The list of reforms published by the People's Bank of China (PBOC) on Monday was more detailed than previous lists but did not increase the proposed net scope of reforms in the zone, which already includes deep changes to the country's exchange rate regime, cross-border investment flows and interest rates, alongside wide-ranging reforms to trade in goods and services.
The document said upcoming policy initiatives will include regulations allowing foreign companies with subsidiaries in the zone to issue yuan-denominated bonds; to allow foreigners to buy and sell Chinese equities and bonds directly without going through current pilot programs and to similarly enable Chinese individuals in the zone to buy overseas financial products without going through the current Qualified Domestic Institutional Investor (QDII) program.
The PBOC will create specially tagged bank accounts for use by companies and investors in the zone to conduct such activities, and that transactions between these special accounts and accounts in the rest of the country will be treated as cross-border flows.
However, the announcement did not specify any deadline for implementation.
Separately, the Ministry of Finance and the Ministry of Taxation also jointly announced new guidelines for how profits will be taxed within the zone.
All companies registered in the free trade zone will be required to pay corporate income tax.
The Framework Plan also highlighted financial, trading and shipping sectors as areas for reform in the Shanghai FTZ. Relevant industrial regulators, including CSRC, CBRC, CIRC, Ministry of Transportation and GAQSIQ, have released separate rules to compliment the Framework Plan and support reforms in these areas, even though most of such rule are still high-level with very general terms.
Highlights in these industrial rules include:
- Measures to encourage futures trading, such as setting up international oil futures trading platform in the zone, encouraging qualified institutions and individuals in the zone to conduct futures trading in offshore and domestic markets,
- Encouraging foreign investors to set up banks in the Shanghai FTZ which may engage in broader range of business, and lowering certain operational qualifications for foreign-invested banks,
- Encouraging banks in the Shanghai FTZ to develop cross-border financing services,
- Relaxing the equity ratio on foreign investment for sino-foreign international vessel transportation enterprises; and
- Allowing foreign investors to set up wholly foreign-owned international ship management companies.
People were skeptical about Shenzhen and its sister zones set up in Zhuhai, Shantou, Xiamin, and Hainan Island in 1980, but those experiments over time have been radically successful in terms of generating economic growth. Within a few years, dozens of other localities were clamoring for and receiving permission to apply the same, more liberal regulatory terms to firms, and within a little more than a decade the number had climbed to the thousands. That experience clearly informs the rollout of the Shanghai FTZ: Beijing knows not to exhaust itself with a full debate of changing the rules across the board for the whole nation, but rather, to use the old playbook and make new reforms a privilege for the most deserving, then expand the new rules little by little until they are predominant.