Australia: Three new Free Trade Zones to open in China

The China (Shanghai) Pilot Free Trade Zone was officially launched on 29 September 2013 and its efficacy and role in liberalising international trade with China has been the subject of mixed review ever since.

On 12 December 2014, Chinese Premier Li Keqiang announced the establishment of a further three Free Trade Zones (FTZ), all of which are to be modelled on the Pilot Shanghai FTZ in a further effort to boost international trade and China's slowing economic growth¹.

The new FTZs will be located in Guangdong, Fujian and Tianjin with each of them intended to focus on particular local commodities, services and characteristics pertaining to their geographic location and economic proficiency.

The Shanghai FTZ was designed as a testing ground for the impact of free market reform and the liberalisation of foreign exchange policies on China's economy. It sought to lessen the burden for foreign organisations wanting to conduct business in mainland China by removing certain financial and currency impediments and administrative constraints imposed on foreign investors elsewhere in China².

While the intent of their introduction is to simplify the governance and administrative burden for cross-border transactions, it remains to be seen whether the new FTZs, each with its own independent focus, may instead result in further complexity in the area of foreign trade and investment³.

Similar to the Shanghai FTZ, all three of the newly approved zones will be established within pre-existing special economic zones, rather than beginning anew⁴.

Each of the three new FTZs and their unique economic and geographic traits are considered further below. The timeframe for the 'opening' of each of the new FTZs is not yet clear.

Guangdong– the stepping stone for professional services to and from Hong Kong and Macau

Considered to be accomplished in respect of the majority of China's key industries; namely electronics, machinery, textiles, food and beverage, pharmaceuticals, petrochemicals, construction materials, and automotive, Guangdong has the highest GDP ranking of all of China's provinces⁵.

Located in Southern China, the Guangdong FTZ will be approximately 931.385 square kilometres in size, enormous compared to the 28.78 square kilometres of Shanghai's pilot FTZ⁶.

The Guangdong FTZ has been strategically positioned with a view to establishing cross-border collaboration and market integration with both Hong Kong and Macau, particularly within the high-end service industry⁷.

Facilitating the provision of high-end services has been a major undertaking of the Chinese Government in recent years. The service sector has expanded by 8.1 per cent in the past year, amounting to nearly half of the nation's GDP in 2014⁸. Officials hope the establishment of the Guangdong FTZ will advance China's development in this sector while simultaneously providing necessary economic reform.

The finance industry and customs efficiency will also be a major focal point of the Guangdong FTZ.

Fujian– the tie-in to Taiwan

Located in South-Eastern China, Fujianis one of the wealthiest regions in the nation and one of the first provinces to economically interact with Taiwan. As such, officials hope the Fujian FTZ will attract Taiwanese investors due to its tactful geographic positioning and ethnic homogeneity; as many Taiwanese have close ancestral links to the region⁹.

The economies of both Taiwan and Fujian are complimentary, with the major industries in both regions being mechanics,electronics and petrochemicals ¹⁰.

Vice governor of the Fujian province, Mr Zheng Xiaosong, has commented that the establishment of the Fujian FTZ is integral to maintaining the region's "close economic and trade cooperation with Taiwan" ¹¹.

The Fujian FTZ will incorporate the Xiamen City and Pingtan Country regions of Fuzhou City, emphasising that the zone will not only serve as a harbour and manufacturing centre, but will also prioritise the provision of economic and financial services¹²

Tianjin – international shipping and financial leasing

Tianjin is a major port city in Northern China situated between Beijing and the Pacific Ocean. It is also close to major oil and gas deposits, which have resulted in petrochemicals being a cornerstone of Tianjin's economic foundations, alongside automotive manufacturing, ship building, metallurgy and pharmaceuticals¹³.

The Tianjin FTZ is predicted to expand China's shipping and financial leasing industries. Spanning 120 square kilometres, Tianjin's FTZ is four timesthe size of Shanghai's pilot FTZ. Much like Guangdong's FTZ, the Tianjin FTZ aims to develop China's high-end manufacturing sector.

Playing host to approximately nine hundred leasing companies, Tianjin accounts for nearly a quarter of all financial lending business in China, making this a key focal point for the FTZ¹⁴. Moreover,90 per cent of the Chinese aeroplane leasing market is conducted from Tianjin¹⁵.

Li Hui, deputy director of Tianjin Dongjian International Shipping and Finance Centre has commented that, "nearly $8 Billion USD worth of aeroplane leasing, and its cross-border settlements, and financing arrangements" occur in the port area; emphasising the potential impact that the Tianjin FTZ will have up on the domestic aeroplane leasing market ¹⁶.

The Tianjin FTZ will also seek to encourage growth in the service industry surrounding consumables, retail and cultural products, being primarily the sale of luxury vehicles¹⁷.

Footnotes

¹Rainy Yao and Steven Elsinga, 'China Announces Three New Free Trade Zones in Tianjin, Guangdong and Fujian', China Briefing (online), 25 December 2014, .

²Jamil Anderlini, 'New China free trade zones to lift growth', Financial Times (online), 14 December 2014 .

³Mimi Lau, 'Guangdong launches consultation on free-trade zone measures, withfocus on cooperation with Hong Kong and Macau', South China Morning Post (online), 21 January 2015 .

⁴Myles Seto and Shelly Liang, 'Development of various free trade zones inChina', Deacons (online), 29 December 2014 .

⁵Yao and Elsinga, above n 1.

⁶Ibid.

⁷'Guangdong pilot FTZ prioritizes high end service sector', CCTV.com (online), 8 February 2015, .

⁸Ibid.

⁹Chang Ta-wei, 'Taiwan must not lose out when China's new FTZs open for business', Want China Times (online),16 February 2015 .

¹⁰Yao and Elsinga, above n 1.

¹¹Tai Rui-fen, 'Taiwan's finance industry eyes Fujian FTZ', Want China Times (online), 5 February 2015 .

¹²Ibid.

¹³Yao and Elsinga, above n 1.

¹⁴Tianjin FTZ to target lend & lease, high-end manufacturing', CCTV.com (online), 11 February 2015 .

¹⁵Aircraft leasing business booms in Tianjin', China Daily (online), 8 October 2013 .

¹⁶CCTV.com,above n 13.

¹⁷Ibid.

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