China Mulling Further Free Trade Zones After Shanghai FTZ Success

May 20, 2014 Posted by China Briefing Reading Time: 3 minutes

Shanghai FTZ SHANGHAI – The Director of the Development Research Center of the State Council, Long Guoqiang, has said that China will establish a number of new free trade zones following the success of the Shanghai pilot scheme. While previous announcements to this end had been qualified as provisional, it was definitively stated this week that a number of local and regional governments have already applied to set up their own free trade zones. Long also announced that the Chinese government has agreed that the proliferation of FTZs would be well suited to the growth of foreign trade and the internationalization of the RMB.

It was further reported that these applications are being processed in coordination with one another and at a restrained pace—it is therefore unlikely that they will all be approved at once. Instead, the additional FTZs will be considered on the basis of their respective advantages to the national economy.

Launched in September 2013, the Shanghai FTZ is specialized in financial services and investment, commodities trading, and logistics. The proposed additional FTZs, however, could develop their own concentrations, including unique tax and other preferential policies. Tax measures applied in the new FTZs, particularly those that threaten to erode the country’s tax base, will remain subject to government approval and alignment with China’s overall tax system regarding inward and outward equity investment.

For comparison, tax incentives currently offered in the Shanghai zone include customs duty and import tax exemptions applied to goods transferred between the FTZ and overseas destinations; immediate export tax rebates on domestic merchandise brought into the zone; and tax exemptions granted on imports of machinery and manufacturing equipment. The zone also allows for income tax to be paid in installments over a five-year period for revaluations arising from asset restructuring.

Meanwhile, the Shanghai Stock Exchange, which has opened a branch in the Shanghai FTZ, is making arrangements with the Hong Kong Stock Exchange to permit Shanghai listed companies onto the Hong Kong bourse, and Hong Kong companies to list in Shanghai. Chinese nationals will be able purchase Hong Kong stocks in RMB, with clearance provided by banks in Hong Kong as part of the territory’s duties as a RMB trading hub.

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