How will the Shanghai Free Trade Zone (FTZ) benefit cross-border investments?

Enterprises in the Shanghai FTZ will be able to directly invest overseas without undergoing time-consuming pre-approval procedures. Instead, a simplified record-filing procedure will be adopted. Also, enterprises in the FTZ will be able to process cross-border currency exchanges, payments and receipts for direct outbound investment directly with banks inside the FTZ.

Qualified individuals employed in the Shanghai FTZ will be permitted to conduct direct outbound investments (including securities) without engaging a Chinese Qualified Domestic Institutional Investor (QDII). Income earned within the zone may be transferred to offshore accounts after tax payment obligations have been met. However, whether or not these investments will be subject to quota regulations similar to those applicable to QDIIs remains to be seen.

Under existing laws, overseas enterprises must engage a Qualified Foreign Investment Institution (QFII) to invest in mainland securities. Inside the FTZ financial institutions and enterprises will be able to invest in and trade in securities and futures listed on Shanghai exchanges directly. Moreover, foreign companies with subsidiaries in the Shanghai FTZ will be permitted to issue RMB-denominated bonds. Qualified foreign individuals employed in the FTZ and who have opened special investment accounts with financial institutions in the FTZ may make investments in mainland China, including in mainland Chinese A share securities markets, which are currently off limits to foreign investors outside the FTZ.