The New Free Trade Zones Explained, Part III: Tianjin
In April, three new Free Trade Zones (FTZs) were officially implemented in Tianjin, Guangdong and Fujian, joining Shanghai to bring the total number of FTZs in China up to four. As a growing hub for manufacturing and shipping, Tianjin’s new FTZ has the potential to transform the landscape for development and foreign investment practices in Northern China.
Tianjin, a municipal-level city located a mere 40-minute train ride from Beijing, has witnessed significant economic growth in recent years. Tianjin’s GDP increased 10 percent in 2014 to reach 250 billion USD (RMB 1.572 trillion) and it is predicted to soon surpass Hong Kong in economic output. It has the biggest port in Northern China and development zones like the Binhai New Area and the Tianjin Economic-Development Area (TEDA) have positioned the city as an attractive site for investment. Major industries include manufacturing, pharmaceuticals, metallurgy and shipping. A total number of 139 Fortune 500 multinational companies made investment in the Binhai New Area in 2014, with a value of exports and imports at US$93.83 billion.
The Tianjin FTZ aims to fully exploit the potential for economic growth in Northern China by promoting the coordinated development in the area encompassing Beijing, Tianjin and Hebei (Jing-Jin-Ji). This name is derived from the abbreviations of the localities names, (Bei)jing, (Tian)jin and Ji being a common abbreviation for Hebei, used in much the same way CA means California or TX means Texas. While Beijing and Tianjin are the two cities with the highest income per capita in China, surrounding areas in Hebei are still classified as impoverished. To combat uneven development and poor infrastructure in this region, the Ministry of Finance has stated that a public-private partnership model will be adopted for the development of the region, with approximately US$6.76 trillion (RMB 42 trillion) budgeted for infrastructural projects like the construction of Beijing’s 7th ring road, which will connect the three regions into a megalopolis of over 100 million people.
Tianjin’s FTZ will be based on the model implemented in Shanghai but will also reflect characteristics specific to the region. It will promote a unified system between Tianjin and Hebei’s ports and develop a transportation belt between China, Mongolia and Russia by exploiting key transportation points and areas for collaboration.
In addition to promoting the coordinated development of the Jing-Jin-Ji area, the Tianjin FTZ will increase financial leasing and introduce relaxed policies for investment and currency exchange. Other encouraged industries include shipping logistics, aviation and spacecraft, equipment manufacturing, electronic information and pharmaceutical.
The Tianjin FTZ now covers an area of 119.9 square kilometers and consists of the three following development zones:
- Tianjin Port Area (including Dongjiang Bonded Port): 30 square kilometers
Major Industries: transportation logistics, international trade, and other service industries
- Tianjin Airport Area: 43.1 square kilometers
Major Industries: aviation, heavy equipment, high-technology research and development, aviation logistics and manufacturing service industries
- Binhai New Area: 46.8 square kilometers
Major Industries: financial services
Streamlined Management System:
- It will implement a filing system at the municipal level for foreign investment items that do not involve designated sensitive areas or industries. (See: Negative List)
- It will seek to strengthen the management of intellectual property rights by establishing a North China intellectual property rights operations center. It will allow intellectual property rights transactions across borders and allow new practices for intellectual property rights financing and insurance, risk management and other financial services.
Development of the High-Tech Industry
- It will encourage the development of green technology and establish an Asia-Pacific Economic Cooperation (APEC) green technology supply chain network in Tianjin.
- It will promote the import of advanced technology equipment and natural resource products.
- It will support the launch of test points for parallel imports of cars that meet safety standards; exporters will bear the responsibility for post-sales customer service, recalls, repairs, refunds and other services and must issue consumer risk reports to consumers.
- It will support the development of foreign high technology and high value-added product maintenance industries. Foreign investors are allowed to engage in repair and re-manufacturing of electronic products and components.
Further Opening-up of the Financial Services Sector
- It will allow approved financial institutions in the FTZ to exchange large amounts of foreign currency, and costs will be reduced for small and medium enterprises.
- Foreign investors will be able to directly convert RMB to and from foreign currency in the capital account, and lending amounts will be raised.
- It will support cross-border investment by organizations and individuals in domestic and foreign securities and equity markets.
- Qualified non-governmental parties to establish small and medium sized banks and other financial institutions.
- Foreign investors may now open Sino-foreign joint venture banks or wholly foreign-owned banks within the FTZ.
- It will gradually allow overseas enterprises to participate in commodity futures trading.
Financial Leasing Companies
- Financial leasing companies are now allowed to conduct commercial factoring business relevant to their main business, and it will support financial leasing overseas and encourage increased cross-border use of RMB.
- The customs inspections for aircraft, ships, naval engineering and other heavy equipment that are purchased and imported by financial leasing organizations in the FTZ may be allowed to be conducted outside of the FTZ under certain circumstances.
- Support overseas financial leasing, encourage different types of financial leasing companies to expand the cross-border use of RMB.
- Financial leasing companies are encouraged to set up professional subsidiaries.
- Wholly Foreign-Owned Enterprise’s (WFOE) will be allowed in international shipping management.
- Limitations on foreign investment ratios will be relaxed for equity joint ventures and cooperative joint ventures in international shipping management. It will allow foreign investors to use equity joint ventures and cooperative joint ventures models to sub-contract services in the international shipping industry, with the limitation for foreign shares relaxed to 51 percent.
- It will establish a North China International Ship Financing Center to encourage domestic and international insurance companies, insurance brokerage companies, and other intermediary organizations in the shipping services industry to establish business organizations and develop their services.
- It will allow the shipment of containers for international trade along the coastal line between Tianjin and other ports in mainland China.
The Tianjin municipal government will take charge of the approval procedures for foreign-invested enterprises (FIEs) engaging in international shipping management business.
Commercial Service Industries
- Certified foreign, Hong Kong, Macau and Taiwan professionals and organizations are allowed to conduct relevant businesses in the FTZ. Hong Kong professionals who are qualified as a Chinese Certified Public Accountant (CPA) are allowed to become partners in accounting firms established in the FTZ.
- Eligible foreign and domestic equity joint venture travel agencies within the FTZ may organize overseas travel to locations other than Taiwan; certain areas can apply to implement an overseas travel VAT rebate policy.
Preferential policies for financial leasing and trade create a more favorable environment for foreign investment in Tianjin and Northern China. Investors who are interested in launching or expanding business operations in this area are encouraged to familiarize themselves with the new Tianjin FTZ to learn how these policies could benefit their future business operations.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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