Special article for Shanghai Free Trade Zone （FTZ）
Topics: Inside Shanghai FTZ
Original title：“The Best Witness” Zhan Xu: I hope to take advantage of the Free Trade Zone to let the “China Strategy” take root in Shanghai
Source: China News Service, Shanghai, 20 September
Written by: Li Jiajia
Zhan Xu, director of Volvo Construction Equipment Investment (China) Co., Ltd., has been associated with the Shanghai Free Trade Zone for over half of his career, and especially so in December 2014, after the Free Trade Zone expanded its area to 120.72km2 including the Jinqiao Development Area, during which Zhan Xu experienced the innovation of two institutions closely related to his business.
“I have been working here since the establishment of the Shanghai Free Trade Zone. But I have been associated with Pudong since as early as 2003. It can be said that I have had an understanding of the situation since before the establishment of the Free Trade Zone, and I also understand the changes from after the establishment of the Free Trade Zone. A fast development is familiar to me.”
The latest institutional innovation achievement in the Jinqiao Area of the Shanghai Free Trade Zone is related to Volvo Construction Equipment. It is a special imported item, a “remanufactured” engine sprayed in green paint, which was delivered from a Swedish remanufacturing factory, across the ocean.
The remanufacturing industry is an important part of the development of circular economy. “In the past, such foreign ‘remanufactured’ products were usually regarded as old parts and were not allowed to be imported.” Zhan Xu told reporters that companies had always had this demand for innovative measures to be introduced in the free trade zone, and now enterprises and the government have truly worked together. “Substantial advancement in this field began in the second half of last year.”
“I can feel that this time is very different from the times before. Multiple government departments come to our ‘remanufacturing’ workshop to listen to the company’s analysis, and also learned about the development and specific practices of related foreign industries with the company. From this basis, everyone formulated a joint plan, which is the imported remanufacturing pilot.” Zhan Xu said that he prefers to call this plan the result of teamwork, “The company is not fighting alone, and it is not just the government that dreams about it alone, but both the company and the government working together to study specific issues and jointly use their talents to finally form a pilot plan.”
Stepping into the logistics warehouse of Volvo Construction Equipment, the first pilot-imported “remanufactured” engine is placed in a most conspicuous position. Visually, there is no difference from the new machine. Zhan Xu said that this old engine has been transformed into a brand new machine after going through the unique process of Volvo’s Swedish remanufacturing plant. “It will bear the ‘remanufactured’ mark and undergo a round of global standardized testing to meet all standards before being shipped. It can be said that there is no difference between it and a new machine in terms of performance and appearance, and even the warranty. The deadlines are exactly the same as new machines.”
Zhan Xu said that the import of “remanufactured” products will not only create no extra pollution to China’s environment, but will also greatly enrich the sources of China’s industrial product imports. It can make up for the shortage of domestic remanufactured raw materials and reduce costs while also expanding product production capacity and manufacturing capabilities to form a green virtuous cycle.
In fact, the “remanufactured” product pilot is not Volvo Construction Equipment’s first attempt to participate in the institutional innovation of the Shanghai Free Trade Zone. From as early as 2018, Volvo Construction Equipment relied on the institutional innovation of the Shanghai Free Trade Zone to overcome the long-standing cross-border settlement problem and completed its first offshore trade business under the “One Belt, One Road” initiative.
At that time, the Nigeria Zonglu Hydropower Station Project of China Water Resources Bureau No. 8 ordered two 30-ton excavators from Volvo, each priced at nearly US$200,000. After the excavators were produced in Volvo’s Korean factory, they were directly shipped to Nigeria. All transportation occurs overseas, while the foreign exchange collection and payment process is completed through the Industrial Bank Free Trade Zone Branch in China, achieving a breakthrough in offshore trade. Enterprises will no longer have to watch hundreds of millions of yuan in annual turnover overseas.
While speaking of this event, Zhan Xu is deeply impressed: “After the path for cross-border offshore trade is opened, it means that our colleagues can settle businesses around the world while sitting in their offices in Shanghai.” Moreover, this system innovation has also an additional gain generated; “The Volvo Group headquarters agreed to move the Asian headquarters to Shanghai, because here we can operate many businesses that could have only been overseen in Singapore in the past, thus realizing the goal of serving the entire Asian market, and especially China.”
Institutional innovation breaks down trade barriers and benefits companies greatly. For the government, breaking information asymmetry between the two and having the courage to innovate and try requires an open concept and a positive attitude. Looking back on the two pilot projects of Volvo Construction Equipment, Zhou Li, director of the Commercial Trade and Service Industry Promotion Division of Jinqiao Administration Bureau of the China (Shanghai) Pilot Free Trade Zone Management Committee, says that, the free trade zone needs to open the first line, but why is there an information disconnect between enterprises and the government? Because firstly there is an information asymmetry between the regulatory authorities. The second line may be controlled when the crux of the problem is resolved. “If not, everyone will have doubts, so we must start from this aspect.”
For example, in the mentioned cross-border offshore trade pilot, three aspects of work are completed: first, with the support of relevant regulatory authorities, an information supervision platform is established and all companies in need are gathered on this platform in accordance with the whitelisting method; second, commercial banks with the willingness and ability to innovate to undertake related businesses are found; the third and most important point is that enterprises themselves also have a strong desire to innovate, and their needs are the source and vitality of institutional innovation in the free trade zone. “In the end, the company’s courage to make breakthroughs and active cooperation contributes to the realization of innovative results,” Zhou Li said.
In the past ten years, the Shanghai Free Trade Zone has always insisted on “building a highland for institutional innovation rather than a lowland for preferential policies” and “planting a nursery rather than forming one bonsai”. In this regard, Zhang Yong, deputy dean of the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University and deputy director of the Shanghai Finance and Development Laboratory, agrees: “If we look at it from a historical perspective, we have made a lot of ground-breaking journeys in the past ten years, and institutional innovation is one of the key factors. At its core, it is not as obvious and quick as policy preferences, but its effect is long-term.”
Looking back at the future of Volvo Construction Equipment,, Zhan Xu bluntly said that he has high expectations. “On the one hand, we hope to use the flexibility of the free trade zone to further sort out and plan Volvo’s innovative business. More importantly, we hope to take advantage of the free trade zone to enhance the functions of our Asia headquarters so that our ‘China strategy’ can be deeply cultivated and take root here.” (Enditem)
