Guide­line made for Shang­hai pilot zone

China Daily (Hong Kong) - - BUSINESS DIGEST - By YU RAN WEI TIAN in Shang­hai

Shang­hai is set to test the wa­ter for fur­ther fi­nan­cial re­form af­ter the cen­tral govern­ment ap­proved the es­tab­lish­ment of a pilot free trade zone in the busi­ness hub.

The city re­leased de­tailed guide­lines in­clud­ing mea­sures to al­low more pri­vate cap­i­tal in the bank­ing sec­tor and pro­mote cross-bor­der use of the yuan.

The guide­lines con­sist of 42 en­tries di­vided into three cat­e­gories: those that are al­ready in place yet need re­in­force­ment, those that are ready to be launched and those that still await ap­proval.

The 12 en­tries marked as “in­no­va­tive re­form”, which still await a green light from rel­e­vant min­istries, are mostly mea­sures to lessen for­eign ex­change con­trol and en­cour­age cross-bor­der yuan flow to fa­cil­i­tate trade and in­vest­ment in the re­gion.

“Th­ese mea­sures are all within the scope of the in­struc­tion re­leased by the State Coun­cil in July we’re still wait­ing for the start­ing gun from the cen­tral govern­ment,” said an of­fi­cial with the Shang­hai govern­ment’s fi­nan­cial of­fice.

“There are no set pat­terns or reg­u­la­tions for some of th­ese mea­sures at the mo­ment, but we would like to see th­ese mea­sures car­ried out in Shang­hai first once they’re good to go.”

The Min­istry of Com­merce said on Thurs­day that the State Coun­cil China’s cabi­net

has for­mally ap­proved the plan to es­tab­lish a 28-square-kilo­me­ter free trade zone in Shang­hai, which com­prises four ar­eas un­der the spe­cial su­per­vi­sion of cus­toms.

The plan was passed at an ex­ec­u­tive meet­ing chaired by Pre­mier Li Ke­qiang on July 3.

A de­tailed plan will be re­leased when the ad­just­ment of le­gal frame­work is com­plete.

Al­though th­ese mea­sures are not ex­actly from the blue­print of the long- ex­pected Shang­hai Free Trade Zone, he ad­mit­ted that the FTZ could serve as a test­ing ground.

Ac­cord­ing to the guide­lines, Shang­hai vowed to pro­mote cross-bor­der set­tle­ment of yuan and ex­pand the use of the cur­rency in trade, in­vest­ment and in­sur­ance.

To do so, the city will strengthen its role as a set­tle­ment cen­ter for in­ter­na­tional trade and pilot fund man­age­ment for multi­na­tional com­pa­nies’ head­quar­ters. It also looks to in­clude more busi­nesses in its in­ter-bank for­eign ex­change set­tle­ment.

In the mean­time, Shang­hai will de­velop a merg­ers and ac­qui­si­tions in­vest­ment fund and en­cour­age in­no­va­tion in pri­vate eq­uity and ven­ture cap­i­tal in­vest­ment.

The city will also ac­cel­er­ate the es­tab­lish­ment of its fu­tures mar­ket and in­tro­duce trea­sury bond fu­tures within the sec­ond half of this year, ac­cord­ing to the guide­lines.

Ac­cord­ing to Ge Yufei, vice- pres­i­dent of SPD Bank’s Shang­hai branch, the bank has al­ready set up a team to pre­pare for the launch of th­ese mea­sures.

Ini­tial plans in­clude set­ting up an of­fice within the Shang­hai FTZ, and de­vel­op­ing in­no­va­tive prod­ucts and ser­vices to meet var­i­ous de­mands, Ge said.

Var­i­ous pro­posed rule changes will help cre­ate chan­nels that can lower the cost of fund­ing to busi­nesses. Other pro­vi­sions would al­low rich in­di­vid­u­als a much wider choice in where to park their wealth.

There is a pro­posal that seeks to en­cour­age en­ter­prises un­der­tak­ing con­sol­i­da­tion of pro­duc­tion ca­pac­ity to raise funds more cheaply and sim­ply by is­su­ing pre­ferred, rather than com­mon, stock, which is a fi­nan­cial in­stru­ment that con­sists of both debt with fixed div­i­dends and eq­uity with po­ten­tial ap­pre­ci­a­tion.

Un­like bonds or other debt in­stru­ments, pre­ferred stocks are not counted as li­a­bil­i­ties and they don’t re­quire the is­suers to pay a fixed in­ter­est, said Zhang Qi, an an­a­lyst with Haitong Se­cu­ri­ties Co Ltd. What’s more, they aren’t go­ing to di­lute the is­suer’s share price be­cause there is no in­crease in out­stand­ing share cap­i­tal, he added.

An­other pro­posal calls on the au­thor­i­ties to reg­u­late and pro­mote as­set se­cu­ri­ti­za­tion that can pro­vide greater fund­ing flex­i­bil­ity for fi­nan­cial in­sti­tu­tions.

“The se­cu­ri­ti­za­tion of credit as­sets could be an in­no­va­tive method of fi­nanc­ing to di­ver­sify the risks of lenders as well as in­crease fi­nanc­ing ef­fi­ciency,” said Zhang.

The plan also in­cludes a pro­posal to pro­gres­sively lift the con­trol on di­rect for­eign in­vest­ment by do­mes­tic in­vestors. The limited in­vest­ment chan­nels in the do­mes­tic mar­ket are widely be­lieved to have forced many wealthy in­di­vid­u­als to park most of their money in prop­erty, help­ing to drive prices in ma­jor cities to lev­els fewer and fewer peo­ple can af­ford.

“I am tired of be­ing trapped in the prop­erty mar­ket and A-share mar­ket, mak­ing very lit­tle profit, so I am keen to go out of the Chi­nese main­land to make di­rect in­vest­ments in over­seas projects such as prop­erty with high re­turns,” said Chen Yanchuan, a 47-year-old owner of an elec­tronic de­vice com­pany in Wen­zhou, Zhe-jiang prov­ince.

Con­tact the writ­ers at yu­ran@chi­nadaily. and weitian@chi­

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