38 overseas firms set up in free trade zone

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The Shanghai pilot free trade zone has drawn 38 overseas firms since its launch two months ago, in sharp contrast to the nearly 1,400 homegrown companies, officials said Thursday.

Some analysts have attributed the small number of foreign companies to disappointment at the lengthy negative list and a lack of financial details.

However, Dai Haibo, deputy director of the zone's management committee, said it was too soon to make a judgment.

"It's a normal process as foreign companies need more time to digest policies due to language and cultural differences," Dai said yesterday.

"You can't use a short-term statistic to evaluate this issue and form a grand notion," Dai said.

The FTZ is making preparations to introduce key financial reforms, including free capital flows and interest rate liberalization, he added, but gave no timetable.

A negative list applied in the zone stipulates 190 restrictions on foreign investment in 18 sectors ranging from agriculture and manufacturing to finance and public services.

Shanghai Vice Mayor Ai Baojun said a 2014 version of the list would clarify restrictions and there would be room to shorten it.

Among the 38 overseas firms, bringing in registered capital of US$560 million to the zone, 14 are from Hong Kong, six from the United States, six from Japan and four from Singapore.

As well as the 38 to have formally set up, another 67 overseas firms had applications under consideration, officials said.

The management committee said the central bank is building a system to monitor capital flows in the zone, paving the way for highly anticipated financial liberalization.

The People's Bank of China is also creating a database of existing enterprises in the zone, as part of preparatory work to control the potential risks of financial opening-up.

"The regulation of capital flows is much more complicated compared with the management of a material objects," said Ai who is also director of the zone's management.

"It involves a huge workload to establish a risk-control system starting from scratch."

Ai said the central bank had drafted financial policies within the zone that will be released after risk-control measures are created and thoroughly tested.

In the blueprint released before the zone's inauguration in September, China said it would allow free yuan convertibility under capital accounts, interest rate liberalization and cross-border use of the yuan on a trial basis as long as risk is controlled.

Located in a 28 square kilometer area in the city's Pudong New Area, the zone boasts wider openness for service sectors.

Trading companies now account for 69 percent of the newly established companies while service enterprises represent 26 percent. The remainder are financial and logistics companies.

New types of service facilities have been set up in the zone.

A 2,000-ton gold warehouse in the zone established by the Hong Kong-based Malca-Amit Global Ltd has started operation, providing a storage service for the trading of precious metal and diamonds and a delivery platform for cross-border transactions.

In the blueprint for the zone, 23 policy initiatives are planned to create greater access in service sectors ranging from shipping to culture.

Dai denied that many of the 1,396 domestic firms now in the zone were shell companies, lacking true business operations and set up by investors hoping to get an early foothold, as reported by Chinese media.

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