Free Trade Zones (FTZ) in China are a class of Special Economic Zones that are geographically defined areas within the country where specific regulations and policies are established to encourage economic activities such as trade, investment, and technology development. These zones are designed to simplify administrative procedures, reduce trade barriers, and attract foreign investors. 

Benefits for the Companies 

Companies registered within these Special Economic Zones benefit from:

• Reduced corporate tax rates.

• Exemption from import taxes until products are transferred out of the FTZ, often from the warehouse.

• Access to currency exchange services without fees, offering favorable rates for major currencies.

• Efficient and expedited customs clearance procedures.

• Proximity to a wide range of transportation, pick-and-pack, and logistics service providers.

• A faster VAT refund process.

Objectives of China's FTZs

Promoting International Trade: The primary goal of FTZs is to stimulate international trade by reducing tariffs, eliminating customs duties, and easing import and export procedures. This attracts foreign companies and fosters an environment conducive to global commerce.

Encouraging Foreign Investment: FTZs offer preferential policies for foreign investors, such as simplified business registration processes, fewer restrictions on foreign ownership, and tax incentives, making it easier for multinational corporations to establish a presence in China.

Enhancing Innovation and Technology: These zones encourage research and development activities, making them attractive for companies in industries such as biotechnology and information technology.

Impact on China's Economy

The establishment of FTZs has provided numerous benefits for China's economy such as increasing Foreign Investment: a significant amount of foreign investors has been attracted, driving economic growth and creating job opportunities also thanks to the simplified administrative processes and preferential policies for foreign businesses that have been instrumental in this regard.

FTZs, especially the one in Shanghai, have promoted innovation and technology development, positioning China as a global leader in various advanced industries.

Free Trade Zones are in a total of 22 areas across China: the first FTZ was established in Shanghai in 2013, and subsequently, FTZs were launched in Guangdong, Tianjin, and Fujian in 2015, and after many others were established.

New Xinjiang FTZ

On the 1st of November, the Xinjiang Pilot Free Trade Zone, the first of its kind in China's northwestern border regions, officially commenced its operations in an unveiling ceremony held in Urumqi, the regional capital. 

Covering nearly 180 square kilometers and divided into three areas, this FTZ is meant to leverage the region's resources, geographical advantages, and industrial foundation to facilitate high-quality construction and is expected to play a vital role in integrating Xinjiang into domestic and international markets, supporting the Belt and Road Initiative's core area development, and serving as a pivotal link between Asia and Europe. 

The Chinese State Council has issued a comprehensive plan that grants Xinjiang FTZ greater autonomy in reform and aims to promote the development of industries new to this province or those in which the region has a competitive advantage.

Moreover, Xinjiang's pilot FTZ is set to fast-track foreign-funded R&D centers with relaxed investment and staffing criteria, aiming to attract more foreign capital. Support will be offered to help overseas financial bodies establish local operations, improving the zone's international financial services. Additionally, domestic financial entities will be urged to increase infrastructure investment, making the zone more attractive to foreign investors.

As China continues to expand and refine its FTZs, they are likely to remain essential drivers of economic growth and international engagement in the years to come.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in China, please contact us at info@phcadvisory.com.

If you enjoyed this article you may be also interested in topics such as Tax cuts for advanced manufacturing enterprises in China.

About Us

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

Disclaimer

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not create any legal obligations between PHC Advisory and the reader.