FTZ Focus Group Quarterly Update - Q2 2014

Published on 2014-06-11

Despite China’s policy makers continuing to move cautiously towards bolder measures, two key developments took place in Q1 2014: the liberalisation of foreign currency deposit rates - whereby deposit rates will become fully adjustable - and the approval of cross-border RMB loans within the FTZ.

By: Jeanie Wang, Trade and Investment Manager, Scottish Development International
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Despite China’s policy makers continuing to move cautiously towards bolder measures, two key developments took place in Q1 2014: the liberalisation of foreign currency deposit rates - whereby deposit rates will become fully adjustable - and the approval of cross-border RMB loans within the FTZ.

Latest Developments

Banking
On 23 April, the Shanghai Municipal Government News Office Official Weibo announced that, according to the data fromChina Banking Regulatory Commission, Shanghai Office, foreign banks in China are optimistic about the future business development in SFTZ. By 22 April, a total number of 20 foreign banks had submitted applications to establish branches in the FTZ, of which 10 have received permission, including HSBC, Standard Chartered and Citibank.
Nevertheless, anecdotal evidence suggests that most companies setting up in the FTZ are still adopting a “wait and see” approach to financial reforms: waiting for more detailed regulations and seeing whether, and to whatdegree of success, competitors are benefiting from the reforms.

Telecommunications
Following Pilot Measures released on 15 April, China has simplified the approval process for setting up foreign-funded value-added telecommunications services (VATS) in the FTZ. The review and approval process has been delegated from the Ministry of Industry and Information Technology (MIIT) to the Shanghai Communications Administration. Furthermore, the approval process for foreign VATS providers has been shortened to no more than sixty days, from the previous five months.The expectation is that this highly sensitive sector is finally opening up to foreign participation.

China has now also lifted a 14-year ban on selling video games consoles. Foreign-invested enterprises (FIEs) registered in the FTZ will be able to manufacture and sell consoles in China indefinitely. Console games, however, will have to be approved by the Shanghai Local Government Culture Department.

International Trading
From January to March 2014, the total value of the international trading in the FTZ amounted to $ 30.41 billion, a 6.5% increase on the previous year, while customs tax reached RMB 23.46 billion with an increase of 10.5%. Clearance will no longer be required for each individual waybill. Clearance can now be done monthly or even quarterly and goods can be delivered to the warehouse before clearance. In these circumstances goods are actually cleared when they leave FTZ, a process which will only take two to three days.

Looking Forward

The development of cross-border two-way cash pooling services appears to be the most talked about reform among foreign investors as this positively affects borrowing capacity.
In line with the existing step-by-step approach taken by the authorities, we expect increasingly detailed sets of rules to be announced as we go past the half-year mark towards the FTZ’s first birthday.

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