Pornography and gambling businesses banned in Shanghai free trade zone

The new Shanghai Free Trade Zone published on Monday its first negative list, an innovative management approach that increases foreign investors' freedom because any sectors not banned on the list are open to them.

The negative list groups 18 main sectors of the national economy, such as manufacturing, transportation, IT and finance, and further subdivides them into 1,067 subcategories.

A total of 190 special regulatory measures on the 10-page list outline the sectors off-limits to foreign investors, as well as those from Hong Kong, Macao, and Taiwan, within the 28-sq-km free trade zone.

Under the entertainment sector, gambling, sex and pornography businesses are barred.

Other banned areas include exploration of noble metals and rare earths, Internet data centers, compulsory education, transgenic crops, cultural heritage auctions, golf courses, and arms.

Telecommunication, TV broadcasting, and cinema are restricted, and news agencies and websites, publishing and online games remain closed to foreign investors.

Foreign investors may set up hospitals in the free trade zone on condition of a minimum investment of 20 million yuan ($3.27 million) and a maximum operating period of 20 years.

Foreign investment in banking, insurance and securities in the zone remains subject to limitations. Foreign stakeholders may have no more than a 50 percent stake in insurance company, and no more than 49 percent of a securities company.

Foreign investment in land development may be undertaken only through a joint venture, and investing in luxury hotels and office buildings is also limited.

Investment in manufacturing automobiles, railway cars, ships, aircraft and motorbikes must include local partners, as does business in road, rail, water or air transport.

Investment in public projects such as underground railway and high-speed railway projects or nuclear reactor construction is permitted only through a joint venture in which a Chinese company is the dominant shareholder.

Investments in areas not on the negative list do not require approval, but merely that a report is filed with authorities.

This first version of the list will be amended within a year or two, said Dai Haibo, deputy director of the free trade zone's management committee.

Chen Bo, an expert on economy and trade at Shanghai University of Finance and Economics, said the management approach of the negative list was a big step forward compared with the current Catalogue for the Guidance of Foreign Investment Industries, which serves as a "white list", summing up only areas open to foreign investors.

Under the new mechanism, the registration period for foreign investors would be shortened from the current 29 days to a minimum of four days, Dai said.

Chen said he expected the negative list to be further simplified to open more sectors for foreign investment.

Zhang Li, a Commerce Ministry expert on strategic research, said the negative list opens the scope of foreign investment to the maximum possible at this time, and some regulatory measures might be removed from the list over the next two years.

Qu Hongbin, chief China economist at HSBC, said the launch of the free trade zone and introduction of negative list signaled the beginning of a new round of reform.

"A step-by-step release of the FTZ effect over the next three years will steer China's financial reform and mid- to long-term growth," he said.

Sun Lijian, a professor of economics at Fudan University in Shanghai, said that by introducing the negative list, "the Chinese government has made a promise to the world."