Grant Thornton: Cutting red tape in China’s free trade zones

Reforms in the China (Shanghai) Pilot Free Trade Zone are tackling some of the biggest barriers companies face when building a business in China. Here are four key ways setting up in a free trade zone can help UK business…

Last month Chancellor George Osborne presented Vice-Premier Ma Kai with a white paper on China’s free trade zones, produced by Grant Thornton in conjunction with TheCityUK and China-Britain Business Council.
In Regulating a Free Trade Zone – Simplifying data collection and improving transparency (available for download in both English and Chinese), we looked at approaches to data collection and transparency, and how reforms in the China (Shanghai) Pilot Free Trade Zone are cutting red tape for overseas business and investors, and making it easier to do business there.

These changes will be critical in achieving the aims of China’s free trade zone (FTZ) policy, and many are likely to be applied more widely across the rest of the country in the future. We have subsequently met with officials from Guangdong Province who are rolling out similar reforms over the next year, demonstrating the direction of travel.Some of the major parts of the pilot scheme are as follows:

1. Company formation
While it can take over three months in other parts of the country, the Shanghai FTZ is rolling out an online 'one stop shop' to expedite the incorporation process, cutting it down to around 10 days. This will allow companies to react more rapidly to opportunities – firms will be able to incorporate and start trading in little longer than the time it takes to arrange visas and flights.

2. Annual reporting and public disclosure
An online annual reporting mechanism is being introduced across Shanghai, replacing the requirement for an annual on-site inspection. The information submitted will, in turn, be publicly available. Not only will this reduce the compliance burden for companies in Shanghai, but it will also allow better access to information regarding potential partners and counterparties, allowing better decision-making and reducing the level of risk involved in transactions.

3. Tax data and reporting
The FTZ has introduced a range of innovative tax services designed to move more tax administration online. This includes electronic corporate income tax and VAT registration and filing. There is also a move towards 'post administration'–- shifting more of the supervision and approvals process to take place after transactions have already occurred. These changes will make the compliance process more efficient, and will reduce the need for visits to the tax office, while also allowing opportunities to be seized without the need to wait for approvals.  

4. Customs information
An innovative new customs supervision information system has been introduced in the Shanghai FTZ. This is designed to streamline the system, reduce some of the documentation required, standardise declarations procedures and automate certain clearance checkpoints. Declaration and payment after the entry of the goods will also be allowed in some circumstances, cutting time, cost and the scope for delays.

In summary
The Shanghai FTZ is clearly implementing a ground-breaking approach to data collection in China, and is developing a system that will put it on a par with international best practice.
New pilot systems designed to improve the way data is collected and treated in free trade zones are set to bring considerable benefit to both Chinese companies and international investors. We look forward to seeing them implemented in other free trade zones, and across the whole country, as soon as they are fully tested.

For more information please read the full report