Three new free trade zones (FTZs) have been announced, and the Shanghai FTZ has been extended to new areas. The new FTZs and the expansion of the Shanghai FTZ will be effective 1 March 2015. Although market liberalizations in the Shanghai FTZ have been slower than many expected, extending existing benefits to additional locations is still good news for foreign investors.
Three new FTZs
From 1 March, the following three FTZs will be established:
- Guangdong FTZ
The new Guangdong FTZ will cover a total of 116.2 square kilometers, including the Hengqin New District in Zhuhai, the Nansha New District (and its bonded zone) in Guangzhou and the Shekou Industrial Zone in Shenzhen Qianhai.
The Guangdong FTZ will promote integrated development among Guangdong Province and the Hong Kong and Macau Special Administrative Regions.
- Tianjin FTZ
The new Tianjin FTZ will cover a total of 119.9 square kilometers, including locations in the Tianjin Port area, Tianjin Airport area and in the Central Business Area of Binhai New District.
The Tianjin FTZ will be a business and economic center of northern China, and is intended to coordinate and promote integrated development among Beijing Municipality, Tianjin Municipality and Hebei Province.
- Fujian FTZ
The Fujian FTZ will cover a total of 118.04 square kilometers, including locations in Pingtan County, Xiamen City and Fuzhou City.
The Fujian FTZ is intended to further cross-strait business and economic cooperation with Taiwan.
The primary initial benefits for these three new FTZs involve the temporary suspension – for a period of three years – of various examination and approval processes. In particular, although approvals may still be required in some sectors (e.g., investments included in any negative list), approvals will generally not be needed for the following; instead, the relevant parties will only need to file for record:
- establishment of wholly foreign-owned enterprises (WFOEs), Sino-foreign equity joint ventures (EJVs) and Sino-foreign cooperative joint ventures (CJVs);
- extension of operating periods for WFOEs, EJVs and CJVs;
- division, merger or other major changes of WFOEs;
- dissolution of EJVs;
- major changes to the agreements, contracts or articles of associations of CJVs, including the transfer of rights and obligations (the corresponding changes for EJVs will still need approval);
- entrustment given by CJVs for others to carry out operations and management; and
- establishment of enterprises funded by Taiwan investors.
Whether the range of benefits (such as foreign exchange liberalization and faster customs clearance) given to investors in the Shanghai FTZ will be reproduced in the three new FTZs remains to be seen. It is likely, however, that the new zones will compete with one another (and with the Shanghai FTZ) to offer the most preferential policies.
Shanghai FTZ expanded
Currently, the Shanghai FTZ covers three zones, each far from downtown Shanghai. From 1 March 2015, the Shanghai FTZ will include the Lujiazui Financial District, the Zhangjiang High-tech Park, and the Jinqiao Export Processing Zone.
All benefits currently available in the Shanghai FTZ will likely be extended to each of the three new FTZ locations. However, based on the typical profile of each area, the following benefits are likely to be of particular interest:
- Lujiazui Financial District
- Financial institutions and enterprises within the FTZ may invest in and trade on the securities and futures markets in Shanghai Municipality.
- Access to advance experimentation with RMB capital account convertibility, and market-based determination of interest rates.
- Offshore parent companies of enterprises within the FTZ may issue RMB-denominated bonds on the domestic capital market.
- Free transfer of funds between trade accounts and overseas accounts, and related cross-border financing and guarantees.
- Cross-border use of RMB funds in investments and foreign trade.
- Borrowing RMB funds from overseas, and two-way RMB cash pooling.
- Zhangjiang High-tech Park and Jinqiao Export Processing Zone
- Transformation and upgrade of international trade, warehousing and logistics, processing and manufacturing and related business.
- Multinational companies are encouraged to set up operational centres integrating trade, logistics, settlement and other functions.
- Development of offshore trade, international bulk commodity trading, financial leasing, futures bonded delivery, cross-border e-commerce and other emerging trade.
- Development of biomedicine research and development, software and information service, data processing and other outsourcing business.
- Relaxation of foreign shareholder limitations and lower investment criteria, for example, providing value-added telecommunications services in the FTZ.