BOFIT Viikkokatsaus / BOFIT Weekly 2019/41

New free-trade zones (FTZs) will be established in the Heilongjiang, Guangxi, Hebei, Jiangsu, Shandong and Yunnan provinces. The new FTZs have various branch-specific and geography- related emphases. For example, the northern Heilongjiang FTZ focuses on Russian trade and wood processing industries.

Companies in FTZs are subject to looser rules. They may get special foreign trade incentives, relaxed customs procedures, fewer barriers to currency exchange and establishing a business, lower joint-venture requirements, the possibility to recruitment foreign workers and reduced taxes and fees.

China has good experiences with its special economic zones established in the 1980s and 1990s. Many of these were used as pilot experiments for reforms that were eventually adopted nationwide. China has established more special economic zones than any other country. UNCTAD reports that China has over 2,500 special economic zones, which is more than half of all such zones globally. China only established its first true FTZ, however, in Shanghai in 2013. With the six new additions, China now has a total of 18 FTZs.

Special economic zones earlier served a useful pilot role, but in the current decade they are likely to provide little extra value and can perhaps be seen mainly as holdovers from the past. Now China should promote national-level reforms rather than increase the number of new local pilot projects.