On September 28th 2013, just before China’s National Day, the State Council published the overall plan for China (Shanghai) Pilot Free Trade Zone, officially announcing the establishment of Shanghai Pilot FTZ. The goal of Shanghai FTZ is to build “a world-class pilot free trade zone with convenience for investment and trade, freedom for currency exchange, efficient and convenient supervision and administration, and normative legal environment.” To achieve the liberalization of more industries, attracting more FDI and improving international trade, Chinese government issued several FTZ polices. This paragraph will give a brief introduction about policies benefiting China’s international trade.
Duty exemptions for Shanghai FTZ imported equipment
Manufacturing and production service businesses in the newly launched Shanghai Free Trade Zone (FTZ) will get their imported equipment duty-free. The exemption will be applied to such enterprises’ imports of machines, equipment and other necessary goods for manufacturing, according to a new tax policy released by the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation. Since China is the world’s manufacture center, the exemption will largely lower the material cost of manufactures. Companies in FTZ can outsource some of equipment manufacturing to other lower-cost countries without paying more duties since China’s labor cost increased heavily these years. Both domestic and foreign companies can benefit from importing lower-price machines and equipment.
Loose Foreign Exchange Regulation Stimulate International Trade
On February 28, the Shanghai State Administration of Foreign Exchange (Shanghai SAFE) issued the “Notice Concerning Support for the Implementation of Foreign Exchange Administration in the China (Shanghai) Pilot Free Trade Zone.” Under the new “Notice”, foreign invested enterprises (FIEs) registered in the FTZ are now allowed to make foreign exchange capital accountsettlement at their own discretion. Currently, FIE outside FTZ can only make foreign exchange settlement within SAFE’s strict constrains on the purpose of the settlement. A complex and case-by-case application process is needed for every settlement. The Notice simplifies the procedure for foreign exchange settlement and allows FIE to open RMB special deposit accounts to hold RMB funds obtained from foreign exchange settlements. These RMB funds may be used to make payments for real transactions, which makes the payment process for imports and exports more efficient. Companies are willing to make more international trade and develop outsourcing with the ease of foreign currency restrictions. Besides, exchange rate risk can be better manged and hedged by discretionary foreign currency management, which is a big incentive for companies in FTZ to expand both China and global market.
To further enhancing cross-border investment and trade, PBOC allows companies in Shanghai FTZ to conduct offshore RMB borrowing. The “Notice concerning Support to Further Expand the Cross-Border Usage of RMB in the China (Shanghai) Pilot Free Trade Zone” specifies the scope of offshore RMB borrowing. Besides, the cross-border E-Commerce services and RMB exchange services will be provided within FTZ to simplify the process of offshore RMB borrowing. The offshore borrowing enlarges the financing channels for both domestic and foreign companies in FTZ to obtain their capital under lowe interest rate. Furthermore, overseas finance reduce the transaction cost of imports and exports so that companies are more willing to conduct international trade.
Improvement of shipping, logistic and transportation industry
Shanghai announced its plan to be an international shipping center in 2009 and FTZ is one of the key steps to achieve this goal.
- FTZ allows majority owned/wholly foreign owned international ship management enterprises to conduct shipping business in all Shanghai harbors.
- The new shipping policy simplifies procedures for customs and goods inspections, largely increasing the efficiency of transporting imports from harbor to companies.
- Special logistics companies are encouraged to set up in FTZ to release the burden on companies to have heavy backlog.
- Shanghai will strengthen the construction of port infrastructure, optimize the port transport structure and functions and improve legal mechanisms for the international ocean shipping market.
The improve of shipping industry in Shanghai will strengthen the connection between China and global in ocean trade. Furthermore, a green and sustainable shipping environment can provide companies to better manage their logistics in a more efficient and effective way.
The establishment of Shanghai Pilot Free Trade Zone and the following 12 approved FTZ in other major cities in China will definitely increase international trade and attract more FDI in china.
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Duty exemptions for Shanghai FTZ imported equipment