6 New Free Trade Zones – But Where?
As of writing, no official statement has been made regarding the new free-trade zone locations. Last week, Deputy director of the Expert Committee of the China International Trade Association, Li Yong, shared some insights about the selection criteria with the Time Weekly.
In fact, new locations are not picked based on the overall economic ranking of the province. Rather, policymakers take 3 criteria into account:
- Geographical advantage (infrastructure levels, connectivity to other neighboring cities)
- Industrial characteristics (does the city/region have a specific strategic economic/industrial focus?)
- Development orientation (what are some of the city’s or region’s mid-term and long-term economic development goals?)
Since Beijing announced its 5th Free-Trade Zone expansion phase, market observers and scholars have started to take a guess at which cities will host the new pilot FTZs.
Sun Yuanxin, a professor at the Institute of Free Trade Zone of Shanghai University of Finance and Economics, believes that Shandong and Jiangsu are two of the strongest contenders. Specifically, Shandong would play a key role in strengthening trade with Japan and South Korea, while Yunnan’s proximity to Vietnam, Myanmar and Laos make it an attractive choice to set up a new FTZ.
In addition to these two regions, Sun also sees Heilongjiang as a solid candidate. Implementing a Free-Trade Zone in the most northeastern part of the country would not only rekindle regional economic vitality but also strengthen trade with Russia.
Expansion of the Shanghai FTZ
While in Osaka for the G20, President Xi Jinping also encouraged the expansion of the Shanghai Free-Trade Zone. This echoes announcements made at the inaugural CIIE (China International Import Expo) back in November 2018, where Beijing unveiled a fifth-fold extension plan for the Shanghai FTZ.
Originally covering a surface area of almost 30 square kilometers, the zone quadrupled in size in 2015 to 120 sq. kilometers. A fifth-fold extension of the current FTZ would turn it into a whopping 600 sq. kilometer territory. For comparison matters, Singapore’s land area stands at 721.5 square kilometers.
More than a pure territorial expansion, the extension is mostly meant to usher a new era of opening-up and liberalization.
“We are to try on different pilots and carry out greater risk assessments, to build a special economic function zone with stronger international influence and competitiveness.” Shanghai Mayor Ying Yong said at a media conference in Beijing.
Shanghai attracted USD 17.3 billion in foreign investment in 2018, a 1.7% year-on-year increase. Local authorities are hoping to see this number grow at an even greater pace by easing foreign investment restrictions and capital flows. In addition, Shanghai Mayor touted plans to facilitate free entry and exit of goods, ease employment procedures and optimize tax policies within the FTZ.
Hainan: China’s First Free-Trade Port
Designated as China’s 12th Free-Trade Zone by President Xi Jinping in April 2018, Hainan is set to be the largest FTZ in the country, spanning over 35,400 sq. kilometres. Also known as the Chinese Hawaii, Hainan island ambitions to become a key domestic hub for high-end medical services and a must-go tourist destination in Southeast Asia.
It will also allow sports lottery games as well as horse-racing as part of plans to promote the development of the province’s tourism industry. As a result, local authorities have implemented a number of measures that support these goals. A few of them include:
- Raising the annual duty-free spending limit to 30,000 yuan ($4,315) per person. That is almost double the usual limit in other Chinese cities
- Give preferential access to medical providers, including the permission to import medical technology, equipment and medicine
China’s Ministry of Public Security (MPS) also announced earlier this month a slew of preferential policies to attract foreign talent on the island. These include:
- Implementing a 15-day visa-free stay for those travelling on a cruise
- Extending the current visa-free policy to a wider range of purposes including business, visit, visiting relatives, medical treatment, exhibition and sports
- Extending the validity of residence permits to the duration of expats’ work contract
- Allowing International students with a Master’s degree to apply for a two-year residence permit if they start a business in the province
In a Nutshell
In just over 5 years, China’s Free Trade Zones have attracted close to 40,000 foreign enterprises. Faster company setup procedures, preferential tax policies and access to otherwise restricted industry sectors are some of the many benefits that keep attracting overseas companies to use FTZs as a launching pad for their China investment strategy.
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