21 February 2020

The real boom in Shanghai’s free trade zone

There are high hopes among many for the trade and financial reform benefits to stream from the Shanghai free trade zone (FTZ). There are also serious doubts about whether the country can take the hits of isolated liberalization on capital flows and financial market prices.

But for pragmatic small and mid-sized entrepreneurs in China, making a quick buck out of the FTZ concept is the only thing that matters. To this end, betting on growing demand for agency services in the zone seems to be the surest thing.

Business is booming for agents offering incoming investors a helping hand with the zone’s administrative hassles and registration procedures.

Some agents are going one better to offer a combo service by renting an office in the zone, caving it up into a large number of small units and leasing them out as shell companies based on the addresses.

Using such services, investors who want some FTZ exposure for a minimum investment can probably get a correspondence address in the zone and have the operating license and tax filing done for 20,000 yuan (US$3,268) a year.

In September alone, more than 600 company registrations were approved, roughly on par with the number of new companies formed in the Waigaoqiao tax-free zone in a year.

The Waigaoqiao tax-free zone and logistics park, the Yangshan port tax-free zone and the Pudong airport tax-free zone together form the city’s pilot FTZ.

How exactly will the FTZ evolve? This million-dollar question has been the focus of endless corporate and academic research, but many SME bosses don’t seem to have the vaguest idea or appear too worried about it.

“I will first register a management consultancy firm and decide what to do later,” the China Securities Journal quoted one SME owner as saying. “If some foreign insurance firms come to do business in the zone, I might act as their sales agent.”

The existing capital requirements for setting up a business in the zone are undemanding. Certain capital commitments, rather than the cash itself, are all that are needed to qualify for an operating license, prompting many to try their luck, the financial daily noted.

Property agents are riding the FTZ boom, too. Despite rapidly rising rents, many investors are still opting to set up their offices in the zone in the expectation of more exclusive supportive policies and easier rules.

Rents and property prices are flying high, but demand doesn’t seem to be an issue with the influx of investors, including mainlanders, overseas Chinese and foreigners.

Taxi drivers are winners too, not surprisingly. “Lots of people come here for business or all sorts of inquiries. I have already made more than 10 trips to the FTZ today,” a taxi driver told the China Securities Journal.

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