Piloting Opening Up in a New Era

by Li Dawei

On August 26， 2019， the Chinese government unveiled six new pilot free trade zones in Shandong Province， Jiangsu Province， Guangxi Zhuang Autonomous Region， Hebei Province， Yunnan Province and Heilongjiang Province， respectively， adding the total number of pilot free trade zones in the country to 18. Since September 2013 when China （Shanghai） Pilot Free Trade Zone opened， Chinas pilot free trade zones have been innovating systems concerning investment， trade， finance and supervision. They employ a variety of methods to build a business environment with a sound legal framework， internationalized regulations and streamlined procedures. They also attach great importance to conducting institutional innovation according to their respective characteristics. Pilot free trade zones have become important engines for regional trade and investment while accumulating experience conducive to Chinas further reform and opening up.

According to statistics， in 2018， Chinas 11 free trade zones—excluding China （Hainan） Pilot Free Trade Zone—utilized foreign investment of more than 107.3 billion yuan （around US$15.3 billion）， 12.12 percent of the foreign investment used by the whole nation. Their aggregate import and export volume reached 3.74 trillion yuan （around US$534.3 billion）， accounting for 12.25 percent of the countrys total. Pilot free trade zones have become new platforms for Chinas economic and trade cooperation with the rest of the world. For example， China（Shanghai） Pilot Free Trade Zone contributed a quarter of the citys GDP and tax revenue with only one-fiftieth of the citys land. About 45 percent of regional headquarters of multinationals and foreign-invested R&D centers in Shanghai are found in the free trade zone. Over 120 institutional innovations of the free trade zone have been applied around the country， highlighting its role as an experimental field of reform and opening up. The Qianhai& Shekou Area of Shenzhen， part of China （Guangdong） Pilot Free Trade Zone， has carried out bold innovation to improve legal systems and optimize the business environment. It has taken the lead in establishing a“financial court” and an “intellectual property court.” It also established a demonstration zone for innovation and entrepreneurship for youth from Guangdong， Hong Kong and Macao. Since its establishment， the demonstration zone has attracted more than 10，000 Hong Kong enterprises to register and conduct business. It has emerged as one of the platforms featuring the closest and most successful cooperation among Guangdong， Hong Kong and Macao.

Reasons for Expansion of Pilot Free Trade Zones

Three key reasons are driving the expansion of Chinas pilot free trade zones： First， the need to optimize the matrix of opening up. Half of the six newly established pilot free trade zones are located in the coastal areas， achieving full coverage of pilot free trade zones in Chinas coastal provinces. This is crucial for the coastal areas to further enhance their own opening up while stimulating the opening up of Chinas inland areas. At the same time， pilot free trade zones have been set up in border areas in Yunnan， Guangxi and Heilongjiang for the first time. Now， pilot free trade zones can be found in coastal， inland and border areas of China， which helps make new ground in opening the country further through links running eastward and westward， across land and over sea.

The second reason is the need to explore different institutional innovation in different regions. Chinas economy is shifting from high-speed growth to high-quality development， and factor endowment and economic foundation in different regions and different industries are not the same. Therefore， the focus of deepening reform and expanding opening up should also be different. The six newly established pilot free trade zones reflect the idea of differentiated exploration in a wider arrange of areas and on more levels. For example， the pilot free trade zone in Jiangsu highlights the need to improve cooperation related to foreign investment and provide stronger financial support for the real economy. The pilot free trade zone in Yunnan highlights innovation on cross-border economic cooperation.

Third is the need to deeply integrate with and serve major national strategies. For example， the pilot free trade zone in Hebei emphasizes its role in serving coordinated development of Beijing， Tianjin and Hebei， and the pilot free trade zones in Yunnan and Heilongjiang focus on serving the Belt and Road Initiative. The pilot free trade zone in Guangxi serves the construction of Chinas new western land-sea corridor.

Institutional Opening Up in a New Era

China has transitioned from factor-based opening up to institutional opening up， which demands further reduction of tariffs， facilitation of trade and attraction of foreign investment to accumulate high-end factors. It is also necessary to integrate with international rules and regulations in “post-border”fields including intellectual property protection， investment regulation and commercial regulation.

In the future， Chinas pilot free trade zones will focus on reform and innovation of “post-border” regulations and promote greater liberalization and facilitation of investment， trade， finance and emerging industries. They will be pioneering in terms of setting rules， testing pressure and integrating with international standards， making great contributions to a new mechanism of opening up.