China's State Council has issued plans for three new Pilot Free Trade Zones (FTZs) in Guangdong, Tianjin and Fujian, and the expansion of its Shanghai Pilot Free Trade Zone (SHFTZ). It also updated its foreign investment negative list and announced trial procedures for national security review of foreign investment in all free trade zones. 

While the new FTZs will be modelled on the SHFTZ, each will advance a new round of the country’s reforms, based on their different economic and geographic locations. 

The expansion of China’s FTZ program is set to advance the country’s financial reform journey and improve its ability to compete with more established rivals in the Asia-Pacific region. 

For a better understanding of the role of each of China's FTZs, please view the summary table below

Expanding the SHFTZ

Since its establishment in 2013, the China (Shanghai) Pilot Free Trade Zone (SHFTZ), has been regarded as a testing model for policies that could be replicated in other regions in China. It has carried out institutional reform and innovation in investment administrative, foreign exchange control system, international trade, finance and post-filing supervision to form a legal framework for investment and trade within the zone. 

The SHFTZ’s expansion will enable it to develop higher value-added trade in merchandise and services. It will also be able to experiment with reforms within the government system. This expansion extends the FTZ’s industrial and policy roles, and by including Zhangjiang and Lujiazui, the authorities have signalled a greater focus on advanced, knowledge-intensive manufacturing, services, investment and trade. The next step is to implement 25 measures set out by the State Council, including boosting financial innovation and facilitating trade and investment.

New Negative List

The latest list contains some significant changes compared to its predecessors from 2014 and 2013. This year’s negative also list applies to all FTZs, and may indicate a more unified policy approach in the four zones. 

Overall there are fewer special administrative measures (122 items, down from 139 in 2014 and 190 in 2013) but the significance is more about the qualitative nature than the actual number of the changes. The new list contains 119 types of foreign investment projects in 49 areas (eg seeding, fishing, oil and gas, aviation manufacturing and nuclear power) that will not fall under the scope of national treatment and require special management. There are three areas of restrictions to foreign investment in various types of businesses. 

Foreign investors in the FTZs should take care also to abide with special management measures stipulated in other regulations, if their investment involves national security, public order, public culture, financial prudence, government purchase, subsidy and taxation.

Security Review

Foreign investment in military-related fields, or in key agricultural products, energy, infrastructure, transportation, culture, information technology and equipment manufacturing that affect national security will be reviewed. 

The review will evaluate the influence of foreign investment on national security, economic stability, social order, morality, Internet safety and the development of key technology concerning State security. It will be conducted by a joint council, in which the National Development and Reform Commission and the Ministry of Commerce will work with relevant departments on a case basis. 

The local governments of FTZs are required to inform foreign investors when their businesses need to go through a national security review, and halt their business application procedures until further notice from the joint council. 

Foreign investments that may have a negative effect on national security but can be resolved by additional conditions will be dealt with by the joint council requiring written undertakings by the investors to revise their business plan and make decisions accordingly. 

For more information, please visit the official website of SHFTZ.

Comparing China's Free Trade Zones

Click here to view table.