Secrets of Shanghai Free-Trade Zone: Negative List Analysis

While PRC (People's Republic of China) has officially begun its first pilot FTZ (free trade zone) in Shanghai on September 29, 2013, people have been arguing if this new free-trade zone may just impose too many restrictions on foreign investors, although many oversea investors are also expecting Renminbi (RMB) free convertibility will be firstly introduced there and may make Shanghai become a real threat to Hong Kong as Asian's top financial centre.

However, if you look into more details of the full Shanghai FTZ (free-trade zone) negative list released on September 30, 2013 (latest version), you will then be able to know all the secrets of this Shanghai new free-trade zone. It is also believed that this new Shanghai FTZ will become a model for other future FTZs (free-trade zones) to be established in Guangdong or Tianjin etc.

So first of all, let us show you some basic facts about Shanghai FTZ (free-trade zone) first:

Geographical Location

Where is Shanghai FTZ physically located? Shanghai new FTZ (free-trade zone) actually contains 4 components, they are: Waigaoqiao FTLP (Free Trade Logistics Park), Waigaoqiao FTZ (Free Trade Zone), Yangshan FTPA (Free Trade Port Area), Pudong Airport Comprehensive FTZ (Free Trade Zone) respectively.

Exact locations of these 4 components are shown in the following map:

Map of new Shanghai FTZ (Free Trade Zone)

What is FTZ Negative List?

Shanghai new FTZ (free-trade zone) has adopted an experimental approach of negative list to control access to this special zone. Negative list refers to a list of activities not allowed to do within FTZ (free-trade zone). By this definition, everything outside negative list is allowed to do, at least theoretically.

This idea of negative list is indeed common for international laws, but not for Chinese local laws. Now Chinese central government starts using this within FTZ (free-trade zone) as an experiment to align with international legal standards for future extension further to other cities.

Negative list can also be used to show what kind of industries Chinese central government want to protect, even in FTZ (free-trade zone). So these industries are critical for China and if you look more carefully, they are indeed million-dollar business opportunities!

Full FTZ Negative List (Latest Version)

Now, Mr China, has created a table showing the full content of Shanghai FTZ (free-trade zone) negative list (latest version) for basic analysis, as follow:

Category (Code and Name)	Main Types (Code and Name)	Shanghai FTZ Special Management Measures
A: Agriculture, Forestry, Animal Husbandry, Fishery	A01 Agriculture; A02 Forestry; A03 Animal (Livestock) Husbandry; A04 Fisheries; A05 Agricultural, Forestry, Animal Husbandry, and Fisheries services	(1) Investment in Chinese herbal medicines cultivation (must be through joint venture and cooperation). (2) Limit investments of new crop varieties breeding or seed production (Chinese party shall be the majority holder). (3) Enterprises invest in crop seeds must be through joint venture and cooperation. Registered capital of enterprises investing in grain, cotton, oil crop seeds shall not be less than USD$2 million dollars (Chinese investment party shall hold more than 50%), while registered capital of enterprises investing in other crop seeds shall not be less than USD$500K. (4) Limit investments of cotton (seed cotton) processing. (5) Limit investments of rare tree species timber processing (limited to equity joint ventures and cooperative joint ventures). (6) Prohibit investments on Chinese rare or endemic rare fine varieties R&D, cultivation, aquaculture industry, related breeding material production (including excellent genes for crop production, animal husbandry, and fisheries industry), genetically-modified organisms R&D, genetically-modified crop seeds, livestock, poultry, aquatic seed production. (7) Prohibit investments on aquatic fishing within China jurisdictional waters or inland territorial waters.
B: Mining	B06 Coal Mining and Class Exploitation	Restrict investments on special or scarce coals mining (Chinese party shall be the majority holder).
	B07 Petroleum and Natural Gas Exploration	(1) Investments on coal gas development or coal gas usage must be through joint venture and cooperation. (2) Investments on petroleum or natural gas development must be through joint venture and cooperation. (3) Investments on low-permeability petroleum or natural gas development must be through joint venture and cooperation. (4) Investments on upgrading crude oil exploration rate or development of related new technology applications must be through joint venture and cooperation. (5) Investments on drilling, wells logging, wells testing, operations under wells etc for petroleum exploration development or applications of new technologies must be through joint venture and cooperation. (6) Investments on oil shale, oil sands, heavy oil, super-heavy oil, or other unconventional petroleum resources development must be through joint venture and cooperation. (7) Investments on shale gas, undersea natural gas hydrates, or other non-conventional natural gas resources development must be through joint venture and cooperation.
	B08 Ferrous Metals Mining	Restrict investments on sulfur iron ore mining, ore dressing, as well as boron magnesium iron ore mining industries.
	B09 Non-ferrous Metals Mining	(1) Limit investments on boron magnesium ore mining, lithium ore mining, ore dressing, as well as precious metals (gold, silver, platinum) mining industries. (2) Prohibit investments on tungsten, molybdenum, tin, antimony mining or rare earth metals, radioactive mineral mining, ore dressing.
	B10 Non-metallic Mineral Mining	(1) Restrict investments on barite mining (restricted to equity joint ventures and cooperative joint ventures). (2) Limit investments on diamonds, high-aluminum refractory clay, wollastonite, graphite, or other important non-metallic mineral mining, phosphate mineral mining, ore dressing, haloid salt lake resource extraction, celestine ore mining. (3) Limit investments on ocean manganese nodules or sea sand mining (Chinese party shall be the majority holder). (4) Ban investments on fluorite mining.
	B11 Mining Supplementary Activities	Restrict investment on boron magnesium iron ore processing-related activities.

Table 1: Full Content of Shanghai FTZ (free-trade zone) Negative List

Source: Shanghai Municipal People's Government

Since the whole Shanghai FTZ (free-trade zone) negative list is so lengthy and covers many other industries, we will continue to show you this full negative list for further analysis in our upcoming blog posts. Stay tuned!