The Introduction of China (Shanghai) Pilot Free Trade Zone. May. 2014

The Introduction of China (Shanghai) Pilot Free Trade Zone May. 2014

C o n t e n t 1 FTZ Background 2 FTZ General Policy Framework 3 FTZ Financial Solution

C o n t e n t 1 FTZ Background

I FTZ Background FTZ Overview Background In order to achieve a more open Chinese economy, change the mode of economic development and adapt to the global trade competition, Chinese government established China (Shanghai) Pilot Free Trade Zone (FTZ). Shanghai FTZ is a test field of reform. A replicable economic development mode is expected to be formed. FTZ is composed by 4 customs special supervision areas. Totally 28.78 km 2.

I FTZ Background 2013.7.3 The State Council approved the Framework Plan for China (Shanghai) Pilot Free Trade Zone in principle FTZ Event Review 2013.9.27 The Framework Plan for China (Shanghai) Pilot Free Trade Zone was published 2013.9.29 The Shanghai municipal governm ent published the management measure of FTZ. 2013.12.5 Bank of China conducted the first business in FTZ, the cross-border RMB bilateral cash pool 2014.2.20 PBOC published The announcement of supporting the FTZ to enlarge the usage of cross-border RMB 2014.2.26 PBOC published The Announcement of Loosening the Interest Rate Limitation of Petty Deposit Foreign Currency in FTZ 2014.2.28 SAFE Published Implementation Regulations concerning Foreign Exchange Administration to Support the Construction of the China (Shanghai) Pilot Free Trade Zone 2014.2.28 BOC conducted the first petty deposit of foreign currency in FTZ. BOC also conducted the first cross-border RMB settlement of current account in FTZ 2013.8.19 The State Council officially approved the Framework 2013.9.29 China (Shanghai ) Pilot Free Trade Zone established 2013.12.2 The PBOC published the 30 opinions of financial support for FTZ 2014.2.18 PBOC published The Opinion of Payment Institutions Conducting Cross-Border RMB Payment Business in FTZ 2014.2.21 BOC conducted the first cross-border RMB loan in FTZ to support the FTZ construction. 2014.2.28 PBOC published The Announcement of Anti- Money Laundry and Anti- Financing of Terrorism in FTZ 2014.2.28 BOC conducted the first commodity derivatives transaction in FTZ

C o n t e n t 2 FTZ General Policy Framework

FTZ Policy Framework Deepening innovation and opening up of financial services

Expediting the Functional Transformation of Government An administrative management system which meets and fits with international trade and investment standards will be established. Expediting the functional transformation of government The focus of administrative management procedures will shift from prior approval to mid-event control and subsequent supervision. A joint supervision and enforcement system will be implemented. Transparency in administrative management will be enhanced

Industrial and Commercial Registration Registration System for Registered Capital Pledged The shareholders don t need to register the paid-up capitals. There is no limitation on the mode and time of capital contribution. Business license first, operating permit later Enterprises with business license in FTZ may carry out the general production and operation activities, with the exception of pre-license business. Annual report publication Enterprises in FTZ shall submit their annual report to the administrative department of industry and commerce. The annual report shall be open to the public File system for Foreignfunded Enterprises The approval system for foreign-funded enterprise establishing projects or subsidiaries will be altered to the filing system One-window Handling Mechanism Enterprise could submit the materials by means of online data exchange or onsite submitting

Steps of Industrial and Commercial Registration for Foreign- Domestic Enterprise Domestic Enterprise STEP 1 Name approval STEP 2 Submitting the materials by one window service STEP 3 Being evaluated and approved by relative departments STEP 4 Getting the license from one unified window

Steps of Industrial and Commercial Registration for Foreign- Domestic Enterprise Domestic Enterprise Diagram Pre-license Administrative department informs the applicant of the examining and approval items, factors and materials at one time Applicant submits the materials to administrative department Pre-license Department Approval Enterprise Registration Organization Code Certification Registration Post-license Department Approval Tax Registration Non pre-license For more details please visit: http://zwdt.sh.gov.cn/shen3hall/enterprisecolumn/index.jsp

Steps of Industrial and Commercial Registration for Foreign- Funded Enterprise Foreign funded Enterprise STEP 1 Name approval STEP 2 Negative list comparing STEP 3 Submitting "one application form" online STEP 4 Submitting the materials by one window service STEP 5 Approval (filing) by relative departments STEP 6 Getting the license from one unified window

Steps of Industrial and Commercial Registration for Foreign- Funded Enterprise Foreign Funded Enterprise Diagram Foreign -funded Corp (non-corp) Admittance Navigate Other Type Negative List Comparing Online Application Submitting Materials by one-window service Objects Filing (approval) Enterprises Filing (evaluatiion and approval) Enterprise Registration Organization Code Certification Registration Get the license from one unified window Tax Registration For more details please visit: http://zwdt.sh.gov.cn/shen3hall/zmq/index/index.jsp

Opening up of Investment Sectors Opening up of investment sectors Enlarging and opening the financial services, transportation services, commerce and trade services, professional services, cultural services, and public services sectors Suspending or cancelling market access restrictions such as requirements concerning the qualification of investors, limitations on foreign participation, and restrictions of business scope Exploring the "Negative List Based on international norms, implementing pilot national treatment on investment permission and a "Negative List" mechanism will be within the zone. Altering the approval system for foreign investment projects, foreign investment contracts and Articles of Association to the filing system Implementing the filing system on the setup of outbound companies and projects Encouraging various types of investors in the FTZ to conduct outbound investment in different forms

Opening up of Investment Sectors New opening up service sectors Transportation Professional Trade Benefit Markets Public Finance Cultural 01. Banking 02. Medical Insurance 03. Finance Lease 04. Maritime Transportation 05. International Ship Management 06. Value-added Telecom Service 07. Game Machine Selling and Service 08. Lawyer 09. Credit Investigation 10. Travel Agency 11. Head-hunting Service 12. Investment Management 13. Engineering Design 14. Architectural Service 15. Performance Brokerage 16. Entertainment 17. Training Service 18. Medical Service

Opening up of Investment Sectors FDI Foreign Investment Projects Procedures on the Filing Administration of Foreign Investment Projects Within FTZ Foreign-funded Enterprises Procedures on the Administration of Filing Foreignfunded Enterprises Within FTZ Outbound Investment Projects Procedures FTZ on the Filing Administration of Overseas Investment Projects Investment in Businesses Overseas Procedures of FTZ on Filing Administration of Investment in Businesses Overseas ODI

Opening up of Investment Sectors Foreign Investment Projects Filing System 1 2 Scope: All the foreign investment projects out of the negative list. With the exception of domestic investment projects of which is approved by the State Council Filing:Filing Form + relative materials ; One form application, one window service 3 The decision on filing: Within 10 working days 4 Conducting the approval procedure by the decision on filing;applying for preferential policy 5 Alteration(if any):for essential events,applying for alteration to filing agency. 6 i. The project shall be made to the relative organs, if it s not under the scope of FTZ policy any more. ii The project shall be made to the project filing agency,if it still under the scope of FTZ policy after alteration.

Opening up of Investment Sectors Foreign Investment Diagram Projects Admittance Navigate Negative list comparing In list Comparing to the investment menu admitted by the government Online application Submitting the material to the investment management window Objects filing (approval) Obtaining the decision or approval documents from the window Out of list Uploading attachment Objects filing (approval) online Obtaining the decision or approval documents from the window with original copies

Opening up of Investment Sectors Foreign- Notificationcommitment management Funded Enterprises Filing System 1 2 3 Scope:The establishment or alteration of all the foreign funded enterprise out of the negative list The enterprise s name shall be pre-approved Filing:The applicant shall logging onto acceptance platform to make application online, and make commitment on the notification items for filing 4 Filing Certificate:After an investor completes the application online, the filing agency shall put it on file within one working day, and shall issue the Filing Certificate online 5 Alteration(if any):for essential event, filing alterations shall be accepted via the acceptance platform. For existing enterprises, filing alterations shall be accepted via the acceptance platform and the approval certificate shall be cancelled 6 Filing change to approval :According to the relative regulations

Opening up of Investment Sectors Responsible for the truthfulness of application Overseas Investment Projects 1 Scope:General projects conducted by local enterprises registered in FTZ are under the scope Filing System 2 Filing: Applicant shall report to the filing agency bringing with Filing Form and relative materials. 3 Filing decision: The agency shall issue the decision within 5 working days. If dismissed, the reasons shall be given to the applicant 4 Tender for or acquisition of an overseas project:the applicant shall submit a written information report to the NDRC Local important overseas investment project that shall be registered : The applicant shall report to NDRC for registration 5 Applicant may go through relevant formalities with the administrative departments of commerce, foreign exchange management, customs, and taxation against the Filing Opinions

Opening up of Investment Sectors Overseas Investment Diagram Projects Filing Navigate Online Application Submitting materials to One window service Filing Getting the license from one unified window

Opening up of Investment Sectors Integrity Administration Investment in Businesses Overseas Filing System 1 2 3 Scope:Investment business overseas registered in FTZ are under the scope Filing:The applicant shall finish the Filing Form(online version and paper version)and get other relative materials ready. Certificate of Enterprises Overseas Investment :The filing agency shall Issue the certificate within 5 working days. If be dismissed, the filing agency shall notify the enterprise in 1 working day. 4 Going through relevant formalities of FX, customs, and foreign affairs by presentation of the Certificate, and may apply for support by related policies of the State according to the provisions 5 Alteration (if any):the alteration of investment entity, amount of investment, equity ratio, funding sources and structure, business scope, or operating term shall be filed to the Filing Agency. 6 Termination:The Filing Agency shall file the termination of an existing outbound investment enterprise.

Opening up of Investment Sectors-Tax Implement Tax Policies to Boost Investment For enterprises or individual shareholders registered in FTZ that carry out non-monetary investment, the income tax payable due to the increase in asset valuation can be paid by installments within a five-year period. For the rewards given by Enterprises within the FTZ to highly-skilled or short-supply employees by means of shares or capital contributions, the relevant individual income tax may be paid by installments.

Promoting the Transformation of Trade Development Approach Promoting the transformation of trade development approach Cultivating new trading types and functions Encouraging multinational companies to set up Asia-Pacific regional HQ Promoting Shanghai as the international trade settlement center, and expanding the function of the special account on cross-border receipt or payment and financing under trade service Encouraging enterprises to employ an overall plan to integrate the development of domestic and foreign trading business. Exploring international commodity trading and resource configuration platform Expanding and improving the ongoing pilot bonded futures delivery, the warehouse receipt financing and other functions. Allowing and encouraging financial leasing companies to set up project companies in FTZ and to carry out domestic and international leasing business. Cultivating cross border e-biz service function Elevating the capacity of the shipping service

Promoting the Transformation of Trade Development Approach Trade Outbound Frontier Opening Second-tier Control FTZ Inbound

Promoting the Transformation of Trade Development Approach Trade Futures Deal The ongoing pilot bonded futures delivery will be expanded and improved and the warehouse receipt financing will be extended The oversea companies will gradually be allowed to engage in commodity futures trading Cross-border Trade International commodity trading and resource configuration platform will be explored to promote international commodity trade. Enterprise in FTZ will be supported to develop offshore business Cross border e-commerce service function will be cultivated

II. FTZ Genral Policy Framework Promoting the Transformation of Trade Development Approach Tax Implement Tax Policies to Promote Trade Goods that produced and processed in FTZ and sold to outer-zone will be levied tax in accordance with relevant laws and regulations VAT tax will be refund for qualified financial leasing business Manufacturing enterprises as well as manufacturing service companies in FTZ will be free of tax for the imported machines, equipment and other goods required for own usage. Tax refund policies on the port-of-departure will be improved Tax policies will be studied to support the development of overseas equity investment and offshore business

Promoting the Transformation of Trade Development Approach Transportation Shipping financing, ship management, and international shipping management, will be encouraged. Limitations on equity ratio in Sino-foreign equity joint venture and sinoforeign cooperative shipping enterprises will be relaxed. Chinese-invested companies are allowed to own or indirectly own non-five Star Flag ship. Transportation Coastal shipping between domestic coastal ports and Shanghai port are encouraged to pilot. Foreign-owned ship management companies are allowed to be established, which implements international ship registration in FTZ

Improving Regulatory Supporting Systems Improving regulatory supporting systems A regulatory system of high standard investment and trade rules will be developed rapidly to serve the needs of the development of FTZ. Some administrative regulations and provisions in the State Council s documents will be terminated according to the prescribed procedures. Problems in regulatory protection during the pilot period should be solved promptly. An administrative system will be established by the Shanghai Municipal People's Government through local legislation in correspondence to the demands of FTZ.

Deepening Innovation and Opening up of Financial Services Deepening innovation and opening up of financial services Under proper risk control, the FTZ will pilot RMB capital account convertibility, interest rate liberalization, and the cross-border use of RMB. In FTZ, the assets by the financial institutes will be priced at market rate. The FTZ will explore the trial of a FX administrative system that is in line with international practice to better facilitate trade and investment. Enterprises are encouraged to leverage on both domestic and international market resources to liberalize cross-border financing. Administration on foreign debt will be further reformed to facilitate crossborder financing. FX centralized operation by multinational Corp. HQ will be enhanced to encourage the setup of regional or global treasury centers in Shanghai. Foreign-invested and sino-foreign equity joint venture banks will be allowed to incorporate in FTZ. Equity escrow institutes will be supported to setup comprehensive financial service platform in FTZ. The cross-border RMB reinsurance business is encouraged.

Deepening Innovation and Opening up of Financial Services Creating Account System in Favor of Risk Management Expediting Investment, Financing, and Exchange Convenience Monitoring and Management General Requisition Promoting Interest rate liberalization steadily Deepening the Reform of FX Administrative System Enlarging Cross- Border Use of RMB O p i n i o n o f T h e P e o p l e s B a n k o f C h i n a o n F i n a n c i a l S u p p o r t f o r C h i n a ( S h a n g h a i ) P i l o t F r e e T r a d e Z o n e

Deepening Innovation and Opening up of Financial Services Creating Account System in Favor of Risk Management Frontier Opening Second-tier Controlled Resident free trade account: Expediting investment, financing and exchange convenience Resident Free Trade Account Non-resident free trade account: principle of national treatment before admittance Same management as cross-border business Outbound Account Non-resident Free Trade Account Other settlement account NRA Outside of FTZ Other Settlement Account for the Same Entity Other Resident Free Trade Account Current account Credit repayment Industry investment Other admitted cross-border transaction Cross-border financing, guarantee could be conducted via resident free trade account. When conditions are mature, capital in the account can be exchanged without limitation.

Deepening Innovation and Opening up of Financial Services Expediting Investment, Financing and Exchange Convenience Objects Investment outside of the zone by Inter-zone entity Investment abroad by Inter-zone entity Loan or lending abroad by inter-zone entity Loan or lending abroad by entity outside areas Others Details Eligible foreigner working in FTZ can open individual investment account at inter-zone financial institutes and conduct inbound investment including securities investment by rule. Financing institutes and enterprise can join in securities trading and futures trading in Shanghai to conduct investment and trade. Eligible individual working in FTZ can conduct outbound investment including securities investment by rule. Eligible inter-zone enterprise can conduct outbound securities and derivative investment by rule. Inter-zone individuals can rent to its outbound entity according to its demand of operation. Resident and non-resident free trade account can conduct cross-border financing. Inter-zone institute can finance RMB and foreign currency from outbound according their demand of operation, but details of foreign debt monitoring have not been prescribed. Inter-zone enterprise can conduct bilateral RMB cash pool according their demand of operation. Inter-zone enterprise s outbound parent enterprise can issue RMB bonds at inbound market by rule. According to the market,develop inter-zone international financial capital trade.

Deepening Innovation and Opening up of Financial Services Deepening the Reform of FX Administrative System Current Account Transactions Foreign Exchange Administration Innovation Foreign Exchange Market Business Capital Account Transactions

Deepening Innovation and Opening up of Financial Services Promoting Interest Rate Liberalization Steadily Improve the monitoring system of interest rate liberalization Prior to publishing trial Negotiable Certificate of Deposit When conditions are mature, cancel the upper limit of interest rate of smallamount foreign deposits Macro prudential management framework

Deepening Innovation and Opening up of Financial Services Enlarging Cross-border Use of RMB Conducting cross-border RMB settlement under current account and direct investment at bank. Providing RMB settlement for cross-border e- commerce. Facilitation measures, promoting RMB internationalization. Cooperating with thirdparty e-payment company to promote cross-border electronic commerce. Intergroup bilateral RMB cash pool and Centralized receiving and paying for current account Outbound RMB borrowing Cash flow across the border and increasing the utilization of capital. Broadening financing channel, forming RMB reflux system.

C o n t e n t 3 FTZ Financial Solution

III. FTZ Financial Solution Consulting Others Opening Account Cash management Settlement Financing Exchange Investment Online Service

III. FTZ Financial Solution Financial Products And Services Focused On FTZ New Policy Trade And Investment Trade Facilitation RMB/FX Bilateral Cash Pool Centralized Payment Under Current Account Cross-border RMB Outbound Borrowing Cross-border RMB Trade Finance Optimize Settlement Process E-bank Payment Cross-border Multi Currency Global Cash Management Outbound Multi Currency Account Opening Outbound RMB Transaction Group Centralized Settlement Under Current Account Trade Of Goods Netting Payment Information Declaration Proxy E-bank Payment Offshore RMB Finance Offshore Mini - Bond Consignment Offshore IPO Cross-border RMB Guarantee Global Credit Separation Management Import Agreement Payment Export Agreement Finance RMB LC Trans Notification

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