Experiments: Setting Up in Shanghai's Free Trade Zone

Investors and businesses have been flocking to the new China (Shanghai) Pilot Free Trade Zone since its opening in September 2013. According to local media reports, more than 4,600 new companies, including 280 foreign-invested enterprises, have been established in the free-trade zone as of January 14, 2014.
This surge can be attributed to the Zone’s relaxed requirements and streamlined approval procedures for company establishment, which we further describe below.
Relaxed Requirements
The Zone cancels the usual required minimum registration capital of RMB30,000 for limited liability companies, RMB100,000 minimum for single shareholder companies, and RMB5 million minimum for joint stock companies.
Moreover, the Shanghai FTZ has implemented a new capital registration system. Under this new regime, foreign investors are no longer required to contribute 15-percent capital within three months and full capital within two years of the foreign-invested enterprise’s establishment.
Shareholders of companies established in the Zone may agree upon the contribution amount, forms, and period of contribution at their own discretion.
However, shareholders are still liable for the authenticity and legality of capital contributions and will be held accountable to the company within the limits of their respective subscribed capital or shares.
The new system has been proven feasible, with the Zone receiving substantial actual capital contribution in the past three months. It has now been rolled out to the rest of the nation effective 1 March 2014.
Negative List
The Shanghai FTZ adopts a negative list approach towards foreign investment management, which specifies restrictions or bans on certain types of foreign investment. Under this approach, only foreign investment projects on the negative list are subject to pre-approval procedures.
Foreign investors wishing to set up a foreign-invested enterprise in a sector that is not on the negative list need only to undergo record-filing procedures with the authorities.
  • agriculture
  • forestry
  • animal husbandry and fishery
  • mining
  • manufacturing
  • production and supply industries for power, gas and water
  • construction
  • wholesale and retail industries
This is a big step forward. In the current Foreign Investment Industrial Guidance Catalogue (positive list) implemented outside of the Zone, procedures for setting up a foreign-invested enterprise are complicated and time-consuming.
Among other things, the process in the rest of the nation involves verification, approval, and registration with the National Development and Reform Commission, the Ministry of Commerce, and the State Administration for Industry and Commerce or their local branches.
In the Shanghai FTZ, foreign investors setting up a business covered by the negative list will need to obtain approval from the Zone’s administrative committee.
Click image to enlarge 
When You’re On the Negative List
One-Stop Application
Like the procedures for setting up a company elsewhere in China, investors in the Shanghai FTZ must first carry out a company registration in order to obtain a business license.
But to unburden investors from long and tedious administrative approval procedures, the Shanghai FTZ has established one-stop application processing platform that is unique to it. Under this platform, all application materials will be submitted and handled through the Zone's Industry and commerce authority (known as AIC). 
The approval and filing procedures are conducted via inter-departmental circulation, after which the various licenses and certificates (including the business license, enterprise code certificate, and tax registration certificate) will be issued to the applicant by the AIC.
This means applicants may obtain all necessary documents for company establishment in one place, effectively reducing the time needed to establish a company. In contrast, applicants outside the Zone must run around between different authorities for the issuance of various certificates.
According to the local government, the business license, enterprise code certificate, and tax registration certificate can be issued in four working days once an application is accepted. However, due to the large number of company establishment applications in the Zone, the actual process may take more than a month.
The one-stop acceptance platform generally works in the same way for both domestic and foreign investors. The only difference is that foreign investors are required to check their business scope against the negative list to see which procedure they have to go through.
Click image to enlarge 
How to Establish a Shanghai FTZ Company
About the Author

Dezan Shira & Associates is a specialist foreign direct investment practice that provides advisory services to multinationals investing in emerging Asia. This article was first published in China Briefing and was re-edited for clarity and conciseness. For further details or to contact the firm, please visit www.dezshira.com.  



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