Guideline made for Shanghai pilot zone

The automobile roll-on/roll-off wharf at the Waigaoqiao bonded zone in Shanghai, Jan 17, 2013. [Photo/Xinhua]

In the meantime, Shanghai will develop a mergers and acquisitions investment fund and encourage innovation in private equity and venture capital investment.

The city will also accelerate the establishment of its futures market and introduce treasury bond futures within the second half of this year, according to the guidelines.

According to Ge Yufei, vice-president of SPD Bank's Shanghai branch, the bank has already set up a team to prepare for the launch of these measures.

Initial plans include setting up an office within the Shanghai FTZ, and developing innovative products and services to meet various demands, Ge said.

Various proposed rule changes will help create channels that can lower the cost of funding to businesses. Other provisions would allow rich individuals a much wider choice in where to park their wealth.

There is a proposal that seeks to encourage enterprises undertaking consolidation of production capacity to raise funds more cheaply and simply by issuing preferred, rather than common, stock, which is a financial instrument that consists of both debt with fixed dividends and equity with potential appreciation.

Unlike bonds or other debt instruments, preferred stocks are not counted as liabilities and they don't require the issuers to pay a fixed interest, said Zhang Qi, an analyst with Haitong Securities Co Ltd. What's more, they aren't going to dilute the issuer's share price because there is no increase in outstanding share capital, he added.

Another proposal calls on the authorities to regulate and promote asset securitization that can provide greater funding flexibility for financial institutions.

"The securitization of credit assets could be an innovative method of financing to diversify the risks of lenders as well as increase financing efficiency," said Zhang.

The plan also includes a proposal to progressively lift the control on direct foreign investment by domestic investors. The limited investment channels in the domestic market are widely believed to have forced many wealthy individuals to park most of their money in property, helping to drive prices in major cities to levels fewer and fewer people can afford.

"I am tired of being trapped in the property market and A-share market, making very little profit, so I am keen to go out of the Chinese mainland to make direct investments in overseas projects such as property with high returns," said Chen Yanchuan, a 47-year-old owner of an electronic device company in Wenzhou, Zhe-jiang province.

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