Shanghai Currency Free Trade Zone Opening

The Shanghai pilot currency free trade zone officially launched on September 29th, granting 25 Chinese and overseas companies licenses to register in the free trade zone on its first day. The state council issued a list of 18 service sub-sectors in 6 broader sectors that should enjoy a faster pace of deregulation in the future, and will serve as a policy framework for the free trade zone. The initial list for faster deregulation sub-sectors include banking, healthcare insurance, financing and leasing, overseas shipping, shipping management company, telecom value-added services, games sales and services, legal services, credit information agency, travel agency, recruitment agency, investment management, engineering design, construction services, entertainment agency, entertainment facilities, education training, professional skills training, and medical services.

Since its first opening, companies have been flocking to open an office in the free trade zone. Many believe the slots for companies will be limited and an investment in establishing a company in the free trade zone would be a good investment for the future. 

In addition to companies, all the major banks have established offices in the free trade zone to handle the predicted increase of currency settlements in the zone (due to the fact that currency exchange will be unregulated in the zone). The government has also been encouraging private banking entities to establish locations in the zone.

Free Currency Trade Zone in Shanghai

Premier Li Keqiang pushed through a bid to open a landmark plan for a free-trade zone in Shanghai. The trail will be launched in Shanghai's Pudong New Area (Waigaoqiao port, Yangshan Deep-Water Port and Pudong International Airport) as early as the end of this year. The "free" in Free Trade Zone means:

Free to export and import: No tariff barrier or non- tariff barrier; All the cargos conforming to international practice can enter the free trade zone without limitation.

Free to invest: No restraint of trade or operation because of the countries.

Free to exchange: Free to exchange currency; Free to inflow and outflow; Free to transfer; Free to operate; No national treatment or non- national treatment.

China's "New" 20% Capital Gains Tax on Property Sales

To curb the rapidly rising real estate market, the new Chinese leaders recently announced that they will be enforcing the 20% capital gains tax on the sale of real estate. This means that for any property that is sold, there is a 20% tax on the profit from the sale. This tax is not new, but has not been enforced in past years. An individual's primary residence and those properties held for 5 years or more are currently exempt from this tax.

The goal is to curb speculation in the Chinese real estate market and avoid a housing bubble like the U.S., however, there have been a number of side effects from this measure:

1.  The measure has increased the sales volume of real estate in China. Those people who were previously on the fence about selling or buying have rushed to sell/buy their house before this new measure becomes effective.

2.  The measure will increase the price of used housing in China, because sellers will inevitably pass the tax onto buyers. However, the measure will help real estate developers, because new houses are not subject to such tax and new construction will become more competitive in the market.

3.  The measure has caused an unprecedented number of couples to file for divorce. Since each individual/family will have their primary residence exempt from the tax, couples are divorcing and putting one house under each person's name to "shield" 2 houses from the tax. However, there is a number of people that are advantage of this "fake" divorce tactics to really divorce their spouses. Many unsuspecting spouses were tricked into signing the divorce papers to later find that their spouse considered the divorce real.

Many are skeptical that this measure will last, but for now just buy a brand new house.