The new version of Shanghai’s negative list, which stipulates limits for foreign investors, does not greatly open the market as many expected.
On July 1, the China (Shanghai) Pilot Free Trade Zone announced the updated list, which shortened the number of special regulatory items from the original 193 to 139.
But an earnest analysis of the reduction will lead to the conclusion that the opening up is anything but wide.
First of all, the number of restricted items was cut by 26.8 percent, smaller than the one-third reduction pledged by Shanghai officials.
More importantly, not all eliminated items represented any real deregulation.
Among the 51 deleted items, 14 were kicked out because these restrictions applied not only to foreign companies but also to domestic enterprises. So, removing them from the list does not mean the area will be open for foreign investors.
For example, a ban on foreign investors in the gaming business and the sex trade was deleted, but this does not mean the two markets are open. Since gaming and the sex trade are illegal in China, all domestic and foreign companies are forbidden from these industries.
Another 23 items were removed after they were incorporated with other items. Therefore, this means the restrictions are still there, but the number of restrictions appears to be fewer.
For example, the old list restricted foreign investors from the exploration of some minerals and coal. It also barred them from surveying these resources.
The restrictions were counted as two in separate items, but the new list put the two together and counted them as one restriction. This trick made the updated list look much nicer but retained limits on foreign investors.
After excluding these two types of changes, real deregulation happened only in 14 items which account for 7 percent of items on the old list and 10 percent on the new list. This is nothing to brag about.
What is worse is that this is not the end of the trick. Among the remaining 14 real deregulations, a number are in industries foreign investors will not invest in at all.
Restrictions on cotton processing, railway investment and paper making were removed, but given the fact that the FTZ is just 28 square kilometers and land prices are very high, it is highly unlikely foreign investors will set up shops to engage in those three industries.
The FTZ was established to promote the development of China’s service and financial sectors, so more deregulation should be made in those two sectors instead of industries where foreign investors are unlikely operate in this small pilot region.
Compared with the negative list announced by Pingtan in Fujian province, the only Chinese place besides Shanghai that uses a negative list, Shanghai’s list is a laggard.
If the Shanghai negative list is supposed to be a template for the whole nation and a model in China’s negotiations with the United States and the European Union on bilateral investment treaties, it has a long way to go.
Another interesting thing is that the Shanghai list was announced on the official website around 1 a.m. on July 1. Last year, when the old negative list was released, it was also posted online in the small hours.
Responding to questions over the timing, Dai Haibo, deputy director of administration committee of the zone, said at a news conference on July 2 that technical problems about posting the notice on the website delayed the process.
This explanation, however, is not very convincing. If there had been indeed such problems, why could they have not fixed them in the past years.
After all, this was the second time the list was announced in the wee hours. A reasonable guess could be that there were last-minute changes, reflecting a divided opinion among departments and officials.
But it is not fair to say the list does not represent progress. One good thing is that some of the ambiguity has been clarified. For example, restrictions on direct-selling companies were spelled out clearly.
The new list stipulates that foreign direct sellers must have three years of direct-selling experience outside China and have registered capital of at least 800 million yuan (US$129 million).
In addition, the list also symbolically removed some long-complained bans on businesses such as salt wholesale.
We keep our fingers crossed on more such removals in next year’s list.
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