Domestic firms flock to register in Shanghai FTZ

China Daily, October 18, 2013

Business representatives line up at the China (Shanghai) Pilot Free Trade Zone Comprehensive Service Center to register their offices in the 28 sq km area. The center has been receiving at least 500 calls or e-mails a day, most of them applications to open new offices. [China Daily]

Thousands of domestic companies have flocked to register at the Shanghai Pilot Free Trade Zone, despite the lack of clarity on the reforms it will bring.

This has prompted calls for new rules to keep a lid on the number of applicants, as a quality-control measure.

The FTZ service center, which was put into operation on Oct 8, has been receiving at least 500 calls or e-mails a day, most of them applications to open new offices in the 28 sq km area. Three times as many people have been visiting the center in person to learn more about the FTZ and how they can get involved in it.

"We're still not very clear about the policies, but we'd like to register a branch in the FTZ right now," said a young business manager surnamed Zhang, who was visiting the center earlier this week.

"There won't be enough space for latecomers," added the man, who said he has worked for a State-owned chemical trading company for the last eight years.

He said he had been authorized by his company to buy an office on the site, but was surprised to find that the price already exceeds his company's initial budget.

According to a research report by real estate service provider CBRE Inc, the sale prices of office space in the FTZ have soared 20 percent since September. Some of the prime office buildings already cost the same as the priciest areas in downtown Shanghai, despite the fact that they're located some 20 km away from the city center.

The average daily cost of renting office space in the FTZ has also doubled since July to 4.2 yuan ($0.68) per sq m. Some buildings have seen their rent triple over the same period.

CBRE's report suggests that the price hikes have been supported to some extent by irrational demand.

"Most of the demand comes from SMEs that are registered in the FTZ, but which conduct their main businesses elsewhere, so they won't be sending their staff to the zone in the near term," it said.

Chen Weimin, a consultant with the general administration office of the FTZ, said that all companies are welcome to apply. But he added a caveat.

"The principle we follow is that we have a low threshold in terms of admittance, but the companies will all be strictly supervised after they move in," he said.

"We mainly encourage those enterprises that will be able to benefit from the innovative reforms of the pilot zone to apply. If they can do the job just as well elsewhere, then why bother coming to the FTZ?"

Chen said that companies' performances will be charted and analyzed. Those that fail to generate significant revenue, taxes or employment figures would perhaps be less welcome in the future.

Nonetheless, the zone's administration is making an effort to be hospitable and cut as much red tape as possible, he added.

Some 36 companies were approved in the first batch of firms to enter the zone on Sept 29, with 60 more licenses handed out later. These companies all got the green light within four days of submitting their applications, much faster than the usual 20 days.

Kuai Zhenxian, chief economist with Shanghai Waigaoqiao Free Trade Zone Development Co, a major developer of the pilot zone, said the enthusiasm to register also reflects speculative motives by Chinese firms.

To deal with the huge demand, Kuai said that adjustments would be needed to provide more office space in the zone.

He said many of the land slots there were designed for industrial use due to the booming manufacturing sector in the 1990s, but as the FTZ mainly aims to stimulate the service sector, some should be transformed into commercial office space.

He said the FTZ would "inevitably" need to expand, possibly into Lingang, a 315 sq km area in the city's southeast.

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