Implications of FTZ for overseas investors

Experts emphasise the implications of the China (Shanghai) Pilot Free Trade Zone on corporate sectors for overseas investors.

The China (Shanghai) Pilot Free Trade Zone has shone a light on investment opportunities in several sectors in the country through negative and positive lists, according to Fitch.

A “negative list” was released on September 30, comprising hundreds of foreign investment restrictions in 18 sectors, while a “positive list” was created by Fitch based on its understanding of the FTZ and policies from the central government.

For foreign investors who hold domestic bonds or equities of state-owned enterprises, and are eager to figure out which companies are likely to benefit from China’s financial reforms, the negative list is a good gauge of the sectors Beijing views as strategically important and will therefore protect from competition.

Some sectors, including agriculture, transportation, nuclear power, power grids, telecoms, as well as oil and gas, are regarded as strategically significant to the country and state monopolies will remain.

"SOEs in the strategic sectors may enjoy monopoly positions and strong pricing power, which may help boost investor confidence in them,” said Wang Ying, a Shanghai-based director with Fitch.

In sectors such as ferrous metals and electricity power, which are suffering from excessive capacity surplus, or sectors with ideological influence such as media, the government will also remain in control and continue to provide subsidies to the companies

Having said that, the FTZ is also an experiment for liberalising market access to facilitate international investments in several sectors, including consumer and retail, professional services, technology and healthcare, said experts.

“The negative list will gradually reduce. The service sector [in particular] will open to more people such as solely owned or wholly owned foreign institutions,” said He Dong, a researcher and an executive director with Hong Kong Monetary Authority, at the Pacific Trade and Development Conference, on Monday.

“I think that’s of fundamental significance because the next stage of development for China’s economy is really to open up its service sector,” he said.

Other sectors, such as shipping and logistics, education and culture, are also high on the “positive” list. Given their strong growth potential, these sectors will benefit from the liberalisation of the market and lowering of ownership restrictions.

“The [negative and positive] lists of FTZ are windows that reflect the Chinese government policy for different sectors. Foreign investors can make investment decisions based on the corporate sector analysis,” said Wang.

More than 200 companies have set up in the FTZ, the country’s first experimental free trade area, compared to 20 when it started on September 29. The negative list is expected to be evaluated and adjusted by the government in 2014. 

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