Other BriefingsChina’s Pilot Free Trade Zones – New Opinions Signal Further Regulatory Easing
On April 21, Xinhua News Agency, China’s official state news agency, released a meeting readout on a new set of Opinions aimed at relaxing restrictions in China’s Free Trade Zones (FTZs).
According to the readout, the Central Committee of the Communist Party of China and the State Council issued the Opinions on Implementing the Free Trade Pilot Zone Enhancement Strategy (the “Opinions”). This document proposes a range of regulatory easing and enhancements, including optimizing trade flows, improving investment facilitation, and fostering innovation ecosystems in order to promote opening up and strengthen China’s FTZs. The full text of the Opinions has not yet been released, but the readout indicates that they have been issued to the relevant local authorities for implementation, calling for all departments to “strengthen classified guidance and put relevant reform matters into the pilot free trade zones for trial implementation in light of the actual situation.”
China’s FTZs play a critical role in the country’s broader economic reform agenda, serving as testing grounds for policies aimed at expanding market access, liberalizing trade and investment, and improving the overall business environment. Since the establishment of the first FTZ in 2013, the network has expanded to 22 zones across the country. Over the past decade, these zones have piloted a series of key reforms, including the use of negative lists for foreign investment, streamlined customs procedures, and liberalized financial services, which have later been replicated nationwide. The latest Opinions signal a renewed commitment to deepening reforms within these zones as China seeks to attract more foreign investment and boost high-quality economic development amid increasing global competition and shifting supply chains.
What are China’s FTZs?
China’s FTZs are a strategic tool for the country’s economic reform and market opening, reflecting the country’s policy priorities. China’s FTZs were borne out of the bonded zones, the first of which was established in 1990 in Shanghai. This zone – the Shanghai Waigaoqiao Bonded Area – served to provide bonded warehousing, export processing, international trade, and commodity display, in order to facilitate international trade
In 2013, China established the first pilot FTZ in Shanghai, encompassing four existing bonded areas: Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port Area, and Shanghai Pudong Airport Comprehensive Bonded Zone. A year later, this was expanded to the Lujiazui Financial District, Jinqiao Development District, and Zhangjiang High-tech District, to cover a total area of 120.72 square kilometers.
In 2015, three more FTZs were established in coastal provinces – in Tianjin, Guangdong, and Fujian – each based around their respective port areas. In 2017, FTZs were established in several inland provinces, including Sichuan, Chongqing, and Shaanxi, to attract industries to China’s western regions and boost the development of the Belt and Road Initiative (BRI).
In 2018, the entire island of Hainan was designated as a free trade port (FTP), covering a total area of 35,354 square kilometers, making it the largest FTZ to date.
As of 2025, China has established 22 FTZs, each located in a different province, municipality, or autonomous region. The newest FTZ is located in Xinjiang and started operating in 2023.
Among the core ambitions of the FTZs is to facilitate investment, liberalize trade and finance, enhance innovation through a relaxed regulatory environment and government incentives, and act as a testbed for new regulations and emerging industries. The FTZs are also given a higher level of independence, being granted permission to develop their own regulations and policies within the framework of China’s overall policy priorities and the unique role of each FTZ.
According to the Ministry of Commerce (MOFCOM), in 2024, China’s 22 FTZs attracted US$282.5 billion in foreign capital, accounting for 24.3 percent of the country’s total.
Each FTZ has its own key characteristics and serves a unique purpose in China’s overall industrial and economic development, often tied to its local geographic or industrial advantages. For instance, the Shanghai FTZ aims to further explore financial liberalization and innovation and provide incentives for certain high-tech industries such as civil aviation, semiconductors, and biomedicine. Some FTZs, such as the Guangdong FTZ and Fujian FTZ, focus on deepening regional cooperation, with the Guangdong FTZ seeking to deepen cooperation between Guangdong, Hong Kong, and Macao, and the Fujian FTZ geared toward deepening integration with the island of Taiwan. The Guangxi, Yunnan, and Heilongjiang FTZs are conducive to promoting the opening up of their respective border areas and further strengthening economic and trade cooperation with neighboring countries.
FTZs have bonded free trade zones, where goods can pass through duty-free, thus facilitating international trade. However, another significant role of the FTZs is to serve as testbeds for new policies and legislation, which, if successful, are then implemented to more regions or even nationwide.
These policies are in particular geared toward economic opening, such as expanding market access and liberalizing trade. However, the zones also allow stress testing of regulations and policies for new and emerging industries, in particular in the technology sphere.
For instance, in 2024, China’s Ministry of Industry and Information Technology (MIIT) launched a pilot program that lifts the 50 percent foreign ownership caps in certain value-added telecom services in the Beijing’s Comprehensive Demonstration Area for Expanding Opening-up in the Services Sector, Shanghai’s Lingang New Area, the Hainan FTP, and Shenzhen’s Demonstration Pilot Zone for Socialism with Chinese Characteristics.
Benefits of setting up in an FTZ
Streamlined incorporation procedures
China’s FTZs streamline business incorporation by simplifying and accelerating the registration process. Companies benefit from one-stop service platforms, either physical or online, that consolidate various procedures such as business licensing, tax, customs, and social insurance registration into a single application. Instead of requiring government approvals for most foreign investments, FTZs typically rely on a filing-based system, significantly reducing bureaucratic delays, unless the investment falls under restricted sectors on the Negative List.
The registration timeline is also notably shortened, with some FTZs processing new business applications in under a week. Digital services, including electronic business licenses and remote application portals, further enhance efficiency and accessibility, especially for foreign investors. Additionally, capital requirements are relaxed, eliminating the need for immediate capital injections or capital verification at the time of registration. Some FTZs even offer direct support in opening bank accounts, helping businesses begin operations more quickly after incorporation.
Expanded market access
China’s FTZs offer relaxed restrictions on foreign ownership across various industries.
According to the 2021 edition of the Foreign Investment Negative List for FTZs—the most recent version available—27 sectors remain restricted or prohibited for foreign investors. This is four fewer than the national Foreign Investment Negative List (2021 Edition), which includes 31 restricted sectors. Notably, two manufacturing-related sectors present in the national list are excluded from the FTZ list. These include:
- Printing of publications, which must be controlled by a Chinese entity.
- The processing of Chinese herbal medicines through steaming, toasting, moxibustion, calcination, and the production of proprietary Chinese medicines with confidential prescriptions, which are off-limits to foreign investors nationwide but not within the FTZs.
Additionally, the FTZ list does not include the national prohibition on foreign investment in marine fishing within Chinese territorial waters. It also permits foreign participation in social survey services, subject to a requirement that a Chinese party holds at least 67 percent of shares and that the legal representative is a Chinese citizen. Nationally, this sector is fully closed to foreign investors.
Another example is performing arts groups: while foreign investment is entirely banned on the national list, the FTZ list permits it with a Chinese partner holding the controlling stake.
FTZs are also piloting deeper liberalization in the services sector. In 2024, China launched a pilot program in certain areas of China’s FTZs – Beijing, Shanghai, Hainan, and Shenzhen (Guangdong FTZ) – that lifts the 50 percent foreign ownership cap in several value-added telecom services. These include Internet Data Centers, Content Delivery Networks, Internet Service Providers, online data and transaction processing, and certain categories of information services.
Also in 2024, MOFCOM issued China’s first-ever negative lists for cross-border trade in services, one nationwide and one specific to FTZs. The national list contains 71 restricted items, while the FTZ list has only 68, offering greater openness in specific areas.
For example, the FTZ list expands access to financial services by allowing qualified overseas individuals to open securities and futures accounts. It also removes restrictions on overseas entities and individuals engaging in customs declaration services. As a result, foreign service providers can now offer customs declaration services within cross-border FTZs without the need to establish a local legal entity.
Lastly, the FTZ list reduces the minimum requirement for Chinese personnel involved in the joint production of television programs by domestic and foreign companies.
Key preferential policies
Preferential corporate income tax rate
Certain areas within China’s FTZs offer a reduced corporate income tax (CIT) rate of 15 percent for companies engaged in industries specifically encouraged for development in those zones.
To promote investment and business growth in key sectors, several regions have introduced this preferential CIT policy, lowering the standard tax rate from 25 percent to 15 percent. These include, but are not limited to, several areas of China’s FTZs. This incentive is available to eligible companies operating in designated industries across various development zones. These areas are:
- The Lingang New Area of the Shanghai FTZ
- The Fujian Pingtan Comprehensive Pilot Zone of the Fujian FTZ
- The Hengqin-Guangdong-Macao In-Depth Cooperation Zone in Zhuhai, Guangdong
- The Guangzhou Nansha Economic and Technological Development Zone of the Guangdong FTZ
- The Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of the Guangdong FTZ
- The Hainan Free Trade Port
- The Western regions, which encompasses provinces and autonomous areas such as Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang. Additionally, certain prefectures and cities in Hunan, Hubei, Jilin, and Jiangxi are also eligible to apply the Western regions’ tax incentives.
Eligibility for the reduced CIT rate depends on a company operating within one of the locally encouraged industries, as defined by catalogs issued by local authorities. Furthermore, companies must demonstrate a meaningful commitment to the region. This generally requires showing “substantial operations” within the area, which often includes generating at least 60 percent of the main business income from activities listed in the local encouraged industries catalog and maintaining a significant operational presence in the zone.
For more information on the reduced 15 percent tax incentive, see our article on Qualifying for China’s Reduced 15 Percent CIT Rate.
Preferential individual income tax rate
Some areas of China’s FTZs have implemented preferential individual income tax (IIT) policies to attract high-end and in-demand talent. These policies aim to reduce the effective tax burden of qualified individuals to 15 percent, primarily by subsidizing or exempting the portion of tax that exceeds this threshold. While the core principle is similar across the regions, each FTZ has its own implementation details, eligibility criteria, and expiration timeline.
The Nansha New Area in Guangzhou, which is home to a section of the Guangdong FTZ, has implemented a preferential IIT policy specifically targeting Hong Kong and Macau residents. The policy exempts the portion of their IIT burden in Nansha that exceeds their respective home jurisdictions’ tax liabilities. The eligible income includes wages, royalties, labor remuneration, and officially recognized subsidies, provided the income is sourced within Nansha. The tax relief is granted during the annual tax filing process. This policy is in effect from January 1, 2022, to December 31, 2026, and applies across the entire Nansha district as designated in the area’s comprehensive cooperation plan.
The Hainan FTP, meanwhile, offers a 15 percent IIT cap to both domestic and foreign high-end or urgently needed professionals. This preferential policy covers comprehensive income (including salaries, labor remuneration, royalties), business income, and certain subsidies. Unlike the post-payment refund mechanism used in some other FTZs, Hainan’s policy allows taxpayers to directly apply the reduced tax rate during their annual IIT reconciliation. Eligibility is determined via a provincial talent list and requires individuals to reside in Hainan for at least 183 days in a tax year or meet exceptions for industries such as offshore energy or shipping. Additional requirements include employment with a Hainan-based firm and regular social insurance contributions. The policy is scheduled to run until the end of 2027.
In the Lingang New Area of the Shanghai FTZ, foreign high-end and urgently needed talent working can receive a subsidy covering the portion of IIT that exceeds 15 percent of their taxable income. Lingang also offers a range of measures to attract global professionals, such as easing residency and employment permit conditions and recognizing foreign professional qualifications. This IIT benefit is valid through the end of 2025.
A similar preferential IIT policy is also available for high-end and urgently needed talent working in the Hengqin Cooperation Zone. Under this policy, eligible talents are exempt from paying the portion of IIT that exceeds 15 percent of their income, while Macau residents working in Hengqin enjoy a tax exemption for the portion of their tax burden that exceeds what they would pay under Macau’s tax regime.
Facilitated cross-border data transfer
Since 2024, China’s FTZs have been at the forefront of implementing relaxed regulations on the export of data and personal information overseas. Under China’s national data protection laws, companies transferring “important data” or certain volumes of personal information across borders are required to undergo rigorous compliance procedures, including security assessments, signing a standard contract with the overseas recipient, or undergoing third-party certification. These requirements have proven particularly burdensome for multinational companies that routinely share data between their Chinese and global operations.
To address this issue, in March 2024, the Cyberspace Administration of China (CAC) issued new measures allowing FTZs to pilot their own localized cross-border data transfer (CBDT) regimes. Crucially, these measures permit FTZs to implement data export negative lists, which specify what types of data and volumes of personal information are subject to compliance controls, thereby allowing unrestricted export of data not listed.
Following the CAC’s announcement, FTZs around the country began developing tailored frameworks for managing outbound data flows. In May 2024, the Tianjin FTZ became the first in China to release a data export negative list, identifying 45 categories of sensitive data across 13 industries that are either prohibited or restricted from export without additional compliance. That same month, the Shanghai Lingang New Area issued trial general data whitelists for three sectors, indicating the types of data that can be freely exported. In March 2025, Lingang supplemented these with its own formal negative lists, introducing a more structured approach to managing data export permissions.
To date, five FTZs—Tianjin, Shanghai (Lingang), Beijing, Hainan, and Zhejiang—have published their own data negative lists, covering a wide range of industries such as healthcare, finance, telecommunications, and automotive. These lists function by defining the scope of restricted or controlled data. Data not included on the list – or volumes of personal information below specified thresholds – can be exported without triggering the usual national-level compliance protocols. This approach significantly reduces regulatory uncertainty and administrative overhead for companies operating within the FTZs.
The introduction of these negative lists marks a major step toward streamlining data export compliance in China. By clearly delineating which types of data are subject to scrutiny, these policies provide much-needed transparency and predictability for businesses. One of the key benefits is the higher thresholds for personal information exports, granting companies more leeway before triggering compliance procedures compared to the broader national framework. They also provide a significant additional benefit when setting up an FTZ.
Proposed regulatory easing and increased market access in the FTZs
While the full text of the proposed enhancements to China’s FTZs has not yet been released, the readout published by Xinhua News Agency on April 21 suggests a broad agenda aimed at further liberalizing trade, investment, data flow, and talent mobility in FTZs, with the overarching goal of positioning them as new frontiers of high-level reform and opening-up.
In the area of foreign trade, the Opinions propose upgrading the structure and competitiveness of goods trade, revitalizing service trade, and accelerating the development of digital trade. Concrete measures include permitting the bonded logistics mixing of gold-containing ores under different tariff codes and launching a “white list” system for R&D-related biopharmaceutical imports, which would exempt certain imported items from customs drug clearance requirements. These reforms could ease the operational burden on companies engaged in high-tech and life sciences sectors.
The Opinions also aim to bolster offshore international trade by supporting the recognition of overseas professional qualifications, which may include facilitating the recognition of foreign credentials in industries such as finance, healthcare, and legal services. If effectively implemented, these measures could improve talent mobility and service quality in FTZs.
Investment liberalization and service sector openness are another central focus of the Opinions, with many of the proposals aligning with the recent efforts to open up the services industry through various pilot programs. The proposed measures include:
- Allowing foreign-invested enterprises to engage in film post-production services.
- Permitting medical professionals from Hong Kong, Macao, and Taiwan to establish clinics in the FTZs after obtaining the appropriate certifications.
- Authorizing international arbitration institutions to set up operations in eligible FTZs, thereby enhancing dispute resolution services in line with international standards.
To strengthen scientific and technological innovation, the Opinions emphasize building a high-level innovation ecosystem by integrating innovation chains with industrial supply chains. Specific initiatives include:
- Supporting the testing and demonstration of intelligent connected vehicles.
- Establishing test zones for unmanned aerial vehicles.
- Promoting participation in the development of national-level industrial clusters.
Although the readout underscores the need to enhance the efficiency and security of cross-border data flows, it does not announce any new measures in this area. This suggests that FTZ-level reforms, such as the rollout of data export negative lists, will continue to be the main vehicle for CBDT liberalization, pending further guidance from central authorities.
In the logistics and energy sectors, the Opinions propose optimizing shipping services and enabling bonded logistics for mixing high- and low-sulfur fuel oils, as well as allowing liquefied natural gas (LNG) to enjoy bonded policies when used as fuel for international ships, developments that could enhance China’s energy trade and shipping competitiveness.
Financial sector reforms are also highlighted, with measures to:
- Expand foreign currency and RMB fund pools for multinational companies.
- Broaden the opening of domestic futures markets to foreign participation, particularly in commodities.
- Explore alternative channels for opening up, such as granting foreign firms access to settlement price authorization.
Finally, the Opinions propose more active and open talent policies, including improved mechanisms for talent recruitment, exchange, and utilization. This reflects a broader effort to attract high-level professionals and skilled workers to support innovation-driven growth in the FTZs.
Local governments are urged to tailor implementation based on local conditions, with the Ministry of Commerce (MOFCOM) tasked with overseeing coordination, tracking progress, and replicating successful reforms in other regions.
The release of this readout may be seen as an effort to reassure foreign investors and signal China’s commitment to opening up, especially amid a complex global trade environment. However, without the full text of the Opinions, the scope and enforceability of these proposals remain uncertain. Stakeholders will need to wait for the official document to be published to fully understand the extent and impact of the reforms, and how they will be applied in practice across different FTZs.
About Us
China Briefing is one of five regional Asia Briefing publications, supported by Dezan Shira & Associates. For a complimentary subscription to China Briefing’s content products, please click here.
Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.
- Previous Article Bank Account Risk Management: Tips for Hong Kong Banking Operations
- Next Article Can Hong Kong Capitalize on US Delisting Risks Facing Chinese Companies?
