Are existing commercial legal frameworks appropriate for the Shanghai Free Trade Zone? Should a new commercial code be developed?

With the China (Shanghai) Pilot Free Trade Zone (the SFTZ or the Zone), the Chinese central government has for the first time supported a local initiative aimed at bringing about legal as well as economic reforms.

Unlike other special zones, the SFTZ has been presented as a testing ground for reforming the various systems of regulation under which governmental authorities not only monitor, but also substantively check and control in advance, a wide range of activities by business companies. Indeed, some important changes to some such systems have already been introduced within the SFTZ. Despite the changes that have been introduced in the SFTZ to date, concerns have been raised in respect of the speed and extent of the reforms in the SFTZ.

The SFTZ offers the unique opportunity to be a testing ground for innovation, opening up and legal reforms. Once such reforms are successfully implemented in the SFTZ, such reforms can be extended to, and gradually be introduced in, the rest of the country. This would promote not only foreign related trade and investments but also domestic business and transactions, and hence significantly further the development of the Chinese economy, first within the SFTZ but then gradually also in the rest of the country.

In this paper, we recommend some changes that we believe would make the SFTZ a more attractive place for foreign and local investment and a portal for driving growth and prosperity into China. Our recommendations are based on our experience of where foreign businesses encounter difficulties operating in China.

Key discussion points

  • Maintain the SFTZ as the nation’s testing ground for further legal and commercial liberalisation in order to attract more foreign trade into and through China, thereby increasing employment and tax revenues for China, in view of the fact that material developments in the SFTZ have been fairly quiet in the last 12 months and despite the proposed introduction of the new Foreign Investment law 
  • Seek to replace the current foreign investment catalogue by a negative list for all of China and further pare down the SFTZ’s negative list in order to continue making the SFTZ a more attractive place for foreign trade in China.


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