China May Consider Locating the First ‘Free Zone’ in Shanghai

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Nov. 30 – Recent research jointly conducted by several key governmental departments indicates that Shanghai may become Mainland China’s first “free zone” on the agenda.

A report on China Economics Weekly says that in early November, the National Development and Reform Commission and the Development Research Center of the State Council co-conducted on-the-spot research regarding the development of Shanghai’s Pudong. The joint research, which looks for tangible administration and taxation policy breakthroughs, suggests that Shanghai may win the competition against other Chinese cities to boast the country’s first “free zone.”

China already has established 16 free trade zones, also known as bonded areas, since 1990. Different from the current free trade zones, where customs exempts tariffs on commodities imported to the area and will not impose any tariff on the commodities if they are not for export, the new proposed “free zone” refers to a specific area where a country implements favorable taxation and administration policies for both import and export. According to the China Economics Weekly report, Shanghai, Shenzhen, Tianjin and Chongqing have suggested to the government since as early as 2005 that they would like to offer such “free zones” as opposed to the existing free trade zones or bonded areas that are currently offered.

Chen Xi, director of the Department of Trade Development of Shanghai Tax-protected Zone Administration Committee, said that Shanghai has several unique advantages. The city’s current comprehensive free trade zone includes the three original bond areas and two major ports (Gaoqiao Port and Yangshan Port) as well as one international airport (Pudong Airport). The combined strength of three areas and three “ports” leaves Shanghai in a very advantageous position to become the country’s first “free zone.”

The China Economics Weekly report says the government will launch a series of reforms related to customs, quarantine, and foreign exchange in the near future. Among the distinct options for reform types, it is most likely that Shanghai will build up a “special customs-administrated zone” where there are no trade barriers or tax payments for commodity and service purchases.

However, to finally become a trading and financial center like Hong Kong, Shanghai still has a long way to go. During their communication with the central government, Shanghai officials called for more convenience in trading, tax exemption for shoppers, and the establishment of an international offshore trade center that possesses the ability to distribute and control global shipping resources.

A commentary by Xu Jingsheng on reveals other aspects of concerns over Shanghai’s advancement towards the “free zone.” He mentions Shanghai’s logistics and transportation may bear excessive stress, considering the city will attract even more shoppers than Hong Kong does due to the uncomplicated access to the city and its lower consumption level in average. Shanghai needs to further improve its infrastructure and service system to “bear the heaviness” of becoming the second Hong Kong.