Yacht Designers Rejoice Over Shanghai FTZ’s New Rules

Not everyone got what they wanted when Shanghai’s Pilot Free Trade Zone (FTZ) released a much awaited revision of its famous negative list today, but at least the yacht designers and green tea makers will be happy.

The two niche industries, along with companies that use Chinese airline reservation systems, produce airplane engine parts or invest in medical facilities are among the limited number of beneficiaries of the shortened version of the negative list which proscribes certain industries from investing in the trial project for economic liberalisation.

According to a report from Reuters, the new list is 26.8 percent shorter than the original negative list published when the FTZ was opened last year, but many of the revisions to the now 139 item list were consolidations of redundant items or removal of industries such as gambling which are already proscribed by China’s criminal code.

Analysts Not Yet Positive on the FTZ’s Negative List

The approach of allowing unfettered investment in any sector not restricted on the zone’s negative list was originally intended to allow for streamlined establishment of businesses, and to stimulate investment from both foreign and domestic companies. In practice, however, the country’s bureaucracy has been so eager to preserve its power to restrict commerce, that the negative list has remained extensive enough to make the Free Trade Zone of little benefit to most potential investors.

So far, foreign investment in the zone has remained below expectations, with many experts criticising the concept of confining the economic liberalisations of the pilot project to a specific geographic area as unworkable for a program which is largely aimed at promoting service industries. During a speech in Shanghai earlier this year, American Enterprise Institute scholar Derek Scissors referred to the FTZ as “a magician’s trick,” and former Morgan Stanley economist Andy Xie criticised the initiative as a ploy by the Shanghai government to profit from additional land sales.

In contrast to China’s famous special economic zones, such as Shenzhen, which helped lead the country’s economy out of its Maoist funk during the 1980s and 1990s by allowing greater economic industries and providing benefits for export-oriented businesses, the FTZ is aimed at service companies, which – unlike manufacturing businesses – do not export physical products or import raw materials.

Potential Benefits for Money Managers and Real Estate

For companies active in the real estate market, the new list could provide some benefit, as a restriction on foreign investment in property brokerages and the secondary property market was replaced by a new rule that allows investment in these areas if the investor also has other areas of business.

There may also be more openings for financial services companies as a negative list item that forbade foreign investment in investment banks, financing firms, trust firms and money brokers within the FTZ was replaced by a stipulation that investment in banking-related companies must follow existing regulations.