Volvo Construction Equipment, an arm of Sweden’s Volvo Group, said it plans to move its Asian headquarters from Singapore to Shanghai.
The reason for the shift is a new set of policies in China(Shanghai) Free Trade Zone, allowing foreign businesses headquartered in the zone to conduct offshore business.
Foreign companies used to set up operations in China focused only on business in the domestic market, but policy changes now permit them to engage in offshore trade.
Last year, the Shanghai arm of Volvo Construction Equipment was the first company in the trade zone to complete an offshore transaction, with coordination from the Shanghai government, supervisory authorities and banks.
It shipped two excavators from its South Korea factory to Nigeria as part of China’s “Belt and Road Initiative.” The machinery itself did not go through Shanghai, but all the paperwork, including orders, capital transfers and insurance, were arranged in Shanghai.
“Previously, policies here meant that we had to do offshore trade through Volvo Asia in Singapore,” said Zhan Xu, vice chief executive of Volvo Construction Equipment in China.
Sales of the Shanghai operations now account for more than half of Volvo Construction Equipment’s global revenue, and the company said it expects to increase its Shanghai-based offshore business.
The new policies are part of Shanghai’s ambition to become an international trade center.
In the case of Volvo Construction Equipment, they also deliver a 1-billion-yuan (US$140.8) tax bonus for Shanghai, Zhan said.
The Lingang Special Area set up last year as part of the free trade zone is designed to create a cluster of multinational headquarters to develop deeper international trade.
“In essence, the new development is offshore trade, with corporate headquarters integrated with international finance,” said Zhang Yong, a researcher with the Comprehensive Institute of China (Shanghai) Pilot Free Trade Zone at Fudan University.
“For Shanghai, the aim is to attract multinationals to establish headquarters in Shanghai and conduct supply chain management here.”
Volvo’s Zhan said the company plans to move a whole set of related service industries, including legal affairs, tax and audit operation to Shanghai from Singapore.
“This is a typical benefit for Shanghai from offshore business, which will help the city improve its capacity of allocating global resources,” said Yang Chao, vice director of the Shanghai Municipal Commission of Commerce.
To form a comprehensive offshore trade center, customs and the banks all have to undertake reform in their policies and work practices.
For example, if the goods could not be inspected by customs in the past, it was impossible for relevant certificates to be issued. Without them, banks could not conduct foreign-exchange transaction related to the goods.
The Volvo China example shows how Shanghai has come up with solutions.
Zhan cautions that the new offshore business is at an early stage and will need carefully nurturing form all involved parties.