Move aims to optimize division of labor, save logistics costs, access consumers

While witnessing many commercial firsts, the China (Shanghai) Pilot Free Trade Zone in the city's Pudong New Area has never stopped forging new paths.

An offshore intermediary trade services center was officially launched in the Shanghai FTZ on April 13. Demand for intermediary trade－a novel commercial form in which the transport and delivery of goods takes place overseas while settlements are dealt with domestically－h(huán)as been on the rise among multinational companies in the Shanghai FTZ.

As explained by Xie Lei, COO of Carl Zeiss (Shanghai) Co Ltd, the company originally had to first import goods into China and then export them to third-party countries. But now, once the China-based unit receives an order, the German headquarters can directly deliver products to clients outside China. The China enterprise only needs to submit verification documents and relevant reports to the management committee of the Shanghai FTZ.

The introduction of offshore intermediary trade is one of many attempts that the Shanghai FTZ has made over the past seven years. Up to 100 policies first tested here, such as the negative list mechanism for foreign investment, have now been promoted nationwide.

During his keynote speech delivered at the opening ceremony of the first China International Import Expo held in Shanghai in November 2018, President Xi Jinping announced the inclusion of new areas into the Shanghai FTZ, which was the second expansion since it was launched in 2013. As Xi explained, additional exploration should be made in Shanghai to further facilitate investment and trade so that more policies can be promoted across the country.

Chen Yanfeng, deputy head of the management committee of Shanghai FTZ's bonded area, said offshore intermediary trade will facilitate commerce by lowering logistical expenses for companies. It will also heighten the role of Chinese branches within multinational groups, which in the long run will encourage more MNCs to set up regional headquarters in the Chinese municipality.

Publicly available information shows that Shanghai is now home to 730 regional headquarters of multinational companies, among which over 600 are located in Pudong. Up to 109 of them are based in the bonded area of the Shanghai FTZ.

Itochu Textile (China) Ltd, now located in the Shanghai FTZ, arrived in Shanghai more than two decades ago. In early April, the group upgraded its Shanghai branch to its China headquarters. According to the company's general manager Tsuji Takayoshi, the efforts the municipal government made to deepen reform and opening-up, which translated into a better business environment, are the major reasons behind Itochu establishing its regional headquarters in Shanghai.

"China has been one of the most important markets for Itochu Corp. Shanghai is not only a gateway for multinational companies to tap into more parts of China, but a bridge connecting to the rest of the world. The setting up of the regional headquarters in the Shanghai FTZ will further consolidate our roots in the Asia-Pacific market, thus facilitating expansion," he said.

German chemical giant Covestro is upgrading its regional headquarters in the Shanghai FTZ, further expanding its scope to include functions such as R&D and accounting.

"This upgrade is based on the needs of Covestro's development in China with an aim of further optimizing the division of labor and cooperation among all relevant business units, getting closer to the consumer market and serving customers more quickly and effectively," said Holly Lei, China president of Covestro.

Lei said Shanghai has always attached great importance to the development of foreign-funded enterprises. The move symbolizes a further upgrade in function for Covestro, which is expected to create good opportunities in China and strengthen the company's confidence in both China and Shanghai.

She is encouraged by a string of policies introduced by local authorities to bolster business, such as the 3.0 version of the business environment reform plan, 32 measures to strengthen investment and promote investment and 24 measures to further utilize foreign capital.

"We are deeply impressed by the efforts of the Shanghai municipal government and the Pudong New Area government to open wider to the outside world, improve the trading environment, investment, rule of law, production and living standards, as well as nurture talent development."

Irish pharmaceutical company Allergan entered China in 2009. In early April, Allergan set up a regional headquarters in the Shanghai FTZ that combines investment, services, operations and management. The move came less than one year after the group invested more than $18 million in Shanghai to set up a medical devices company.

Allergan China President Wang Wei said the establishment of the headquarters in Shanghai will serve the group's strategic development in China and possible business integration in the future.

"Even during the most difficult days when COVID-19 hit the country hard, we did not lose confidence in the Chinese market for one day. It is our long-term goal to increase our market share in China by seeking more cooperation. The regional headquarters in Shanghai will help to elevate the group's performance in the entire Asian market," Wang said.