What are the most concrete achievements in the first-year operation of the Shanghai Free Trade Zone? What are the difficulties in implementing the negative list management model, conducting innovation in financial markets and arranging in- and after-event supervision? How should people understand the significance of the construction of the Free Trade Zone on transforming government functions? As the China (Shanghai) Pilot Free Trade Zone celebrated its one-year anniversary, Yang Xiong, Deputy Secretary of the CPC Shanghai Municipal Committee, Mayor of Shanghai, and Head of the Leadership Group on Promoting the Shanghai Free Trade Zone, yesterday arrived at the studio of SMG and joined the news channel’s special program of “Talking with Mayor over Night Hotline” on the subject of “first-year operation of the Free Trade Zone”.

 “The past one year was of great significance,” Yang Xiong said. “A year before, I was really a bit concerned as the Free Trade Zone was a new project at all. Just the same day a year ago, we were mainly thinking about how we should open the door well and how we could achieve a good beginning. During the past year, the operation of the Free Trade Zone was generally smooth. But I feel greater pressure than before. Building the Free Trade Zone remains a daunting task. Why did I say so? It’s because we still see a big gap with regard to the requirements by the CPC central leadership and the State Council.”

“In May, General Secretary Xi Jinping visited Shanghai and raised very high requirements on building the Free Trade Zone. He required us to build the Shanghai Free Trade Zone into one with the highest degree of openness. The zone must meet the national strategy to open to the world, to serve the whole country as well as to promote the development of Shanghai into an economic, financial, shipping and trade center.”

“Recently, Premier Li Keqiang visited the Free Trade Zone and also had very high requirements. He required the Shanghai Free Trade Zone to become a leader to further promote reform and opening-up, to create a new highland for reform and to set a new benchmark for opening-up. Therefore, building the Free Trade Zone is a significant national strategy by the CPC central leadership and the State Council. The task is still daunting and we shouldn’t relax our efforts.”

As a test field of the country in reform and opening-up, what did the Free Trade Zone test in the first year and what were the results? Yang Xiong said: “Under the task assigned by the CPC central leadership and the State Council and with the support, help and even direct leadership of state government departments, the Free Trade Zone has experimented a lot of tests, including those in the investment management model, trade supervision, reform and opening-up of the financial sector as well as in- and after-event supervision. All these tests were aimed at facilitating trade and investment and at exploring new channels and accumulating new experience in reform and opening-up on the national level. All these were new to us.”

Yang Xiong said: “The reforms in the Free Trade Zone have realized many concrete results. For example, we for the first time adopted a negative list model with regard to investment management. We made financial reforms a key task based on the approval of the State Council. We also strengthened the in- and after-event supervision. Previously, we didn’t give it a priority or we didn’t accumulate enough experience in it. These system innovations have offered us good experience in further facilitating investment and trade and further promoting reform and opening-up.”

When hearing the changes some companies in the Free Trade Zone felt about the financing environment within the past year, Yang Xiong said that the Free Trade Zone has made many trials in facilitating investment and trade and financial reforms have attracted special attention from companies, especially overseas companies. “With the direct involvement of China’s central bank together with China’s banking, securities and insurance regulatory bodies, the Free Trade Zone unveiled dozens of measures for financial reforms and the key part lies in the convertibility under the capital account. Experts may be divided on the issue. When planning the reforms in the Free Trade Zone, we were already thinking about how to weed out systemic and regional risks as we proceeded with reform and opening-up based on the requirements by the central leadership. We should say that the People’s Bank of China has adopted a quite good model by launching the free trade account. The country’s financial regulatory bodies have adopted prudent measures in the opening-up of the capital account, reflecting the concept of making it ‘categorized and manageable.’ Categorization mainly targets at supporting enterprises with real businesses. We will beef up opening-up in the sectors that serve the real economy well. As for being ‘manageable’, we mean that companies’ capital flows under the capital account must go through free trade accounts in the future. We must have prudent supervision over this account.”

“It needs further observation to see whether such kind of reform strategies and methods can adapt to the development of financial services industry and financial markets for now and for future,” Yang Xiong said. “But this is a very good innovation that not only takes into consideration prevention of market risks but also to some extent realizes capital account convertibility and supports the development of real economy. The reform experiment is promising.”

“According to General Secretary Xi Jinping’s requirement on letting enterprises play a key role, we promoted trade and investment facilitation to offer more convenience to enterprises. Thus the actual feeling of enterprises is an important aspect in the assessment of the zone’s reform achievements. Recently, enterprises offered some good suggestions on the reform trials in the zone and we are considering how to further improve our work. Reforms in the zone also include transformation of government functions. After the reform, the government should listen more to the views of enterprises, help firms solve problems and at the same time create a fair, efficient and unified business environment.”

“By listening to enterprises’ demand, we must adhere to a problem-oriented measure,” Yang said. “We should pay more attention to the difficulties enterprises have encountered and analyze whether it is a result of market competition or it is due to policy and system issues. It enables us to be more targeted no matter in reforms and opening-up or in policymaking. It makes enterprises feel that we are solving problems rather than engaging in formalist reform. During the construction of the zone, we should pay close attention to the experience of enterprises, otherwise it becomes a self-amusement.”

Among many system innovations initiated by the zone, the negative list method attracted tremendous attention. What is the negative list? What does it mean? Can foreign investors do anything beyond the list? In this regard, Yang explained that the negative list was first used during the negotiation between countries and it was always related to foreign investment. When a foreign investor comes to a country, it may request to enjoy national treatment. Actually, there is no country that offers full national treatment to a foreign investor. Management measures are divided into two categories. One is qualified for national treatment and the other is not qualified. The category that is not qualified for national treatment is called inconsistent measures, which means it’s inconsistent with national treatment. The negative list is a list of inconsistent measures. It includes two sub lists. One is the list of measures and the other is the list of industries. The negative list specifies all the restrictions on foreign investment clearly.

Yang said the implementation of the negative list has a dual meaning. “On one hand, the negative list replaced the previous approval-based system for foreign investment. Foreign investments in areas beyond the list can enjoy national treatment and are free from regulatory approval. The list also includes some special management measures such as approvals and requirements. On the other hand, the introduction of the negative list is significant for us to comprehensively deepen reforms, transform government functions and allow the market to play a decisive role. We don’t have this kind of system for domestic enterprises either. For example, domestic enterprises are not equal in enjoying national treatment. It varies with corporate ownership. The negative list is beneficial for the ongoing reform on the approval-based system. It’s a good starting point for us to correctly handle the relationship between the government and the market.

“Setting up the negative list actually raised a lot of new questions and new challenges for us,” Yang said. “The implementation of the negative list does not mean there are no needs for government management. It only cancels the approval procedure but requires in- and post-event supervision. That is a shortcoming of ours. In the past, we have been focusing on approvals and have supervisory problems after granting approvals. This is one of the reasons why some of our sectors are not quite open. During the reform process in the zone, six measures including safety review, antitrust review and credit system construction have been introduced in a bid to establish a relatively complete in- and post-event supervision system. It involves revision of government ideology, management methods, policy measures and even laws and regulations. It involves a large amount of work and a high level of difficulties.”

“Policy innovations such as the negative list need to dovetail with the international rules. Currently, global investment and trade climate is changing continuously. Some developed countries are formulating new international norms for investment and trade. We need to study these norms and adapt to them. But for those rules that are not in our benefits, we should have our voice heard. It is a globalized world and the norms should be formulated by all members together. Once the norms are set, we need to adapt our internal mechanism to meet the requirement. Otherwise, there will be hurdles for taking part in international economic activities. On one hand, we should participate in the rule-setting process. On the other hand, we should actively remold our internal mechanism to gain benefits for our companies in the global competition. Following the requests of General Secretary Xi Jinping, Shanghai is striving to make its pilot Free Trade Zone a highly open area that can enable companies to go global more easily. It is not a matter of two or three years: many things need to be done. But from a long term perspective, it is the right path.”

How to evaluate the achievement of the pilot Free Trade Zone in the past year? Yang Xiong said: “There are three perspectives. The first one is from our own summaries; the second is from companies, most of which are quite objective; the third one is from the independent institutions, which offer a neutral perspective. Now we have invited third-party institutions from Beijing, Shanghai and one foreign-funded institution to do evaluation. We want to evaluate it fairly, which will guide us in the following work.”

“Whether policies can be expanded or not is another standard to evaluate the success of the pilot Free Trade Zone. The top leadership requires us to formulate a batch of duplicable and expandable policies. We are working on the selection of policies, and deciding on what for duplication, what for expansion, and under what kind of circumstances. It is important that departments under the State Council should give advice and make decisions. We hope the pilot Free Trade Zone can move steadily forward based on the requests of the central government, creating a better business environment and a set of rules dovetailing with the international norms. The rules should adapt to the laws of market economy; and at the same time, they should get in line with the new investment and management supervision under our socialism with Chinese characteristics, helping to push forward China’s financial reform and opening-up policies.”

Talking about the past year of building the Free Trade Zone, Yang Xiong said “It is a big test to all of us! I am reminded of my experience of sitting the college entrance examination in Yunnan Province in 1977 when we were demanded to write an article on the theme of “overcoming difficulties.” I am in a similar mood now because there are so many difficulties waiting for us to overcome. It is an exam. During the preparation stage, we are under great pressure. And now, we have to be focused and get fully committed to the mission. Like Marshal Ye Jianying once said, we should be fearless, no matter in fighting or in learning. What we are facing is more complicated. For us, such “exam” comes once a year and every trial on policy innovation is an exam as well. But I hope such pressure can be turned into motivation, which makes us excited and energetic. We are confident and determined to accomplish this mission, and to deliver a satisfactory result for this exam.”