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Latest guidelines for Pudong New Area aim to attract foreign investment

The Pudong New Area, located in eastern Shanghai, has become in the past three decades one of the most vibrant and highly developed areas in China. Recently, a new set of guidelines was announced by the government containing key policy incentives to attract foreign investment and revamp several industries, such as finance and health care.

The 1,210 sq km area situated on the east bank of the Huangpu River, with a population of 5.57 million people, has been for a long time a strategic zone for testing new policies and initiatives to drive consumption, economic growth, and technological development.

On July 15, 2021, the Communist Party of China’s Central Committee and the State Council released a new set of guidelines to build the Shanghai Pudong New Area into a “pioneer area for socialist modernization”.

The guidelines propose several measures, including new policies and reforms to allure foreign investment to the area, making this already investor-friendly zone even more attractive to overseas companies, traders, and investors.

According to experts, with its focus on the "dual circulation" paradigm, Pudong will be the hub of China when the country becomes the world's largest economy by 2035. The guidelines aim to assist the Pudong New Area in forging its leadership position and driving Shanghai's efforts to lead Yangtze River Delta integration. By 2035, Pudong’s modernized economy will comprehensively be established, modern urban area built, and modern governance fully realized.

By 2050, Pudong should become an important urban area that is highly attractive, creative, competitive and influential internationally, as well as continue to pursue reform.

Despite its obvious ambition, the new guidelines do not provide specific measures for implementation or criteria for eligibility; rather, they outline provisions for future policy roll-out in order to meet the area’s development goals.

Today, Pudong is base to over 350 foreign headquarters, including multinationals such as DuPont and GlaxoSmithKline, as well as the first Tesla Gigafactory outside the United States, and the Shanghai Disney Resort.

The latest guidelines come as part of a new phase of the area’s development. Nevertheless, analysts speculate that this move could be a reaction to slowdowns in economic growth and headwinds from the US-China trade war, tasking Pudong with the difficult job of implementing successful measures to revitalize growth and consumption.

China has utilized Pudong as a key component to improve its competitive edge in high-tech sectors, and Shanghai has singled out four key areas to encourage innovation: artificial intelligence (AI), integrated circuits (IC), biopharmaceuticals, and civil aviation.

With this in mind, the guidelines propose an expansion of the 15 percent corporate income tax (CIT), down from the standard of 25 percent, for companies involved in these four sectors in “specific areas” of Pudong.

The reduced CIT would be in effect for five years from the date of the company’s registration in Pudong, unlike other regions that require companies to have been established at least three years before getting the tax reduction. The guidelines do not mention which areas of Pudong will enjoy the reduced CIT or specify exactly what criteria companies must meet to be eligible.

In July 2020, the Shanghai Municipal Finance Bureau announced an expansion of the reduced 15 percent CIT in Pudong’s Lingang New Area for companies engaged in these four key sectors (AI, IC, biopharmaceuticals, and civil aviation).

The policy proposed in the new guidelines would expand this reduced CIT for companies engaged in these four sectors to other areas of Pudong and are likely to follow similar requirements to the existing tax policy in Lingang. However, it remains to be seen exactly which areas will benefit from the reduced CIT and whether the criteria for eligibility will differ.

The guidelines include areas for renewed development, specifically Zhangjiang Science City, a 79.9 sq km zone which houses several industrial parks, many dedicated to high-end technology and medical industries.

The Shanghai government is keen to bolster medical R&D in Pudong by implementing measures that make it easier for research institutes and laboratories to acquire the equipment they need.

To facilitate R&D in some of these key industries, the guidelines propose waiving import-related taxes (import value-added tax and import consumption tax, where applicable) for key laboratory consumables and equipment, as well as relaxing restrictions on certain research areas.

Facilitating the employment of high-end global talent and loosening restrictions on skilled professionals in high-tech industries is another measure suggested to allure foreign investment to Pudong.

The reform of Pudong’s financial system is another key element in the new guidelines, which include opening up the market to foreign investors and traders.

One such proposal is the creation of an international financial asset trading platform in Pudong. This would permit foreign investors to use RMB to issue and trade shares on the Shanghai Stock Exchange Science and Technology Innovation Board (also known as the STAR Market) through the Qualified Foreign Institutional Investor (QFII) program.

Another significant suggestion is to research and explore the implementation of a pilot program for RMB foreign exchange futures trading under the China Foreign Exchange Trading System (CFETS). The guidelines call for supporting Pudong to develop an offshore financial system for RMB transactions, cross-border trade settlement, and overseas financing services.

According to the guidelines, Pudong aims to improve the foreign debt management system and increase the number of foreign investors engaged in Shanghai’s bond market. Pilot reforms would be implemented to simplify foreign debt registration in Pudong.

Regarding data regulation, the guidelines suggest the creation of a mechanism for data trading, including an “international data port” and a “data exchange” and the establishment of standardizing the definition of data ownership, data sharing, and data transactions, as well as data supervision and management.

In intellectual property, the guidelines call for the creation of an IP protection system and stronger punitive measures for IP infringement.

According to public information, since 1990, when the central government decided to allow Shanghai to accelerate the development of the Pudong area, the district has made outstanding achievements, with its GDP exceeding 1.2 trillion yuan ($185.8 billion) in 2019.

The new guidelines can be seen as a continuation of Pudong’s legacy of pioneering reform and achieving considerable growth through effective policy incentives.


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