China Puts the Brakes on Additional Free Trade Zones

June 5, 2014 Posted by China Briefing Reading Time: 3 minutes

SHANGHAI – China’s Central Government has suspended the approval of any further Free Trade Zones (FTZ) following a rash of proposals in imitation of the Shanghai FTZ, according to a magazine published by Xinhua. While Premier Li Keqiang had previously announced that pilot projects would commence in several areas, these have been indefinitely stalled based on a flood of unsatisfactory applications.

Beijing has said that applications received to date have tended to overemphasize the proposed zones as a way to generate tax dollars and had failed to grasp their wider economic significance. Local governments are suggested to have wanted to secure licensing for such zones solely as means to secure funding for land redevelopment.

Chris Devonshire-Ellis of Dezan Shira & Associates comments, “This reveals an obvious disconnect between local Provincial Governments and the Central Government when it comes to strategic planning. Many local officials seem mired in the mindset that land is everything and that wealth is created only through land redevelopment and the easy State funding that comes with it. There appears to have occurred a breakdown of longer-term economic sensibility in many of China’s major cities and provinces.”

The ban, to take immediate effect, affects some 20 cities believed to have submitted applications for FTZs. Included among these is the much-anticipated Guangdong Free Trade Zone, which had already received approval yet has now been caught up in the blanket ban. Proposals for new Economic & Technology Development Zones (ETZ) have also been suspended. At present, it remains unclear when the ban will be lifted. In the meantime, previously submitted applications have been sent back for revisions.

“This is cause for concern,” says Devonshire-Ellis. “China’s brightest contemporary economists are clearly not making it into the political and strategic planning channels of the country’s provincial governments, yet this is where future economic growth is supposed to be coming from. China needs to overhaul the quality of the people responsible for economic reform at the provincial and municipal government levels.”

In January of this year, Xinhua erroneously reported that the Ministry of Commerce (MOFCOM) had granted approval to twelve further Free Trade Zones. Later this was revised in light of a MOFCOM announcement that no further FTZs had yet received approval, though a number of applications were subject to ongoing review, including zones in Guangdong and Tianjin.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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