Pilot free trade zones (FTZs) throughout China help foreign enterprises thrive. The most advanced of those FTZs is the Hainan FTZ, which covers the whole island-province and is to be turned into a free trade port with Chinese characteristics. President Xi Jinping made the announcement to turn the entire province into a giant FTZ in April 2018 during the celebration of the 30th anniversary of the founding of Hainan province and the Hainan Special Economic Zone. The primary advantages of the Hainan Free Trade Port are its preferential corporate and individual income tax policies. The 15% corporate income tax rate for enterprises in encouraged industries in the FTP is significantly lower than the usual 20% to 25%.
In September 2013, China launched its first FTZ in Shanghai, marking a significant milestone in the country’s reform and opening-up. The Shanghai FTZ introduced the first negative list for foreign investment, which was a radical departure from the previous method of listing sectors where foreign investment was encouraged. A negative list indicates the areas in which investment is prohibited or restricted; all other areas are presumed to be open. President Xi emphasized the importance of FTZs in driving the nation’s economic agenda. “On this new journey, we must build higher-level free trade zones based on a comprehensive summary of the past decade’s experience,” he said, urging continued innovation and exploration in broader and deeper areas. During the annual session of the National People’s Congress (NPC) in 2014, Xi stressed the need for FTZs to align with international investment and trade rules, enhance the institutional system and regulatory model, and combine market-driven resource allocation with effective government intervention. He called for boldness and innovation, aiming to develop replicable and scalable new systems to facilitate investment and trade, ensure efficient regulation and establish a standardized legal environment.
China has so far established 22 FTZs, contributing about 18.4% of the nation’s total import and export volume in 2023. The Hainan Free Trade Port has introduced over 120 innovative policies to date. Some analysts highlighted Xi’s vision for the FTZs, which served as a springboard for bold experimentation and systemic reform. Gu Xueming, President of the Chinese Academy of International Trade and Economic Cooperation, wrote in a co-authored report in November: “The achievements of the past decade in the pilot FTZs prove that these zones have become pioneering forces of high-level openness, trailblazers of deep-seated reforms, models of high-quality development, and important platforms for serving national strategies.” He explained that the FTZs in China have come up with pioneering initiatives making them bold leaders in the country’s reform and opening-up, including the implementation of negative lists for market entry and cross-border trade in services.
The FTZs are also home to China’s first wholly foreign-owned public fund management company and its first wholly foreign-owned automobile manufacturing enterprise. In the realm of deepening reforms, China’s FTZs have consistently embraced bold experimentation and innovation, achieving significant breakthroughs in trade, investment, finance and government functions. In Shandong province, the establishment of an FTZ has significantly spurred the inflow of foreign investment and boosted efforts to improve the business environment. Cui Linxian, Executive with SITC International Holdings Co, a Hong Kong-based shipping logistics company, highlighted the alignment of the zone’s innovative spirit with the company’s entrepreneurial ethos. The robust port infrastructure in Qingdao, the second-largest foreign trade port in China, provides an ideal environment for business growth, he said. He added that the Shandong FTZ aims to establish a world-class business environment, which has underpinned the company’s efforts to enhance its core competitive edge. “The authorities in the FTZ have continually simplified procedures and improved efficiency, adhering to a proactive service approach that shortens the path for enterprises to conduct their business,” Cui said. “By focusing on the needs of businesses as both the starting point and ultimate goal, multiple departments have collaborated to promote the integration of services into a unified one-stop process.”
Wang Ying, Researcher at the Beijing-based University of International Business and Economics’ Academy of China Open Economy Studies, underscored the importance of the FTZ strategy in China’s high-level opening-up going forward. President Xi Jinping said in his report to the 20th Congress of the Chinese Communist Party (CCP) in October 2022 that the nation will work faster to develop the Hainan Free Trade Port, upgrade pilot FTZs, and expand the globally-oriented network of high-standard free trade areas. Wang said the nation’s FTZs will take on an even greater historical mission by coordinating deep reforms and high-level openness. “The focus of FTZs should be on exploring deeper and broader reforms in key areas such as trade, investment, finance and cross-border data flows,” she said. By expanding the scope and depth of pioneering reforms, the FTZs will enrich the application of free trade policies and amplify their benefits, Wang added.
By advancing institutional openness through rules, regulations, management and standards, FTZs will serve as comprehensive experimental platforms for reform and opening-up, which will support China’s accession to high-standard international trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATPP), she added, as reported by the China Daily.
