By Kyle Kessler
Officially launched on September 29, 2013, the Shanghai Free-Trade Zone (SHFTZ) is the first free trade zone in mainland China. Covering an area of 120.72 km2, the SHFTZ includes four existing Special Customs Supervision Zones (Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park, Yangshan Free Trade Port Area, and the Pudong International Airport Free Trade Zone), the Lujiazui Financial District, Jinqiao Export Processing Zone, and Zhangjiang Hi-tech Park. A key feature of the FTZ, according to our guide, has been that of innovation and experimentation, not just of the businesses that come to the zone, but the manner in which new business is approved and investment in managed.
A far cry from the glistening fantasy world that is the Lujiazui Financial District, our NexGen Global Forum cohort arrived at the offices of the Shanghai Pilot Free Trade Zone on the morning of Thursday, November 5th. Located in an indiscriminate building within the greater FTZ, the closest USA parallel I could find to the activity within the office would be that of a Bureau of Motor Vehicles. The ubiquitous shrieks of an intercom for the numbered waiting system blocked my focus at times from the grand proclamations of “shorter wait times” and “faster processing approval”. According to the statistics we were shown, the administrative approval time has shrunk from eight days to one business day, and new business applicants now submit applications to a “one-stop service unit”. Instead of navigating the world-famous Chinese bureaucratic approval maze, establishing a business within the SHFTZ requires applicants to submit their documents to only one place.
As stated previously, the SHFTZ is a testing ground for policies and regulations that can hopefully be applied broadly to other zones, and eventually to the rest of China. Perhaps nowhere is policy innovation more necessary than in reform of Chinese capital markets. The previous regulatory barriers for capital have been called the “paid-in capital” system, one in which firms were required to submit 15% of capital within 3 months and full capital within 2 years. These regulations have been dropped to provide a more flexible and efficient capital market, thus developing a subscription system in which firms will negotiate the terms of the capital injections within a set period of time.
When evaluating the success of the SHFTZ, our guide pointed to the over 30,000 companies that have been established, 300,000 employees, 3,000 multinational corporations, and over 150 Fortune 500 companies located within the zone. In my opinion, however, pointing to statistics that illustrate the size of the SHFTZ misses the point. Statistics of scale, especially in Shanghai, will always be incomprehensibly overwhelming to someone unfamiliar with China. The very activity of the SHFTZ’s office is a greater indication of the success of the FTZ and China has a whole. On a rainy, cold Thursday in Shanghai, people wait their turn to try and start a business. “Chinese Dream”, “Chinese Miracle”, or any other combination of phrases you want to use to describe this country’s growth and future; my advice, grab a number, wait your turn, and it will probably look a lot different by the time you get here, probably with some shiny new branding as well.