Shanghai Cooperation Organisation Establishes Economic Cooperation Zones

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The China-Shanghai Cooperation Organisation Local Economic & Trade Cooperation Demonstration Area in Qingdao has attracted billions of dollars in investment and has raised a regional investment fund 

The Shanghai Cooperation Organisation (SCO) has been setting up, as part of its trade remit, development zones, with one of the first being sited in Qingdao.

The SCO is a Eurasian regional bloc that currently includes as full members, China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan, and Uzbekistan, while Iran is shortly to join them. Observer states include Afghanistan, Belarus, and Mongolia, with dialogue partners being Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka, and Turkey. They will soon be joined by Egypt, Qatar, and Saudi Arabia. In the West the SCO is usually viewed as a security bloc, however its remit goes much further than this, including trade development.

The first of these, a joint China-SCO project, is the China-Shanghai Cooperation Organisation Local Economic & Trade Cooperation Demonstration Area which has been established in the Jiaozhou area of Qingdao on China’s East Coast. The concept, which is intended to be extended to other Industrial Zones in SCO countries, allows investing businesses from the SCO nations to collaborate together in one specific location and to share technologies, expertise, and product types to develop new collaborations and manufacturing processes, or in other words, a type of SCO-incubator.

China’s e-commerce giant chose the zone as home to its new intelligent industrial park, with the company saying that it plans to build a top smart logistics center, using the zone’s cloud computing, big data, artificial intelligence technologies, and supply chains.

Projects worth about US$8.6 billion have already been set up, varying in fields such as infrastructure, equipment manufacturing, international logistics, trade, two-way investment, business and cultural exchanges, and bio-medicine.

The zone has also established its first overseas investment fund, launched under Qingdao’s Qualified Domestic Limited Partnership (QDLP) scheme. QDLP is a pilot program developed by Chinese local authorities for the purpose of facilitating cross-border asset allocation. It allows global asset managers to raise Renminbi from investors in China to invest in overseas traditional and alternative assets such as hedge funds, private equity funds, and REITs. Qingdao has been assigned a quota of US$ 3 billion for piloting the QDLP scheme.

The China-SCO local economic cooperation demonstration zone will run the fund in collaboration with Sino-Russian Energy Investment Private Equity Fund Management (Qingdao) Co Ltd.

The zone has also signed agreements with Kazakhstan’s Astana International Financial Centre, CICC Capital and other domestic and overseas capital management organizations to launch cooperation in promoting cross-border capital flows.

With global supply chains altering, and new methods of global capital and financing appearing, much of the coming investment structures will originate in Asia. Entities such as the SCO’s zone in Qingdao can be expected to pilot similar zones elsewhere, with financing now available for joint SCO projects and their shareholders. A key coming aspect of this will be Islamic finance, which has its own set of values attached to loans in a manner probably more attractive to Chinese than say US investors, who typically wish to charge direct interest and/or impose non-project related conditions onto financing. The development of these types of joint financial structures is a new BRI development with implications and opportunities throughout the SCO and Eurasian region.

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Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. The firm assists British and Foreign Investment into Asia and has 28 offices throughout China, India, the ASEAN nations and Russia. For strategic and business intelligence concerning China’s Belt & Road Initiative please email or visit us at