The English version is for reference only. If there is any inconsistency or conflict between the English and Chinese version, the Chinese version shall prevail.

I. What is the background for formulating the Measures for Administration of the China (Shanghai) Pilot Free Trade Zone?

Establishing the China (Shanghai) Pilot Free Trade Zone (hereinafter the “FTZ”) is a major policy decision of the Central Committee of the Communist Party of China and the State Council, and a significant move for thoroughly implementing the spirit of the 18th National Congress of the CPC and promoting the reform and opening up under the new situation.

On July 3, 2013, the Executive Meeting of the State Council deliberated and principally adopted the Framework Plan for the China (Shanghai) Pilot Free Trade Zone (hereinafter referred to as the “Framework Plan”), specifying that the Shanghai Municipal People's Government shall, through local legislation, establish administrative rules for the FTZ meeting the requirements of pilot programs. On August 17, the State Council officially approved the establishment of the FTZ. On August 27, the Political Bureau of the Central Committee held a meeting in which Xi Jinping, General-Secretary of the Communist Party required the Shanghai Municipal Government to assume the main responsibility for establishment of the FTZ. On August 30, the NPC Standing Committee decided to authorize the State Council to temporarily adjust the Administrative Approval under the Law on Foreign-Invested Enterprises, the Law on Chinese-Foreign Equity Joint Ventures, and the Law on Chinese-Foreign Contractual Joint Ventures. On September 18, the State Council formally printed and issued the Framework Plan.

According to the arrangement of the Shanghai Municipal Party Committee and the Shanghai Municipal Government, the FTZ will re-set up an administrative authority to implement reforms in the FTZ and administer and coordinate the administrative affairs in relation to the FTZ. With the view to secure the smooth establishment and daily operations of the FTZ, the Shanghai Municipal Government was required to formulate  the Measures for Administration of the China (Shanghai) Pilot Free Trade Zone (hereinafter the “Measures”), which clarify the administrative system and general administrative regulations for the FTZ.

II. What is the main content of the Measures?

The Measures contain seven chapters and one schedule, 39 provisions in total, and regulate the following six aspects:

Clarifying the regulatory basis and applicable scope of the Measures, as well as the main function of the FTZ;
Clarifying the administration committee of the FTZ and its responsibilities;
Clarifying the investment administrative system of the FTZ;
Reflecting system innovation in entry and exit supervision and other aspects of the FTZ;
Regulating the financial innovation and risk management system of the FTZ; and
Clarifying measures to optimize management and services in the FTZ.

III. What's the scope of application of the Measures?

The Measures apply to the China (Shanghai) Pilot Free Trade Zone approved to be established by the State Council. which covers Shanghai Waigaoqiao Bonded Zone, Shanghai Waigaoqiao Bonded Logistic Zone, Yangshan Bonded Port and Shanghai Pudong Airport Free Trade Zone with a total area of 28.78 square kilometers.

IV. What are the regional functions of the FTZ?

The FTZ will shoulder the important mission of exploring new channels and accumulating new experience for the deepening of reforms and expansion of opening-up on a full scale, and will plan an incentive and exemplary role in serving China nationwide. The major aspects of reform and exploring are as follows:

1. Promoting the expansion of opening-up of the services industry and reform of investment management systems.

2. Facilitating trade transformation and upgrading, and innovating the supervision service mode.

3. Deepening the opening-up of the financial field.

4. Exploring and establishing an administrative management system in line with the system of international investment and trading, and fostering an international and lawful business environment.

V. What is the nature of the authority of the FTZ Administrative Committee?  What are its administrative duties?

The FTZ Administrative Committee is an authority appointed by the Shanghai Municipal Government, which will implement reforms in the FTZ, and administer and coordinate administrative affairs in relation to the FTZ. It is specified in the Measures that the FTZ Administrative Committee shall perform the following nine major duties:

Boost the implementation of various pilot reforms in the FTZ, study, recommend and organize the implementation of plans, policies and measures for the development of the FTZ, and formulate the relevant administrative systems in the FTZ.
Undertake administration in investment, trade, financial services, land planning, construction, greening the urban environment, environmental protection, labor and personnel, food and drug regulation, intellectual property rights, culture, health, statistics and other sectors in the FTZ.
Take the lead in administration by industry and commerce, quality supervision, tax and public security authorities in the FTZ, and coordinate administration by Customs, inspection and quarantine, maritime affairs and financial authorities in the FTZ.
Undertake works in connection with security review and anti-monopoly review.
Undertake comprehensive enforcement in the FTZ, and organize administrative enforcement in urban administration, culture and other sectors in the FTZ.
Undertake comprehensive services in the FTZ, and provide guidance, consultation and services to enterprises and relevant institutions in the FTZ.
Undertake the construction of information infrastructure in the FTZ, organize the establishment of the FTZ supervision information sharing systems and platforms and release public information in a timely manner.
Coordinate and guide the planning, development and construction of industries in the FTZ, and coordinate and boost key investment projects in the FTZ.
Undertake other duties assigned by the Shanghai Municipal Government.

In addition, all relevant administrative affairs previously undertaken by the Shanghai Waigaoqiao Bonded Zone Administrative Committee, Yangshan Bonded Port Administrative Committee and Shanghai Free Trade Zone Administrative Committee respectively will be undertaken by the Committee.

Issues subject to administrative approval and specific issues to be administered by the Committee are expressly specified in the Schedule to the Measures.

VI. What powers of administrative penalty will be exercised by the Committee’s comprehensive enforcement authority?

The FTZ will establish a centralized and uniform system of market regulation and integrated law enforcement in accordance with the Framework Plan. Therefore, it is specified in the Measures that the Committee’s comprehensive enforcement authority shall exercise three powers of administrative penalty:

1. Exercise in a centralized manner the authority of administrative penalty, right of compulsory administrative measures and the authority of administrative inspections in connection therewith in urban management and cultural sectors.

2. Exercise in a centralized manner the authority of administrative penalty, right of compulsory administrative measures and the authority of administrative inspections in connection therewith previously exercised by Shanghai land planning, construction, housing support and building administration, environmental protection, civil defense, labor and social security, intellectual property rights, food and drug regulation and statistics authorities in accordance with laws, regulations and rules.

3. Exercise other powers of administrative penalty as determined the by Shanghai Municipal Government.

The powers of administrative penalty to be exercised by the Committee’s comprehensive enforcement authority in a centralized manner are expressly specified in the Schedule to the Measures.

VII. Which fields of the service industry will be further opened up in the FTZ?

The FTZ will deepen the opening-up level in the following fields in accordance with the Framework Plan: financial services; shipping services; commercial and trade services; professional services; cultural services; social services, etc. Moreover, the FTZ will suspend or cancel the investors’ qualifications, restrictions on shareholding proportions, business scope and other access restrictions. Considering that it is necessary to carry out step-by-step exploration and deepening of the opening up of the service industry, it is specified by the Measures that the FTZ will, based on the outcome of the trials and experiments and needs of industrial development, continuously explore the sectors to be opened up, contents of experiments and the corresponding innovative administrative measures.

The specific measures to open up the service industry have been set forth in the Attachment to the Framework Plan, “Measures for the Expansion of Opening-Up of the Service Industry in the China (Shanghai) Pilot Free Trade Zone”.

VIII. What new measures in terms of foreign investment management has the FTZ rolled out?

The reform of the FTZ is an important measure, that is to say, the FTZ will, learning from generally accepted international rules, provide pre-access national treatment for foreign investment, and implement the administrative mode of the special administrative measures on the entry of foreign investment (Negative List).

The Special Administrative Measures for the Access of Foreign Investment in the China (Shanghai) Pilot Free Trade Zone (Negative List) are formulated in accordance with the laws and regulations on foreign investment, the Framework Plan, and the Catalogue of Industries for Guiding Foreign Investment (2011 Revision), setting forth access measures, inconsistent with national treatment, etc., taken for foreign investment projects and the establishment of foreign-invested enterprises in the FTZ.

With regard to sectors not stated in the special administrative measures for the access of foreign investment establishment (Negative List), foreign investors and domestic investors will receive the same treatment, by going through filing procedures instead of approval requirements (with the exception of areas specifically defined by the State Council), and the approval of articles of association of foreign-invested enterprises shall be replaced by the filing administration.

At present the Shanghai Municipal Government has formulated and promulgated the Administrative Measures for the Access of Foreign Investment in China (Shanghai) Pilot Free Trade Zone (Negative List) (2013) (Hu Fu Fa [2013] No. 75), the Measures for Administration of the Filing of Foreign Investment Projects in the China (Shanghai) Pilot Free Trade Zone (Hu Fu Fa [2013] No. 71), and the Measures for Administration of the Filing of Foreign-Invested Enterprises in China (Shanghai) Pilot Free Trade Zone (Hu Fu Fa [2013] No. 73).

IX. What new measures in terms of overseas investment administration has the FTZ rolled out?

To improve facilitation of overseas investment, the FTZ shall reform the overseas investment administration mode, apply primarily the filing system to overseas investment by enterprises in the FTZ, and apply primarily the filing system to general overseas investment projects.

At present the Shanghai Municipal Government has formulated and promulgated the Measures for Administration of the Filing of Overseas Investment Projects in the China (Shanghai) Pilot Free Trade Zone (Hu Fu Fa [2013] No. 72) and the Measures for Administration of the Filing of Overseas-Invested Enterprises of the China (Shanghai) Pilot Free Trade Zone (Hu Fu Fa [2013] No. 74).

X. What new measures in terms of industrial and commercial registration administration has the FTZ rolled out?

It is specified in the Framework Plan that industrial and commercial registration shall be linked with the reform of the commercial registration rules and the registration process shall be gradually optimized in the FTZ. It is specified in the Plan for the Institutional Restructuring and Function Transformation of the State Council issued in March 2013 that the industrial and commercial registration system shall be reformed to change the paid-in registration system to the subscription registration system for registered capital and the administration mode of “business license before other permits" shall be implemented.

Therefore, the Measures provide for the following reform measures in terms of industrial and commercial registration:

1. The FTZ shall implement the subscription registration system for registered capital. The company’s shareholders (or promoters) shall independently agree on the amounts of subscribed capital, manners of contribution, and periods of contribution, as recorded in the bylaws of the company, unless otherwise specified by laws and administrative regulations on specific enterprise registered capital registration. The shareholders (originators) of the company shall be responsible for the authenticity and legitimacy of the capital contribution, and shall undertake responsibilities for the company according to law with their subscribed capital contribution or subscribed shares. The industrial and commercial authority will register the registered capital of the company, instead of the paid-in capital.

2. The FTZ shall implement a “business license before other permits” registration system. Enterprises in the FTZ may engage in general production and operational activities after obtaining a business license. Enterprises engaged in such production and operational activities that require administrative approval may file an application with the competent authorities for approval after obtaining the business license. Any enterprise for the establishment of which filing for approval is necessary as required by laws and administrative regulations shall complete the approval procedures according to law prior to its business license application.

At present for the purpose of supporting the development of the FTZ, the SAIC has promulgated the Opinions of the State Administration for Industry and Commerce on Supporting the Construction of the China (Shanghai) Pilot Free Trade Zone (Gong Shang Wai Qi Zi [2013] No. 147).

XI. What system innovations and facilitating measures in terms of entry and exit supervision has the FTZ rolled out?

To reflect the requirements of innovating supervision service modes in the FTZ, the Measures provide for entry and exit supervision measures in the principles of “release of the first line” and “safe and efficient control over the second line” in accordance with the Framework Plan. The measures primarily include:

1. With regard to commodities transported between the FTZ and overseas, enterprises in the FTZ will be allowed to transport commodities into the FTZ against the import manifest before import filing procedures are completed.

2. With regard to commodities transported between the FTZ and domestic places outside the FTZ, an intelligent Customs and e-information network administration mode will apply, and the supervision system of record lists crosscheck, accounting books management and physical verification at Customs will be improved.

3. The enterprises in the FTZ will be allowed to apply for inspection at any time prior to the transport of the commodities outside the FTZ.

4. The FTZ will promote the categorized supervision model based on the status of the commodities. Commodities under bonded storage or processing in the FTZ will be supervised as bonded commodities, commodities through ports in the FTZ for import, export or international transit will be supervised as port commodities, and specific domestic trading commodities entering the FTZ will be supervised as non-bonded commodities.

5. The FTZ will promote the mode of “one declaration, one inspection and one clearance”.

6. The procedures for commodities circulation within the FTZ will be streamlined, and the commodities circulation between enterprises within the FTZ will be encouraged by “centralized declaration and self-supported transportation”.

XII. What measures in terms of financial innovation has the FTZ rolled out?

The Framework Plan proposes deepening opening-up and innovation in the financial field, accelerating innovation in the financial system, and enhancing financial service functions. Based on the Framework Plan the Measures put forward the following four measures for financial innovation:

1. Capital account convertibility will be implemented in the FTZ, and an innovative business and management mode will be created under proper risk control through separate accounting.

2. For interest rate liberalization, an independent pricing mechanism of financial institutions will be established in the FTZ that conforms with real economic development, and the reform of interest rate liberalization will be gradually promoted.

3. For RMB cross-border use, cross-border RMB settlement business of institutions in the FTZ will be disconnected from prior approval procedures. Enterprises in the FTZ may conduct innovative cross-border RMB business pursuant to their own operational needs, so as to facilitate the cross-border use of RMB.

4. For foreign exchange administration, A foreign exchange administrative mechanism will be established that is suitable for the development of the FTZ, so as to facilitate trade and investment.

XIII. What measures in terms of strengthening comprehensive management and services has the FTZ rolled out?

In accordance with the Framework Plan, the FTZ shall make efforts to accelerate the transformation of government functions, reform and innovate in the administrative mode of government, and promote changes in administration from focusing on ex ante approval to focusing on interim and ex post regulation. Therefore, the Measures set forth the following provisions on strengthening comprehensive administration and services and optimizing administrative procedures and administrative systems:

1. The FTZ shall enhance the transparency of administration. Policies, administrative regulations, procedures, rules and other information prepared or obtained by the Committee and relevant authorities in their duties shall be public, transparent and expediently accessible to enterprises. Opinions shall be actively solicited from enterprises in the FTZ in the formulation and adjustment of relevant policies, measures, systems and norms in relation to the FTZ.

2. The FTZ shall simplify affairs handling procedures and establish a mechanism of “one-off acceptance”. The mechanism of “one form application and one-off acceptance” for foreign invested project approval (filing) and enterprise incorporation (change) will be implemented. Application materials submitted by the administration for industry and commerce, foreign investment examination and approval or filing, quality and technical supervision and tax will be received by the industrial and commercial administrative authorities in a unified manner, the examination and approval or filing procedures will be completed through circulation among the back offices of the authorities, and then all examination and approval documents or certificates will be issued to the applicant in a unified manner. For enterprise overseas investment filing the application materials submitted by applicants will be received and relevant documents will be delivered to applicants by the Administrative Committee in a unified manner.

3. The FTZ shall implement the enterprise annual report publication system. Enterprises in the FTZ shall submit an annual report to the industrial and commercial administrative authorities within the specified time limit on a yearly basis, which shall be disclosed to the public and may be inquired by any entity and individual. Enterprises shall be responsible for the veracity and legality of their annual reports.

4. The FTZ shall enhance the sharing of supervision information. The Administration Committee will organize the establishment of a supervision information sharing mechanism and platform in the FTZ, and realize the communication, exchange and sharing of supervision information among Customs, inspection and quarantine, maritime affairs, financial, development and reform, commercial, industrial and commercial administrative, quality supervision, finance, tax, environmental protection, production safety supervision, port and shipping and other authorities, and provide assistance to optimize administrative procedures, provide efficient and convenient services and enhance mid-event and follow-up supervision. In addition, a system to record, disclose, share and use credit information of enterprises in the FTZ will be established, and a mechanism will be implemented to associate rewards for good credit and punishments for bad credit.

5. The FTZ shall establish a relevant mechanism of security review and anti-monopoly review. Where the invested project or enterprise is subject to security review or anti-monopoly review, the Administration Committee shall request for the security review or anti-monopoly review in a timely manner.

Provided by Lawyers Working Committee of Pudong New Area