Free trade ports require more systematic reform

Source:Global Times Published: 2017/11/20 22:18:40

Illustration: Peter C. Espina/GT


Free trade ports symbolize the continuous opening-up of China after the 19th National Congress of the Communist Party of China (CPC). According to the report delivered by  General Secretary of the CPC Central Committee Xi Jinping to the 19th CPC National Congress, China "will adopt policies to promote high-standard liberalization and facilitation of trade and investment," and the nation is expected to "grant more powers to pilot free trade zones to conduct reform, and explore the opening of free trade ports."

Since free trade ports will provide special policies, which will mean more investment and development, many regions of China are actively seeking to be the locations of free trade ports. Shanghai, the first region in China to open a free trade zone, has taken the initiative.

According to the Ministry of Commence, the government in Shanghai, together with other related departments, is making plans for construction of a free trade port.

The Zhejiang pilot free trade zone also aims to be the forerunner of a free trade port.

Tianjin Port and Ningbo Port are the most promising second-tier candidates. Free trade ports require trade logistics and cargo-handling capacity. Ports with a large handling capacity, backed by an economic development area and having regional advantages, will be the first choices. These include Tianjin Port, Guangzhou Port, Shenzhen-Qianhai Port, Ningbo-Zhoushan Port and Fuzhou Pingtan Port. China has 11 free trade zones. They all could be potential competitors.

Is every trade zone suitable for upgrading to a free trade port? What complementary facilities should be built around a free trade port? What government services are required? Neither companies nor local governments can answer these questions. Therefore, competing to open free trade zones will descend to competing for titles and seeking special policies.

Building a free trade port is no easy task. There are hard conditions to meet. A free trade port refers to port areas that are built within the border but outside the customs area, allowing free flows of cargo and capital.

The ports offer tariff exemptions for most cargo exiting and entering the area. Cargo can be stored, exhibited, dissembled, modified, repacked, sorted, processed and manufactured within the port. According to incomplete statistics, there are more than 600 free trade ports in the world. Countries and regions such as Netherlands, the US, Singapore, Hong Kong, Japan and South Korea, which have free trade ports or zones that are similar, have become hubs, distribution centers and trading centers for international transactions.

Especially Singapore and Hong Kong, with their large handling capacity for containers, have implemented the free trade port policy. They have attracted a large amount of containers to transit and secured their positions as world container centers.

Besides hard conditions, free trade ports need "soft services." For example, Hong Kong does not have trade protectionism, and there is no value-added or sales tax. Regular cargo is free from import quotas and restrictions like import certifications and regulations.

Also, the investment policy is non-discriminatory, and most investment programs are not regulated. The tax policy is simple and the tax rate is low, and hence the free flow of people, products, capital and information is achieved. As for the financial services aspect, a free exchange system loosens constraints on local and international money flows, providing convenience for enterprise financing.

What makes Hong Kong a free trade port is that the whole city instead of a designated area facilitates free trade. This is the difference between the Hong Kong port and many free trade zones on the Chinese mainland.

Some free trade zones in the country are still very different from mature free trade ports in terms of finance, foreign exchange, investment and entry-exit administration. Launching free trade zones calls for more systematic reform and opening up than making a few policy adjustments.

This article was compiled based on a report by Beijing-based private strategic think tank Anbound.


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