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May 18, 2017

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Broader boundaries for foreign investment

SHANGHAI was second only to London in 2015 as a preferred investment site for foreign money, according to a KPMG report, and the city aims to keep its high profile after attracting 15 percent of foreign funds invested in China last year.

Long at the vanguard of Chinese reform policies, Shanghai last month issued a set of new initiatives aimed at attracting foreign investment in the campaign to upgrade local industries.

It’s an uphill battle in a world where economic growth has been fitful and protectionism on the rise. Foreign direct investment in Shanghai in the first quarter of this year declined for the first time in 17 years.

The new government incentives encompass 33 measures, including wider market entry, expanded support policies, creation of an equal business environment and the improvement of government services for foreign-invested companies.

“Openness is the greatest advantage of Shanghai,” said Shang Yuying, head of the city’s Commerce Commission. “The new guidelines place greater importance on openness, taking it to a wider and higher level.”

Greater market access will be extended to finance, telecommunications, culture, education and transportation. The initiatives also promise that domestic and foreign investors will be treated the same in application of incentives, administrative approvals, dispute solving and bidding on projects of government procurement.

To benefit Shanghai’s economic structure, foreign investment will be encouraged in research and development and new sectors of strategic importance, including new information technology, energy conservation and environmental protection, advance industrial materials and high-end equipment manufacturing.

More channels will also be opened up to allow foreign companies in terms of market listings, bond issuance and access to funding through over-the-counter stock exchanges.

Foreign companies in Shanghai have welcomed the new guidelines, while pressing for even greater relaxation in rules governing foreign workers and tighter protections for intellectual property rights.

Walter Tong, key accounts leader at Ernst & Young, said the new guidelines are “the most targeted and the most practical” document the Shanghai government has ever released on foreign investment.

“The 33 measures cover areas that foreign companies are generally concerned about, including market entry, fair competition, intellectual property protection and professional talent,” Tong said. “Particularly remarkable is that the guidelines specify which governmental units are in charge of each measure, making the document even more practical for companies.”

He said companies will be eager to see the fine-print of the measures.

Shanghai authorities should set up more overseas offices to improve communications with the headquarters of multinational companies because that’s where final decisions are made, he said. “It’s also necessary to communicate more with companies here,” he added.

Ioana Kraft, general manager of the Shanghai chapter of the European Union Chamber of Commerce in China, said the new measures appear to offer more business opportunities for foreign investment. However, the government should further relax rules on foreign workers, open up the legal services market and enhance protection of intellectual property rights if it wants to attract more foreign investment.

In its annual position paper released this year, European Union Chamber of Commerce offered nearly 900 recommendations to Chinese policymakers, including enhancing reciprocity in market access and supporting instead of controlling innovation.

“Many of our recommendations have been addressed in the new document, which shows a commitment to offer equal treatment in all areas,” said Kraft. “We are also pleased that Shanghai is committed to further opening up the Free Trade Zone.”

Specifically, Kraft said the chamber is happy to see that the guideline has included a relaxation of rules to allow foreign graduates with less than two years’ work experience to take up jobs in Shanghai.

She said she hoped the authorities could further permit foreign students in Shanghai to seek intern positions locally.

“We also note that further opening-up is to come in the financial services area,” she said. “We have many members in the financial services area and many more companies from the European Union that are interested in establishing themselves in Shanghai,” she said. “We hope that other professional services, like legal services, will be the next step because many companies want to have a choice in legal advice.”

Kraft said an intellectual property court in Shanghai has done particularly well in protecting the rights of companies, but as the number of disputes rises, more resources and manpower need to be allocated to the court.

The court was set up in the beginning of 2015 as part of Shanghai’s grand plan to become a world leader in technology and innovation. Its caseload last year rose 14 percent to 1,877 cases.


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