China’s president recently announced several economic initiatives during the G20 Summit. Among these initiatives are six new pilot free trade zones. Additionally, the Shanghai Free Trade Zone will be expanded and the launch for the first free-trade port in Hainan will be accelerated.
China wants to send a clear message that is ready and open for foreign investment even as the trade war with the United States rages on.
Why Were Free Trade Zones Created in China?
Free trade zones were first developed in China in 2013. Investing in China has long been an objective of foreign investors, but opportunities are sometimes avoided in China because of the legal complications involved. These trade zones represent lightened legal requirements and financial incentives in the form of preferential tax and trade policies.
Free trade zones were first developed in Shanghai, followed by Guangdong, Tianjin and Fujian. Then China’s State Council approved the launching of seven new pilot free trade zones that incorporated inland regions of China. Hainan was the last free trade zone that was developed.
Free Trade Zones in China – What Are the Charcteristiques?
Each Chinese free trade zone has its own mission and unique characteristics, including the following:
- Chongqing – The Chongqing Free Trade Zone is comprised of three areas, including the Xiyong, Lingjiang and the Guoyuangag areas. It serves as a critical hub to connect One Belt, One Road, Western Development and the Yangtze River Economic Belt. This area is open for high-end manufacturing and focuses on providing logistics and medical industry services.
- Fujian – The purpose of the Fujian Free Trade Zone is to promote investment in Taiwan and encouraged trade with Taiwan. It is also building the key area for Maritime Silk Road and developing shipping and tourism. This area consists of the Fuzhou, Pingtan and Xiamen areas. It focuses on education, tourism and high-tech sectors.
- Guangdong – This free trade zone acts as a pilot zone for opening up financial services, high technology and cultural education. It serves as a major hub for the Maritime Silk Road. The Nansha Area of Guangzhou, Quianhai & Shekou Area of Shenzhen and the Hengqin Area of Zhuhai are part of this free zone.
- Henan – The mission of the Henan Free Trade Zone is to develop a traffic and logistics system for the One, Belt, One Road area. It also helps to cultivate emerging industries. The Kaifeng, Luoyang and Zhengzhou Areas are part of this free trade zone. The area focuses on providing high-end manufacturing and financial services.
- Hubei – The Wuhan Xiangyang, and Yichang Areas make up this free trade zone, which promotes the development of the Yangtze River Economic Belt, including enhancing the development of Central China. It focuses on cloud computing, biomedicine, big data and high-end equipment manufacturing.
- Liaoning – The objective of the Liaoning Free Trade Zone is to build sea-rail transportation and to improve Northeastern Asia’s economic development. It serves as an important logistics and shipping center to increase trade exchanges in northeast Asia. It focuses on the manufacture of automobile and aviation equipment, financial services and cross-border e-commerce.
- Shaanxi – The objective of this free trade zone is to support agricultural and high technology and cultural and educational exchanges. The three areas that comprise this free trade zone area include the Central Area, the Yangling Demonstration Area and the Xi’an International Trade & Logistics Park. This free zone serves as an inland hub of international transit on the One Belt One Road area and focuses on international trade and modern agriculture.
- Shanghai – Shanghai’s free trade zone is intended to develop into an international trade settlement center. It motivates foreign investors to increase free trade and foreign investment. and focuses on financial services and international shipping industries. It also seeks to improve the legal system in China and develop rational reform options. This free trade zone is made up of the Waigaoqiao Free Trade Zone, the Waigaoqiao Free Trade Logistics Park, the Yangshan Free Trade Port Area, the Pudong Airport Comprehensive Free Trade Zone, the Jinqiao Development Zone, the Lujiazui Financial Zone, and the Zhangjiang High Tech Park.
- Sichuan – This free trade zone’s objective is to deepen Western Development and to lead the southwest portion of the country in foreign trade. It serves a pivotal role in the Yangtze River Economic Belt. It focuses on advanced manufacturing, logistics, shipping, education, medical care. and modern services. The Chengdu Qingbaijiang Railway Port Area, Chengdu Tinfu New Area and South Sichuan Port Area are located within this free trade zone.
- Tianjin – The Binhai CBD Area, the Tianjin Airport Area, and the Tianjin Port Dongjiang Area are part of this free trade zone. This zone was set up to accelerate development into Beijing, Hebel, and Tianjin and to develop manufacturing and shipping logistic services.
- Zhejiang – The Zhejiang Free Trade Zone serves as a maritime hub for the Eastern region in China. It serves as a central logistics and shipping center to increase trade exchanges in the northeastern portion of Asia. It was established to assist with developing foreign trade in bulk commodities and marine industries. This free trade zone focuses on bulk commodity trade, petrochemicals and oil.
Information about the Six New Free Trade Zones in China
Currently, the location of the new free trade zones has not yet been made public. However, when establishing these zones, policymakers consider the following factors:
- Geographic advantage, such as the type of infrastructure available in the region and connectedness to other neighboring areas
- Industrial characteristics, such as whether the region has a particular strategic or industrial focus
- Development orientation such as the region’s short and long-term goals for the development of the local economy
Strategic free trade zones may strengthen trades with neighboring countries like Japan, Vietnam, and South Korea,
Shanghai’s Free Trade Zone Expansion
In addition to the launching of the six new pilot zones, another economic initiative is Shanghai’s Free Trade Zone expansion. This zone has grown exponentially over the last few years. The new expansion will encourage more investment and stronger influence on the global market.
In 2018, Shanghai received more than $17 billion in foreign investment. Additionally, foreign investment restrictions are being eased. Furthermore, employment procedures are made easier and tax policies are optimized.
Acceleration of the First Free Trade Port in China
Hainan is set up to be the largest free trade zone in China and will consist of more than 35,000 square kilometers. It is hoping to turn into a domestic hub for high-end medical services and a must-visit tourist location in the Southeast portion of Asia. Additionally, it will permit horse-racing and sports lottery games to increase its attractiveness as a tourist destination. Special policies that will help support these goals include:
- The annual duty-free spending limit will be moved up to 30,000 yuan per individual, which is about double the ordinary amount in other cities in China
- Visitors will receive greater and preferred access to medical providers, including those who import medical technology, medicine and equipment
- A 15-day free stay will be allowed for cruise travelers
- The current policy allowing visitors without visas will be extended to a wider use of purposes, such as business, visit and medical treatment
- Resident permits will be extended to the length of the worker’s contract
- International students who have a Master’s degree will be allowed to apply for a residence permit that will last for two years if they start a business in the area
In a little over five years, the free trade zones in China have attracted 40,000 different foreign businesses. Faster options to setup companies, preferential tax treatment and greater access to previously prohibited investment sectors have spurred this incredible growth. With more free trade zones in the works, China continues to be one of the best places in the world to invest in.