The Plan introduces a number of changes to the current regulatory framework for foreign investments within the Zone:

• relaxation of certain foreign investment restrictions within the Zone for 18 service industries spanning six service areas, such as eligibility requirements for foreign investors, foreign shareholding limits and business scope restrictions;
• introduction of a “Negative List” approach towards foreign investment in the Zone, with foreign-invested entities operating in industries that do not appear on the “Negative List” subject to “post-filing” requirements, and no longer needing foreign investment approvals from the Ministry of Commerce (the “MOFCOM”) and the National Development and Reform Commission (the “NDRC”). (Some approvals may, however, still be required as the national security review and anti-trust rules still apply);
• simplification of approval requirements for investments by Zone enterprises outside of China; and
• facilitation of further financial reform and promotion of new forms of trading within the Zone.

Whilst it is still too early to fully assess the impact of the Plan as the practical implementing rules in a number of areas are still awaited, the Plan has been warmly welcomed by investors. The banking sector for example has reacted swiftly to take advantage of the lessened restrictions, with eight domestic bank (1) and two foreign banks (2) already having applied for, and received permission, to open branches in the Zone.
Set out below are further details of the Plan.
Geographical coverage
The Zone consists of the following areas: (i) the Shanghai Waigaoqiao Free Trade Zone; (ii) the Shanghai Waigaoqiao Bonded Logistics Zone; (iii) the Shanghai Pudong Airport Free Trade Zone; and (iv) the Yangshan Free Trade Port Area, with an indication that the Government is willing to expand the Zone once it has the opportunity to assess the success of the pilot project. Any existing rules relating to these areas which conflict with the Plan will be adjusted as necessary in the future.
Opening up of certain service industries
The Plan removes certain foreign investment restrictions within the Zone for 18 service industries spanning six service areas, namely financial, shipping, commercial and trading, professional, cultural and social services. In a number of areas, however, further implementing rules are required before full advantage can be taken. Set out below are some highlights of the changes introduced by the Plan.

1. Financial services: within the Zone the Plan permits (i) qualified foreign financial institutions to set up banks; (ii) qualified PRC private investors to set up joint venture banks with foreign financial institutions; (iii) qualified Chinese banks to undertake offshore banking; and (iv) foreign investors to set up healthcare insurance institutions. In addition, the Plan contemplates establishment of banks which only conduct a limited and specific business (as opposed to a comprehensive banking business) at some point in the future.
2. Commercial and trading services: the Plan permits foreign-invested entities to provide certain value-added telecommunication services within the Zone, as long as network safety can be guaranteed. The Government has, however, reserved the right for State Council approval to be required if the detailed implementing rules conflict with the existing rules, leaving scope for State Council approval to continue to be required.
3. Professional services: within the Zone the Plan permits: (i) establishment of Sino-foreign human resources joint venture companies (in which foreign shareholders can hold up to 70% of the equity interest); (ii) establishment of foreign-invested joint stock investment companies; and (iii) foreign-invested entities to set up credit investigation companies.
4. Social services: the Plan permits foreign investors to set up wholly foreign-owned hospitals and other medical institutions within the Zone.

Adoption of a “Negative List” approach
The Zone adopts a “Negative List” approach towards foreign investment, with the set up of foreign-invested entities operating in industries which are not on the “Negative List” subject to reduced administrative hurdles and giving them broadly comparable treatment to domestic enterprises in terms of set up. Under the “Negative List” approach, foreign-invested entities in industries that do not appear on the “Negative List” will generally only need to make relevant filings with the Shanghai municipal government on establishment in the Zone and will no longer need to obtain prior foreign investment approvals from the MOFCOM and the NDRC. However, some foreign investment approvals may still be required as the national security review and anti-trust rules still apply to any foreign investments in the Zone.
Scope of the “Negative List”
The “Negative List” was issued on 29 September 2013 by the Shanghai municipal government, revealing the full extent of industries no longer subject to the “prior-approval” system. Comparing the “Negative List” with the current Catalogue of Industries for Guiding Foreign Investment, a number of “encouraged” industries included in the Catalogue are absent from the “Negative List”, with investments in these industries within the Zone therefore not requiring prior foreign investment approval. Most of the “restricted” and “prohibited” industries featuring in the Catalogue, however, remain on the “Negative List”, with the “Negative List” going even further in some cases, and including some industries which are not expressly prohibited under the Catalogue, such as investment in online gaming operations. Set out below are some examples of the impact of the “Negative List” on certain industries.

1. Manufacturing: the “Negative List” reflects most of the “restricted” manufacturing industries mentioned in the Catalogue (for example, production of rice wine and other famous-brand spirits), which therefore still require prior foreign investment approval. The principal foreign investments in manufacturing industries that are now only subject to “post-filing” requirements in the Zone include “encouraged” foreign investments in agricultural and in by product food processing businesses (for example processing of vegetables, dried and fresh fruit and livestock and poultry products), food manufacturing businesses (for example development and production of infant food and health food), drink manufacturing businesses, the tobacco industry, the textile industry and the pharmaceutical industry.
2. Agriculture, Forestry, Animal Husbandry and Fishery: foreign investments which fall under the “encouraged” category in the Catalogue (for example development of new planting technologies for crops) are absent from the “Negative List”, meaning they will only be subject to “post-filing” requirements within the Zone.
3. Telecommunication, Intellectual Property and Finance: these industries, which are categorised as “restricted” in the Catalogue, are still tightly controlled by the Chinese government and all feature on the “Negative List”.
4. Medical and Social Work: the “Negative List” requires a minimum investment in any medical institution in the Zone (other than social service institutions for the elderly, disabled and children) by a foreign investor of a minimum of RMB20 million. In addition, a foreign-invested medical institution established in the Zone cannot set up branches and its business licence is limited to 20 years.

Filing requirements
On 29 September 2013, the Shanghai municipal government also published details of the filing requirements for foreign investors setting up foreign-invested enterprises, and participating in foreign investment projects, in the Zone in industries that are not included on the “Negative List” (i.e. those no longer subject to the usual prior foreign investment approvals). Both filings, which can be made concurrently, need to be made with the Administration Committee of the Zone, with the Committee having to process filings within a specified timeframe from receipt of all submission materials (one business day for the establishment of foreign-invested enterprises and 10 business days for participating in foreign investment projects).
Promotion of outbound investment from the Zone
Promotion as set out in the Plan
Currently, any investment by a PRC entity outside of China requires approvals from the NDRC and the MOFCOM. The Plan simplifies the process for outbound investments by entities set up in the Zone (excluding central-government owned enterprises), with outbound investments originating from the Zone that are within the authority of approval of the Shanghai municipal government being subject, in most cases, only to post-filing requirements. Certain outbound investments, however, fall outside the remit of the Committee’s jurisdiction if they involve investment into any country that China does not have a diplomatic relationship with, countries that are subject to international sanctions or any industry that the NDRC considers to be sensitive. The Plan also encourages the establishment of project companies in the Zone focused on investments outside of China and supports the set up of funds, aimed at qualified investors, which invest in non PRC investments.
Filing requirements
The Shanghai municipal government has also published details of the filing requirements for investments in overseas projects and for the set up of overseas entities. The filings with the Committee, which can be made concurrently, must be processed by the Committee within five business days of receipt of all submission materials. Any investment and set up must take place within two years of the filing.
Furtherance of financial sector reform
Liberalisation of Renminbi
The Plan promotes liberalisation of the Renminbi, although at present only in general terms as the implementing rules have not yet been issued by the State Administration of Foreign Exchange. Provided risks can be controlled, the Government proposes full Renminbi convertibility for capital accounts within the Zone, with entities established in the Zone to be permitted to conduct cross-border capital account transactions, such as share acquisitions, with fewer foreign exchange restrictions. The Plan further contemplates that, in the future, there will be further trial projects for cross-border Renminbi use and cross-border financing will be liberalised for entities within the Zone, giving them full access to both domestic and foreign finance, without restriction.
Further financial reform
Under the Plan, interest rates for financial markets within the Zone will be determined by the market, enabling banks in the Zone to potentially offer higher interest rates than other banks in the rest of China. Foreign entities will also gradually be allowed to trade commodity futures within the Zone. The Plan touches on a number of different sectors and the China Securities Regulatory Commission (the “CSRC”), the China Banking Regulatory Commission (the “CBRC”) and the China Insurance Regulatory Commission (the “CIRC”) have already issued high-level endorsements for the Plan.
For example, the CSRC has expressed its support for qualified enterprises and individuals in the Zone being able to invest in the PRC and overseas futures markets, and for securities and futures institutions within the Zone to develop OTC trading businesses aimed at domestic investors for commodity futures and financial derivatives products. The CSRC also allows foreign parent company of an enterprise established in the Zone to issue Renminbi bonds in the PRC market. The CBRC has expressed its support for banks within the Zone to be able to conduct cross-border investments, including providing loans for cross-border transactions. Additionally, the CIRC has expressed its support for insurance companies setting up branches in the Zone to conduct Renminbi cross-border reinsurance businesses, and for insurance institutions established in the Zone to make outbound investments.

Promotion of new forms of trading
The Plan sets out various measures to promote new forms of trading. For example, the Plan encourages multinational companies to establish their Asia-Pacific headquarters in the Zone, and the set up of an international trading settlement centre in the Zone. The Plan also mentions the possible future set up of an international commodity exchange and resources allocation platform within the Zone to promote international commodity trading of energy products, basic industrial raw materials and primary agricultural products free from customs duties, a step expected to facilitate free flow of domestic and foreign commodity products.