**Abstract**
According to reports from journalists, the Shanghai Free Trade Zone's construction plan, proposed by relevant parties, includes a list of service industries that will be opened up in six major sectors. This initiative covers 19 industries and is largely based on existing laws and regulations. Some of the measures are more progressive, with expectations of gradual implementation. In the financial services sector, it is suggested that qualified foreign financial institutions be allowed to establish foreign banks, and that eligible private capital and foreign institutions collaborate to set up Sino-foreign joint-venture banks. When conditions permit, a limited license bank may be piloted within the zone.
It is also recommended that Chinese banks operating in the area be permitted to conduct offshore business, provided that regulatory frameworks are improved and oversight is strengthened. Although the Shanghai Free Trade Zone has been approved for some time, no formal rules have yet been released. However, according to sources, the focus of the zone is on institutional innovation. The plan submitted to the central government outlines nine measures across four key areas: investment, trade, finance, and administration. In summary, it emphasizes “one simplification and six freedoms,†aiming to streamline administrative processes and grant enterprises greater flexibility in trade, movement of people, goods, services, currency, and storage.
In the investment domain, the zone focuses on two main innovations. It explores a negative list management model and seeks pre-entry national treatment for foreign investors. This means that only restricted activities are listed, while all others are permitted. This represents a significant policy shift, which is why the Standing Committee of the National People’s Congress is considering suspending three foreign-related economic legal motions in the area.
For foreign investments, a filing-based system will be implemented, along with a general filing mechanism for overseas investments to enhance convenience. The zone encourages the establishment of specialized project companies for overseas equity investments and supports qualified investors in setting up offshore investment funds.
In the trade field, multinational corporations are encouraged to set up regional headquarters and integrated operational centers in Asia. The zone aims to deepen the pilot program for international trade settlement centers and expand cross-border payment and service functions. Enterprises are also encouraged to engage in offshore operations and integrate domestic and international trade. Improving shipping services and accelerating the development of freight index derivatives are part of the strategy. The zone also plans to allow non-five-star vessels owned or controlled by Chinese companies to participate in coastal trade between domestic ports and Shanghai. Simplifying licensing procedures for international shipping is another priority.
In the financial sector, under strict risk control, the RMB capital account convertibility will be tested. The region will aim to marketize interest rates and let financial institution asset prices be determined by the market. Cross-border use of the RMB will be tried first. The zone will explore international foreign exchange reforms and build a foreign exchange system compatible with the free trade model, promoting trade and investment facilitation. Enterprises will be encouraged to utilize both domestic and international markets for cross-border financing. Reforms in foreign debt management and centralized foreign exchange fund operations will be deepened, supporting the establishment of regional or global fund centers for multinational corporations.
Financial services will be gradually opened to eligible private and foreign financial institutions, with support for foreign banks and joint ventures. Financial markets will be allowed to develop internationally-oriented trading platforms, and foreign companies may be permitted to participate in commodity futures trading over time. Product innovation in financial markets will be encouraged, and equity escrow institutions will be supported in establishing integrated financial platforms. The zone will also promote RMB cross-border reinsurance and foster the growth of the reinsurance market.
In the administrative field, the free trade zone will reform the approval process, simplify procedures, and adopt a service model focused on efficient handling. An information network platform will be established to enable inter-departmental collaboration.
**Shanghai Free Trade Zone Will Allow RMB Capital Account Convertibility**
On September 5th, Sina Finance obtained a draft of the overall plan for the Shanghai Free Trade Zone, indicating that the zone will accelerate financial system innovation. Under the premise of risk control, the RMB capital account will be tested for convertibility. The plan highlights financial system innovations such as RMB internationalization and foreign exchange reform. The zone will trial the convertibility of the RMB capital account and marketize interest rates in the financial sector. Financial institutions' asset pricing will be market-driven, and the cross-border use of the RMB will be explored first.
The document also states that the zone will pilot international foreign exchange management reforms, creating a system compatible with the free trade model to fully realize trade and investment facilitation. Enterprises will be encouraged to leverage domestic and foreign resources for cross-border financing. Foreign debt management methods will be reformed to facilitate cross-border financing. Centralized foreign exchange fund operations at multinational corporation headquarters will be deepened, supporting the establishment of regional or global fund centers.
Additionally, the new policies will open the financial services industry to eligible private and foreign institutions, allowing the establishment of foreign and joint-venture banks. Financial markets will be permitted to create internationally-oriented trading platforms. Over time, foreign companies may be allowed to participate in commodity futures trading. Financial product innovation will be encouraged, and equity escrow institutions will be supported in building integrated financial service platforms. The development of RMB cross-border reinsurance and the reinsurance market will also be promoted.
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