Pearl River Delta’s Hengqin Island to Enjoy Free Trade Zone Treatment

August 5, 2011 Posted by China Briefing Reading Time: 2 minutes

By Vivian Ni

Aug. 5 – Hengqin, the largest island in South China’s Zhuhai Special Economic Zone, is going to become a free trade zone modeled on Hong Kong. A report by Shanghai Securities News says Beijing has agreed to offer the area policies even more “special” than those given to special economic zones and the island’s free trade zone status will soon be announced. The new favorable treatment is believed to bring Zhuhai – the city that shares its border with Macau – more opportunities for development and new strength to catch up with Shenzhen, another special economic zone on the other side of the Pearl River mouth neighboring Hong Kong.

The new policies will aim for discriminative customs management on the 106.5-square kilometer island featuring a close proximity to Macau. Overseas goods shipped to the island – except for consumer products for day-to-day life, goods for commercial property development projects, and other goods that cannot enjoy free duties according to related regulations – will enjoy import duty exemption, but will still be subject to tariffs if they are destined for other parts of Mainland China. However, duty-free entry of goods does not mean boundaryless entry of people. Visitors from Hong Kong, Macau and foreign countries will still have to complete customs formalities, related reports emphasize.

In addition to import duty exemption, commodity trading among enterprises based on Hengqin Island is also exempt from value-added tax and consumption tax payment. It is even hoped that some eligible local enterprises will be allowed to pay corporate income tax at a lower rate of 15 percent.

Compared to most of China’s bonded areas, where a similar customs system and tax policies are practiced, Hengqin is going to be more consumer-friendly. While regular bonded areas are usually set up for manufacturers, Hengqin will allow the construction of commercial living and consuming facilities and develop commercial retail businesses. There will be shopping malls built up where people can spend their money, said Fang Zhou, assistant chief research officer of the Hong Kong-based One Country Two Systems Research Institute.

China has been attaching much importance to the island right next to Macau in recent years. Last year, the State Council upgraded the area into the country’s third state-level New Area, following the official approval of Shanghai’s Pudong New Area and Tianjin’s Binhai New Area.

The island is also turning into a place where two different political systems combine and interact. In 2009, Macau University bought up a 40-year land-use right of 1.09 square kilometers on the island for its new campus. During the 40-year term, the rented land will be under the administration of the Macau government and the laws of Macau will also be implemented there. The unique land leasing deal has increased Hengqin Island’s significance in strengthening the ties between the mainland and its two special administrative regions of Macau and Hong Kong.

Although the approval of the new policy offering has not been officially announced yet, the Zhuhai or Hengqin concept-related stocks have been surging in China’s A-share market since last week, showing investors’ increasing confidence in the future of the area. Experts believe that Hengqin’s development, together with Pearl River Delta’s (PRD’s) infrastructure advancement – such as the opening of Guangzhou-Zhuhai inter-city railway and the construction of Zhuhai-Hong Kong-Macau Bridge – will make Zhuhai a more important economic hub in the PRD area and gain more advantages compared to other PRD cities.