July 2003

Shanghai has always been China's leader in foreign trade. During the isolationist period of Mao's China, the city handled most of the nation's limited trading activities with foreign countries. Since then, China has undergone many changes and foreign investment in Shanghai has enjoyed preferential treatment resulting in particularly high levels of foreign investment by large multinationals as well as foreign funded financial institutions.

In 1984, Shanghai was approved as one of the 14 "coastal open cities" which offer a range of incentives authorized by the Central Government. A few years later, more favorable investment policies were implemented in the Pudong New Area and other development zones. This included reduced tax rates for a variety of foreign investment enterprises, depending on the kind of business or their specific location within the administrative jurisdiction of Shanghai. Thus, the city and its surrounding areas offer foreign investors a range of incentives, which are sanctioned or provided both by the Central Government and Shanghai local authorities.

Shanghai suburbs have become a strong magnet for foreign investment as the city seeks coordinated development of both the 600-square-kilometer city proper and the vast 5,700-square-kilometer suburban area. The municipal agricultural committee is planning to turn suburban Shanghai into a modern manufacturing center and has set a target of attracting 7 billion dollars of contractual foreign investment to Shanghai's suburbs in 2003.

Foreign investment in Shanghai

Shanghai's foreign investment policies are among the most liberal in China. In fact, various experimental forms of foreign investment, such as foreign banking, insurance, and BOT projects, were first tried in Shanghai. Typically, channels of foreign investment include direct foreign investment, financial institutions, technology transfer, assembly and processing, compensation trade, BOT projects, land and real estate development, international leasing, and foreign holding companies. Although national laws govern most of these forms of investment, certain more experimental forms of investment are administered mainly by local regulations.

Shanghai's Key Development Zones

Waigaoqiao Free Trade Zone

The Waigaoqiao Free Trade Zone was approved by the State Council in 1990 and is one of China's earliest and largest free-trade zones. The free-trade zone encourages investment in international trade, distribution, export processing, commodity exhibition, and cargo forwarding. Due to its proximity to the Waigaoqiao Container Port the Zone has become one of the largest and the most successful logistics hubs as well as a key export processing area in China. Waigaoqiao Free Trade Zone is located in the northeast corner of Shanghai, at the intersection of China's eastern coastline and the Yangtze River, 20 kilometers from downtown Shanghai and 15 kilometers from Pudong International Airport.

Lujiazui Finance and Trade Zone

The Lujiazui Finance and Trade Zone occupies an area of 28 square kilometers on the east bank of the Huangpu River and is the symbol and core of Shanghai's Pudong New Area. Since its establishment in 1990, the Lujiazui Finance and Trade Zone has enjoyed full support of the central government and Shanghai Municipality. 6 national markets are located in Lujiazui, the Shanghai Stock Exchange, Shanghai Securities Exchange, Shanghai Property Rights Exchange, Shanghai Real Estate Market, Shanghai Human Resource Market and the Shanghai Diamond Exchange. There are almost 100 foreign and domestic financial institutions within the zone and several multinational companies and large domestic enterprises have their regional or national headquarters in the zone.

Jingqiao Export Processing Zone

The Jingqiao Export Processing Zone focuses on high technology, high output and high profit. The zone is located in the center of Pudong and houses a wide variety of businesses including manufacturing, retailing, trade, and residential developments, all operating under international norms. Businesses in the telecommunication, household electrical appliances, pharmaceuticals, foodstuff, bio-engineering, automotive, and computer software and hardware sectors are entering the commercial production stage.

Zhangjiang High-Tech Park

The Shanghai Zhangjiang High-Tech Park was established in July of 1992 as a national-level park designated for the development of high and new technology. There are three distinct areas in the High-Tech Park devoted to telecommunication & information, bio-pharmaceutical and incubation projects. Various national-level centers, including the State Bio-Tech and Pharmaceutical Center (Shanghai), the National Information Technology Industry Center and the National Science and Technology Innovation Center, as well as more than 300 international and domestic enterprises are located in the Park.

Law-making in Shanghai

Shanghai is a directly administered municipality under the Central Government, similar to a province. There is no higher authority above Shanghai other than the Central Government and national legislature. The city has local law-making powers under the 1982 Constitution. As a provincial-level authority, there are certain limitations imposed by the Constitution and national laws, however, Shanghai has a comprehensive legal framework governing local law-making activities. Local rules must be published in the law gazette, the Shanghai Legal Daily, and the Liberation Daily within 15 days after adoption. Foreign investment in Shanghai is governed by the Rules of Shanghai Municipality on Examination and Approval Procedures for Foreign Investment Enterprises. In addition, the city has implemented many individual rules and regulations on specific aspects of foreign business or foreign investment in specific areas such as investment in the Pudong New Area, the Waigaoqiao Bonded Zone, the Hongqiao Economic and Technological Development Zone, Zhangjiang High-Tech Park, and other investment zones under the jurisdiction of the Shanghai Municipality.

Approval process in Shanghai

Shanghai's "delegated examination and approval process" delegates powers to approve investment projects to several administrative authorities, including government departments of the Shanghai Municipal Government as well as those of the districts or counties under the jurisdiction of Shanghai, the Management Committee of the Waigaoqiao Bonded Zone, and the Management Committee for the Shanghai Pudong New Zone. The overall authority, however, lies with the Shanghai Foreign Investment Commission, which requires all foreign investment projects to be filed with it for recording. The Shanghai Foreign Investment Commission and the Shanghai Foreign Economic Relations and Trade Commission concurrently supervise and coordinate all foreign investment activities in Shanghai.

National Treatment Policy in Shanghai

There are no specific rules in Shanghai for moving towards a general national treatment policy. The reason may lie in the fact that Shanghai still offers the most favorable treatment for foreign investment and most new experimental forms of foreign investment are first ventured in Shanghai.

Local rules concerning labor management

Shanghai has a relatively comprehensive local legal framework on labor management. A large number of local rules are mainly issued to supplement or implement the national laws such as the Labor Law of the PRC. Both the national law and local regulations always require an employment contract when a foreign investment enterprise hires its employees. Certain restrictions are imposed on employing Chinese workers from outside of Shanghai. The authorities have also implemented various strict requirements regarding the protection of safety and health in the work place.

Local rules on land use rights

The city's rules on real estate development and land management are numerous and rather complicated. Strict planning, examination, approval and registration processes by the relevant departments of the municipal or county government apply to all land utilization, development, and construction projects.

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All information in this report is verified to the best of our ability and is assumed to be correct at time of release; however, Klako Group does not accept responsibility for any losses arising from reliance on the information provided within.