Overview of China’s Free Trade Zones

China now has 21 pilot free trade zones (FTZs) spread across the country following the State Council’s decision last September to establish three new FTZs in Beijing, Hunan and Anhui, as well as expanding the existing FTZ in Zhejiang.

In the announcement, Vice Commerce Minister Wang Shouwen said the new batch of pilot FTZs demonstrated China’s “firm determination to accelerate the formation of a new development pattern through a higher level of opening-up”.

FTZs are areas designated by the government where a series of test policies can be trialled. Each FTZ caters to a specific industry and benefits from several types of incentives such as reduced tax rates, expedited administrative procedures and relaxed investment restrictions. If successful, these policies can then be replicated and rolled out on a national level.

China set up its first FTZ in Shanghai in 2013 to attract more foreign investment and promote trade and regional integration. Since then, the country has added 20 zones, including those in such diverse areas as the coastal provinces of Fujian and Guangdong and the inland provinces of Shaanxi and Sichuan.

Just as the Shanghai FTZ was a pioneer in respect of China’s ‘negative list’ approach to foreign investment, FTZs have since been a testing ground for new economic policy and often reveal China’s long-term policy objectives. The latest FTZs, for instance, support China’s stated aim to shift away from export-manufacturing to a new ‘dual circulation’ strategy that is focused on domestic demand and technological self-sufficiency.

FTZs now account for a significant portion of China’s foreign trade and investment. Through the first seven months of 2020, Chinese FTZs contributed USD400 billion (13.5%) in foreign trade and attracted more than 3,300 new foreign enterprises, accounting for USD13.3 billion (16.8%) of foreign investment in China.

FTZs offer several types of incentives for foreign investors whose firms fulfil certain conditions, such as:

  • Reduced corporate income tax (CIT) between 15% and 9%
  • Payment of CIT in instalments
  • Individual income tax subsidies for qualified high-end talents
  • Duty-free import of machinery and equipment
  • More streamlined customs clearance processes in respect of declarations and payments

The FTZs also have relaxed policies for foreign-invested enterprises in specific industries or capabilities, for example, for logistics and pharmaceuticals that are not widely available in China.

The current list of China FTZs comprises:

  • Shanghai (2013) – International trade and finance, incorporating the Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area, Pudong Airport Comprehensive Free Trade Zone Shanghai Jinqiao Economic and Technological Development Zone and Zhangjiang Hi-Tech Park.
  • Guangdong (2015) – International trade and finance, incorporating the Nansha District, New Area and port in Guangzhou, the Qianhai District, Development Zone in Shenzhen and the Hengqin District, New Area in Zhuhai.
  • Tianjin (2015) – High-end manufacturing, information technology (IT), R&D, logistics, international trade and financial services, incorporating Tianjin Airport Economic Area, Tianjin Dongjiang Free Trade Port Zone and Tianjin Binhai New Area Central Business District.
  • Fujian (2015) – International trade and finance, incorporating the cities of Fuzhou, Xiamen and Pingtan.
  • Chongqing (2016) – New tech, high tech, biotech, logistics and legal and arbitration services, incorporating Liangjiang New Area, Xiyong Area, Guoyuang Area port and Chongqing Liangjiang New Area People’s Court.
  • Sichuan (2016) – IT, comms, logistics, financial services, high-end manufacturing, logistics in Chengdu city.
  • Shaanxi (2016) – High-end manufacturing, logistics, financial services, e-commerce and agricultural technology in cities of Xi’an and Xianyang.
  • Henan (2016) – High-end manufacturing, medical, R&D, design, e commerce, service outsourcing, tourism, cultural and creative services, incorporating cities of Zhengzhou, Kaifang and Luoyang.
  • Zhejiang (2016) – Petrochemical and shipping, artificial intelligence (AI), fintech, life sciences, smart logistics and e-commerce development, incorporating cities of Ningbo, Hangzhou and Jinyi.
  • Hubei (2016) – International commerce and trade, financial services, logistics, R&D, biomedicine, high-end manufacturing, e-commerce, data and cloud computing, incorporating cities of Wuhan, Yichang and Xiangyang.
  • Liaoning (2016) – Port and shipping, advanced manufacturing, IT, e-commerce, finance and new technology, incorporating cities of Dalian, Shenyang and Yingkou.
  • Hainan (2018) – International trade and finance on island / province of Hainan.
  • Jiangsu (2019) – Trade and investment, logistics, AI, IT, financial services, advanced manufacturing, healthcare, leisure, tourism, business support, big data, port and shipping logistics, incorporating cities of Suzhou, Nanjing and Lianyungang.
  • Shandong (2019) – Shipping logistics, financial services, advanced manufacturing, exchange market, AI, IT, healthcare, green-tech and biotech, incorporating Qingdao Free Trade Port Zone and cities of Jinan and Yantai.
  • Hebei (2019) – IT, life science, e-commerce, biotech, logistics, high-end equipment manufacturing, aviation, logistics, port and shipping services, incorporating Xiongan Area, Zhengding Area, Caofeidian Port Area and Daxing Airport Area.
  • Heilongjiang (2019) – IT, high‑end equipment, biomedicine, financial services, energy, food cultivation, logistics, tourism, healthcare and import processing for materials, incorporating cities of Harbin, Heihe and Suifenghe.
  • Guangxi (2019) – Financial services, new manufacturing, logistics, digital services, culture and media, international trade, electronics and biomedicine, incorporating Qinzhou Port Area and cities of Nanning and Chongzuo.
  • Yunnan (2019) – High-end manufacturing, aviation logistics, agriculture, biomedicine and health, IT, international trade, e-commerce logistics, ‘green’ food processing, tourism, medical and financial services, incorporating cities of Kunming, Dehong and Honghe.
  • Beijing (2020) – Fintech, financial services and service trade innovation.
  • Anhui (2020) – AI, robotics, integrated circuits, fintech, and smart cars and appliances, incorporating cities of Hefei, Wuhu and Bengbu.
  • Hunan (2020) – AI manufacturing, quantum computing, renewable energies and green tech, biomedicine, agritech and e-commerce, incorporating cities of Changsha, Yueyang and Chenzhou.
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