Shanghai's free trade zone offers regulatory clarity that helps attract foreign companies

As China transitions to a consumption-based economy, it is important to clarify the rules to increase proactive foreign investment in the service sectors, said Dennis Nally, chairman of professional services group PricewaterhouseCoopers International Ltd.

The China (Shanghai) Pilot Free Trade Zone is a "good example" of how government can provide some clarity with regard to rules and regulations in the much more protected service sectors, as a way to encourage more proactive investment into those areas, Nally told China Daily in an exclusive interview.

The 29-square-kilometer zone has promised easier access for foreign businesses, greater financial openness and fewer government controls over business activities, since it was launched in September 2013.

About 12,600 companies have registered in the FTZ since its establishment, of which 13.7 percent, or 1,677, are foreign-invested firms. Most of them are in service industries, official figures showed.

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"Although it is now only limited in Shanghai, I think there will be a lot of learning coming from it. The more it is done to stimulate that kind of learning, the more it will provide incentives for foreign companies to look at those opportunities in China," said Nally, who heads 195,000 employees.

His thoughts echoed the results of the recent PwC 2014 APEC CEO Survey, carried out among 635 senior executives with operations in the Asia-Pacific region. The survey showed that "regulatory and legal infrastructure" was at the top of executives' minds.

The concern affects the operation and growth of multinationals, receiving a much higher identification rate compared with other infrastructure components such as transport, power and information.

"Top of their mind is the continued pressure for margin, and the increasing cost of compliance with regulations in many economies," Nally said. "If you don't have certainty over how things are going to be dealt with, it creates uncertainties, and very cautious behavior - that is not good for investment and job creation."

In response to whether China is losing its luster as foreign direct investment to the country has declined, Nally said China's anti-monopoly investigations have in no way deterred foreign businesses from investing in China. Instead, the FDI reflects the changing opportunities in China, he said.

"The FDI historically has been directed toward industrial manufacturing - that part is declining. As the economy uses more technology and services, obviously that requires a different type of investment. I think you are right in the middle of that transition," Nally said.

FDI into China in the first nine months of this year declined 1.4 percent from a year ago to $87.4 billion. While FDI into the manufacturing sector plunged 16.5 percent, it grew 8.7 percent in services, taking up a larger pie than manufacturing, official figures showed.

According to PwC's survey, 72 percent of respondents with a footprint in China plan to increase investments in China over the next 12 months, the highest among all surveyed economies.

PwC also saw fresh opportunities in Chinese economy's restructuring. The group sees "big opportunity" in both the restructuring of State-owned enterprises and the ambition of Chinese companies to go global, Nally said.

Explaining PwC's China strategy, he said the company is "very much focused on broadening its capability".

The group completed the acquisition of Booz & Company, now Strategy&, earlier this year, which is expected to boost its capability to deliver strategy-led consulting services.

China's economic slowdown has barely affected the company's revenue growth in the country. In the fiscal year ending June 30, revenue from China increased 11 percent year-on-year, compared with 6 percent growth in the US and 4 percent in Western Europe, according to the company.