After a decade of expansion, China’s 21 pilot free trade zones (FTZs), located in both coastal regions and in the interior, are gearing up to play a bigger role in reform, opening-up, economic growth and high-quality development based on the dual-circulation paradigm. China’s pilot FTZs will implement higher-level opening-up as China seeks to join high-standard free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement, experts and government officials said. The FTZs are expected to align themselves better with advanced international trade and economic rules, to facilitate broader market entry and improve systemic and institutional innovation in governance policies, they said. That would mark the next big leap for China’s pilot FTZs whose saga began in 2013, when the first one was set up in Shanghai. In 2018, China proposed setting up a free trade port (FTP) in Hainan.
Impetus for a larger role for FTZs came on November 4 last year when President Xi Jinping said the country will implement a strategy to upgrade them, accelerate the Hainan FTP’s development, and tap into their role as pilot platforms for comprehensive reform and opening-up. A few days earlier, a report to the 20th National Congress of the Communist Party of China had stressed rapid development of the Hainan FTP and upgrading of pilot FTZs. On July 26, Premier Li Qiang during a two-day inspection tour of Shanghai, called for greater efforts to upgrade pilot FTZs to promote reform and development with high-level opening-up. The further development of the pilot FTZs was discussed at a recent forum in Zhengzhou, capital of Henan province.
In the next step, pilot FTZs will focus on key areas – trade and investment, government procurement, intellectual property rights protection and environmental protection – to build institutional systems and supervision models, so as to align with high-level international rules. The larger goal in this regard is to gather relevant experience for implementing pathbreaking reforms in those areas. The pilot FTZs will also intensify efforts to increase openness in investment and trade in services. While keeping risks controllable, they will continue to shrink the negative list for foreign investment while expanding opening-up in trade in services. A pilot FTZ negative list for the cross-border services trade will be launched soon.
Ministry of Commerce (MOFCOM) data showed that pilot FTZs have pioneered an unprecedented degree of openness in relation to foreign investment and international trade in both goods and services over the last 10 years. They have been instrumental in driving many institutional innovations covering investment, trade facilitation and financial openness, as 302 innovations have been selected for replication at the national level. Since 2022, pilot FTZs have effected 537 institutional innovations across investment, trade, finance and regulation, and 120 of them have promoted remarkable development in related areas, according to a report on the development of the pilot FTZs released at the Zhengzhou forum. The negative list for foreign investment at the pilot FTZs now has only 27 items, as against 193 in the first version in 2013. Not a single item of the 27 is from the manufacturing sector.
In the first half of this year, actual use of foreign direct investment (FDI) in the 21 pilot FTZs totaled around CNY130 billion, up 8.2% year-on-year. The growth rate was 10.9 percentage points higher than the national average. Imports and exports at the 21 pilot FTZs reached CNY3.7 trillion during the period, up more than 8% year-on-year, which was 6.3 percentage points higher than the national average.
In a policy circular published on June 29, the Chinese government unveiled some pilot measures to deepen reforms and align with high-standard international economic and trade rules in the five FTZs in Shanghai, Guangdong, Tianjin, Fujian and Beijing, as well as the Hainan FTP, as part of efforts to boost institutional opening-up. These measures include innovative trade facilitation in both goods and services and improvement in the business environment. For instance, the circular urged speeding up Customs clearance for certain goods. At the China (Henan) Pilot Free Trade Zone for example, Customs officers can scan the contents of a container for illicit goods in just a few seconds without unpacking and repacking the goods.
Chinese and foreign financial institutions should receive the same kind of access when the authorities approve the opening of new services in the pilot areas, except for some strategically important sectors. Individuals and businesses will be allowed to purchase financial services from overseas, and legal investments of foreign investors can be transferred in and out of China freely and without delay, the China Daily reports.
