Sep 30, 2013 03:42 PM

Shanghai Publishes 'Negative List' of Banned Activities for FTZ

(Beijing) – The Shanghai government has published a list of areas that are off-limits or come with restrictions to investors in the new free trade zone (FTZ), a so-called negative list approach that on expert welcomes as progress toward greater openness in investment.

The list contains 190 special regulatory measures covering a wide range of activities out of the 1,069 sectors that all industries in the country are divided into, the document released by the eastern city on September 29 soon after the FTZ's official launch shows.

It serves as a negative list, or black list, in the pilot zone's market entry system, Dai Haibo, deputy director of the FTZ's management committee, said at a press conference.

Investments in areas on the list are either prohibited or restricted. Those outside the list will receive pre-establishment national treatment, meaning that they will only need to inform authorities rather than apply for approval before setting up business in the FTZ.

Foreign-funded enterprises will also find it much more convenient to collect all official documents to start operating in the FTZ, Dai said. In the past, it took up to 29 days for them to register with the tax bureau and get the operating license. Now it will take as little as four days, he said.

Areas where foreign investments are banned include Internet cafes, lotteries, news organizations and social surveys. Those that face restrictions, such as a ceiling on equity holdings, include insurance companies, e-commerce businesses and the production of batteries for alternative-energy cars.

The list will be updated every one or two years, Dai said.

Analysts have welcomed the negative list as progress toward lighter government control and a more liberal market.

Unlike the FTZ, foreign investors in other parts of the country are subject to the regulation of a "positive list," which divides investments into encouraged, restricted and prohibited groups. Investments in unnamed areas are left to the discretion of local authorities.

The "negative list" approach to managing foreign investment reflects a regulatory philosophy that is completely different from that of the positive list, Zhu Haibin, chief economist of Morgan Stanley, writes in a commentary. In essence, it means the government is gradually letting the market take the reins, he says.

The FTZ opened for business on September 29. It is a testing ground for the country's economic and financial reform agenda, including greater capital account convertibility, interest rate liberalization and cross-border uses of the yuan.

Click here for the complete "negative list" in Chinese

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