Shanghai Free Trade Zone: A Gateway of Opportunity in China’s Largest Economic Center

Shanghai is the largest economic center in China, with 24 million people, and a size of 6340 km². The regional GDP of Shanghai reached USD 620 billion in 2023, a year-on-year increase of 5%, ranking first among Chinese cities.

Shanghai has become the world’s largest trading port city. In 2022, the container throughput of Shanghai Port exceeded 47.3 million TEU, ranking first in the world for the 13th consecutive year.

Shanghai is one of the largest financial centers in China and is actively developing into an international financial center. Shanghai has two international airports and three high speed train stations. It has excellent infrastructure and a convenient business and living environment.

Shanghai’s Financial Exchanges

• Shanghai Stock Exchange
• China Financial Futures Exchange
• China Shanghai Futures Exchange
• China Foreign Exchange Trading System
• Shanghai Gold Exchange
• Shanghai Insurance Exchange
• Shanghai Bills Exchange
• Shanghai Environment & Energy Exchange

The Shanghai Free Trade Zone (SHFTZ)

On September 29, 2013, SHFTZ was officially established. It provides a better testing and stress testing space for promoting institutional innovation in investment, trade, finance and other fields.

After several expansions, it now includes: 1) Shanghai Waigaoqiao Free Trade Zone; 2) Waigaoqiao Bonded Logistics Park; 3) Yangshan Free Trade Port Area; 4) Shanghai Pudong Airport Comprehensive Bonded Zone; 5) Lujiazui Financial City Area; 6) Jinqiao Industrial Zone Area; 7) Zhangjiang Science City Area; and 8) Lingang Area.

Preferential Policies and Measures in SHFTZ

1. SHFTZ allows companies to import products free of duties & import VAT. Customs duties & import VAT are paid only when the imported goods leave SHFTZ. For this reason, many companies that import high value-added products rent warehouse space in the zone.
2. Income generated from providing transportation services, loading & unloading services and warehousing services in Yangshan Bonded Zone, (by companies registered in Yangshan Bonded Zone) is exempted from VAT.
3. Companies that meet the requirements to engage in R&D in key areas such as integrated circuits, artificial intelligence, bio-medicine, civil aviation, etc. in the Lingang Area are entitled to lower corporate income tax rate of 15% for 5 years from the date of establishment (standard corporate income tax rate 25%).
4. In SHFTZ, foreign investment access restrictions are cancelled or relaxed in more fields. The Negative List to foreign investment is shortened to 27 Items now from 139 items in 2014. For example, in the financial field, there are no more restrictions on the proportion of foreign shares held by securities companies, fund management companies, futures companies and life insurance companies (i.e. changed from maximum 49% to now allowing 100% foreign ownership).
5. There are a number of trade facilitation measures in SHFTZ, including simplified custom clearance process, speed-up of goods release by Customs, simplified documentation requirements for Custom inspection and quarantine for certain types of goods. For example, air express goods that have submitted the necessary documents will be released in 6 hours after arrival; goods that have arrived imported by air and sea and with all the information required for Custom clearance will be released in 48 hours.
6. SHFTZ facilitates the temporary entry of business personnel and working visa for foreign senior employees of foreign invested companies and their dependents.

Relaxation of Foreign Ownership — The Tesla Example

In 2018, SHFTZ removed the restrictions on the ratio of foreign shares in the automobile manufacturing industry. Previously this required a joint venture with Chinese investors and Chinese investors must own no less than 50% shares.

Being the first wholly foreign-owned automobile enterprise in China, TESLA GigaFactory Shanghai settled in Lingang New Area in July 2018. The whole approval process only took 3 months, including land use agreement and new energy vehicle manufacturing permit. TESLA enjoyed 15% preferential corporate income tax rate from years 2019 to 2023.

Modern Shanghai

Modern Shanghai is one of the most important cities in China, with the mission of building an international economic center, a financial center, a trade center, a shipping center, and a science & technology innovation center.

By focusing on innovation in investment, trade, and finance, SHFTZ serves as an experimental field for the implementation of further opening-up policies aligned with international economic and trade rules. These preferential measures not only enhance the connection between China and the global market, but also position SHFTZ as a potential model for other free trade zones in China to replicate, making China an appealing destination for foreign investors.

Come and explore opportunities in Shanghai.