FTZs lead the way in China’s economic transformation

Over three years after its launch, the Shanghai pilot Free Trade Zone, the country’s first, pledges new measures to facilitate trade and investment this year, as many of its experiences have been promoted elsewhere nationwide.

“The Shanghai FTZ will conduct more reforms to enhance trade facilitation,” said Shang Yuying, head of the Shanghai municipal commerce commission, adding the first three years mainly focused on investment opening-up. The FTZ’s negative list, which restricts foreign investment, is set to be further shortened, after the number of items on it has been cut by one-third, from 190 to 122.

As a beneficiary of the reform, the first foreign-funded vocational training school opened in the Shanghai FTZ in mid-January. Such foreign investment would not be possible without the FTZ.

China approved a second batch of three FTZs in Tianjin Municipality, and the provinces of Guangdong and Fujian in 2014, and a third batch of seven FTZs last August. The negative list system is also used in Tianjin, Guangdong and Fujian FTZs.

As China presses ahead with structural reforms for innovation-driven growth, such free trade zones have become attractive to investors and contributed to reforms with their policy innovation and opening up in industry, finance and other sectors. The country aims to use the example of FTZs to promote economic restructuring nationwide.

“Some 114 items of pilot FTZ reform experiences have been replicated nationwide,” said Sun Jiwen, spokesman for the Ministry of Commerce last month, adding that more would be replicated later this year.

Local governments are gearing up for the inaugurations of FTZs in Liaoning, Henan, Zhejiang, Hubei, Chongqing, Sichuan and Shaanxi. They have made it a key task to explore the full potential of FTZs in local economic restructuring.

In fact, FTZs have become a major means for these provinces to participate in key development strategies such as the Belt and Road Initiative, the Yangtze River Economic Belt and the coordinated development of Beijing, Tianjin and Hebei.

“The FTZ is the most important opportunity for Hubei to deepen supply-side structural reform,” said Zou Wei, deputy director of the Institute of Advanced Study at Wuhan University. “The FTZ will receive some industrial transfers and build bases for strategic emerging industries to make the province play an active role in the rise of the central and Yangtze River region.”

China’s FTZs are expected to make more reforms. Some call for more legal support for FTZs. Some old trade rules no longer fitted the new trade developments as China’s foreign trade used to focus on primary products, but today many are high-tech products such as integrated circuits and biomedicine.