. Third, Shanghai Pilot Free Trade Zone features as a model. Shanghai Pilot Free Trade Zone acts as the “test field” for reform and opening, to explore new thoughts and new methods for China to expand opening and intensify reform and form replicable and extendable experience, to make a demonstration for China and bring its role into full play to serve the whole country. For example, the early opening of relevant service sectors and early and pilot implementation of convertibility of RMB capital accounts, interest rate liberation of financial markets, cross-border use of RMB will accumulate important experience for further and comprehensive intensification of reform and opening in the future.

Q: It is believed by some experts that the construction of Shanghai Pilot Free Trade Zone means higher level of opening. What influences will the construction of the Zone have on China’s pattern of opening?

A: Currently, the liberalization of trade and investment and integration of regional economy have become a trend and a new drive for the growth of global economy. The construction of Shanghai Pilot Free Trade Zone will, under the guidance of accelerating implementation of a more active and positive opening strategy, promote reform and development with opening in a way of following the new trend of global economic and trade development. The construction of the Zone will combine expansion of opening with reform of systems, cultivation of functions with policy innovation in a method of early and pilot implementation, controllable risks, step-by-step promotion and gradual improvement to form a basic system framework that connects with the general international investment and trade rules.
I believe the Zone will influence China’s pattern of opening in the following three aspects: first, to focus on the construction of “four centers” in Shanghai to form new initiatives for opening and further expand the opening of service industry. Second, new administration system will be formed, for instance, to significantly reduce the items for administrative approval, and meanwhile, to intensify intermediate and post regulation. Third, legislative guarantee and system guarantee for expansion of opening will be further realized. For example, the Standing Committee of the National People’s Congress has made specific decisions to authorize the State Council to suspend approval of relevant laws in Shanghai Pilot Free Trade Zone, which provides solid legal guarantee for the construction of the Zone. Meanwhile, the Plan also requires all departments of the State Council to support the intensification of trials in the Zone and solve issues concerning system guarantee in the course of pilot implementation; Shanghai is required to establish pilot zone management system corresponding to the requirements of the trial through local legislation. The Ministry of Commerce will, together with relevant departments of the State Council, continue to support the construction of Shanghai Pilot Free Trade Zone and timely study and solve new circumstances and new issues. We believe that Shanghai Pilot Free Trade Zone can become a “test field” for China to promote reform and improve the level of opening economy, play its role as a model to serve the country, promote co-development of all regions, push the formation of globally-oriented new competitive advantages of China and create an “updated version” of Chinese economy.

Source: Ministry of Commerce Website; http://english.mofcom.gov.cn/article/newsrelease/significantnews/201310/20131000335127.shtml

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