On last July this such great new was announced from Bejing, and few weeks later this project took shape with the official inauguration at the end of September, but more detailed guidelines are still expected in coming months.

Deeply backed by Prime Minister Li Keqiang, this experimental project consists in large free trade zone located in the municipality of Shanghai, expanding for more than 28 square kilometres. Particularly, we are talking about the new Pudong free trade zone which will lie close to Pudong Airport and Wai Gao Qiao Free Zones, well-known economic centre of the country. This part of the territory is intended to become an area which will directly compete with Hong Kong and Singapore, nowadays the most economically developed area in Eastern Asia.

It is important to clarify the correct meaning of “Free Trade Zone”: it is a specific area within the territory of a Country where companies could take advantage of favourable conditions for the exercise of economic activities, from production to trade, including storage, consulting and brokerage services. Several measure were well-conceived to attract foreign capital, ensuring tax exemptions, tax reliefs for employees contributions, reduction of duties on exports, more streamlined custom procedures but, first of all, the possibility for foreign entrepreneurs to be one hundred percent factually owner of their company, without further limitations and without the need to set up joint ventures or other forms of cooperation with Chinese local companies in order to operate in the Chinese market. The Free Trade Zone represents a kind of test for the whole Country, marking the beginning of a deeper reform that could lead China towards a greater integration into global economy.

In this part of the territory will be given the opportunity to operate with higher levels of autonomy.

Chinese currency RMB will be fully convertible in order to improve its competiveness with Dollar and Euro. FTZ Banks could freely set RMB exchange rate with foreign currencies.

For what concerns companies, first of all, the set-up process will be made easier: it will be necessary only a single government authorization to establish a new company. In this way, the role of the Government is transformed: from exercising a prior control deeply characterized by a long red tape to a monitoring role otherwise characterized by a simple and consecutive supervision.

Regarding particularly banking and financial services, the establishment of foreign credit institutions will be possible within the FTZ, with restrictions on minimum registered capital only. Some of the most qualified banks will be given also the opportunity to offer offshore business support services and financial services for cross-border activities.

FTZ plans include a free system of import/export and several measures aimed to the promotion of the strategic position of the area, improving logistics services and the development of the freight transport, particularly the maritime one. To this purpose, the Government intends to promote practice of flags of convenience and various incentives for the international registration of freighters in Shanghai. Furthermore, any kind of restrictions concerning foreign capital investments with international ship transport operators will be driven down.

The preferential Enterprise Income Tax granted for all the companies established in the FTZ is of utmost importance. Indeed, all the Chinese local companies working on international trade and all the foreign owned enterprises will take advantage of 15% Enterprise Income Tax rate rather than the 25% standard rate, currently in force.

Obviously, the FTZ will be a duty-free area: full exemption from duties and VAT on imported goods. Also the re-export trade of finished products will be favoured by advantageous VAT and duties regime. Good news for freelancers, too: cooperation between foreign and Chinese law firms will be encouraged and more information about it are expected from Beijing in the following months.

Opportunity to set up Sino-foreign companies working in human resource management sector, with the limit that the foreign investment will not exceed 70% of the corporate capital, except for Hong Kong and Macau investments, which are limitless.

With regard to the building sector, foreign companies registered in the Free Trade Zone area will be given the chance to take part in construction projects in cooperation with Chinese investors.

Foreign investments will be allowed also in the biomedical sector, including the permission to found wholly foreign-owned medical institutions. Such new will also affect the tourist and telecommunications industries, with an important novelty: the access granted to some world giants such as Facebook, Twitter and Google (Microsoft was the first giant to purchase the license to operate in the area) to Chinese Internet platform. The Government will retain a right of supervision and regulation in this field. Wholly foreign-owned enterprises will easily obtain licenses and authorizations for the access to the entertainment industry (not yet completely free from restrictions), that in the past were reserved only to joint ventures.

Moreover, in addition to all the above mentioned structural reforms, regarding which more details are expected, during the inauguration of the FTZ project, Beijing Government issued a very detailed black list including all trade industries still barred (totally or in a part) for foreign investments.

Therefore, foreign entrepreneurs couldn’t freely exercise their business activities in the following protected fields (hereby summarized):

• fishery, farming and animal husbandry (foreign investments are allowed only in the form of joint ventures or cooperation with Chinese companies, with minimum registered capital requirements and prohibitions regarding certain flora and fauna protected species);

• mining industry and support activities (extraction of ferrous and non-ferrous materials);

• tobacco, alcohol, beverage (Chinese liquors) and refined Chinese tea industry;

• paper industry;

• nuclear industry and energy production industry (including gas and oil);

• chemical and pharmaceutical manufacturing;

• automotive industry;

• civil engineering construction (roads, railways, tunnels, bridges) and passenger transport services, freight transportation (air and land), postal services;

• information technology services: telecommunications, radio - televisions, internet services;

• Real Estate: restrictions for luxury hotels building, development of tracts of land limited to cooperation and joint ventures (prohibition in villa construction project);

• scientific research (e.g. prohibitions in experiments like stem cell research);

• education sector and social services;

• art, sports and entertainment (the world biggest Disney amusement park is planned for this area);

• ecological protection and environmental management industry.

The official list, more complete and detailed, could be found in English version on the following website dedicated to the project: http://en.shftz.gov.cn/Negative% 20List.pdf. In the above listed industries, foreign investments access may be completely denied or, in other cases, the access may be possible only by planning forms cooperation and joint ventures with Chinese local investors, following specific requirements such as a minimum registered capital or a percentage of property and control that must be held by the Chinese counterpart.

Interest in Chinese and Asian market is more and more increasing, as well as the need to integrate consulting services in corporate and finance law in a way capable to provide most appropriate answers in the shortest possible time. The establishment of an Asian Desk in Hong Kong by BLB Studio Legale (with branches in Rome and Milan) moves in this direction. By virtue of agreements with reliable local partners, BLB Asian Desk is able to provide its customers with all information required to cover any support services to companies: inter alia, HR, corporate accounting services, corporate set – up, tax planning. This desk is coordinated by Alessandro Benedetti and Donato Silvano Lorusso, from Milan office of BLB. As Alessandro Benedetti explains, “BLB Asian Desk is aimed at potential Asian customers interested in carrying out business activities in  Italy, Europe and the US as well as at subjects coming from the three geographical areas above indicated having commercial interests in Asia. BLB Asian Desk offers to its customers advice on international commercial law. Thanks to a multidisciplinary and international approach of its team, our Asian Desk supports customers in structuring and carrying out M&A, real estate and commercial law operations and, in general complex transactions requiring a notable degree of expertise”. As Donato Silvano Lorusso underlines “we have privileged an investment in targeted professional relationships, with subjects directly operating in Hong Kong, Singapore, Indonesia and China markets. It’s a choice allowing us to streamline our organization which can be easily activated in specific locations and operations, with an aimed expertise and affordable due to limited structure and fixed costs”. 

 

Avv. Alessandro Benedetti

Giulia Laddaga