The Distance between Shanghai and “Free Trade Zone”

21 years ago, the first bonded area of China was established in Waigaoqiao in the Pudong District, Shanghai. Presently, the bonded area in Waigaoqiao is turning into a free trade zone. In the middle of November, leaders of free trade zones around the world and experts in this field all gathered in Shanghai to contribute their wisdom to turn Shanghai into a worldwide first-class free trade zone.

In the experts’ opinions, Shanghai has the biggest potential to accommodate an international free trade zone among all Chinese cities. So how far is Shanghai away from a first-class and internationally compatible free trade zone?

Rudiment of the free trade zone

In truth, the free trade zone is not a strange concept for Shanghai. The first bonded area, the first bonded logistics zone and the first bonded port area of China were all set up in Shanghai. Therefore, Shanghai has rich experience in the construction of free trade zones. Though these bonded areas were different from a real free trade zone in positioning and relevant policies, they can be considered as quasifree trade zones.

Li Boxi, a fellow from the Development Research Center of the State Council, said: “there are a lot of restrictions in foreign exchange management, commodity supervision, and enterprise establishment in the bonded areas in China compared with the world-known free trade zones. For example, the companies inside the bonded areas can set up foreign exchange accounts outside of the areas but foreign companies in the bonded areas cannot set up branches outside. Therefore they are far away from real free trade zones and have some elements that hinder the progress of free trade. That’s why we refer to the existing bonded areas in China as the rudiment of the free trade zone.”

Transformation needed by market and enterprises

“To develop the bonded areas into free trade zones is not req u ire d by t he government, but needed by the market and enterprises,” said Dai Haibo, vice governor of Pudong District, Shanghai. After more than two decades’ development, some import & export enterprises in the Waigaoqiao Bonded Area developed from small companies into international trade giants. Their goals are changing along with their size. For example, some enterprises are no longer satisfied with the trade between two places. They want to develop the offshore trade. If the enterprises can set up branches in Waigaoqiao, they can direct the commodity trades in several overseas markets simultaneously. However, the current policies and functions of Waigaoqiao Bonded Area cannot meet these demands.“The control of foreign exchanges and other issues prevent the settlement centers from being efficiently operated. Therefore some enterprises are forced to move their headquarters to Hong Kong or Singapore.”

Graham Mather, chairman of the World Free Trade Zone Convention, said: “the ports in Shanghai have advantaged conditions to build a free trade zone. Shanghai should further improve and expand the functions of its bonded areas and set an example for the free trade zones in China and the world.”

Breakthroughs expected in several fields

It is becoming more and more urgent for Shanghai to develop from the existing bonded areas into free trade zones. What should Shanghai, the city that is mostly involved in globalization in China, do to make breakthroughs in several key fields?

In many experts’ opinions, Shanghai has already fixed the plans of building an international financial center, shipping center and trade center, but should focus on building a free trade zone as well.

“An international shipping center cannot live up to its name without a free trade zone,” Li Boxi said. Shanghai should be where the first innovative and comprehensive free trade zone of China is established. This free trade zone should integrate functions of management, supervision, extension and so on. For example, qualified enterprises inside the free trade zone should be given the permission to conduct foreign exchange settlement outside the zone.

The “convenience in the regional operation” is an important mark to measure the competitive power of a free trade zone. The experts suggest that the free trade zone should be as accommodating as possible to the commodities coming into the region from the outside. For example, some commodities only need to be put on file and quarantined without going through a thorough inspection when they are imported to the zone. This could shorten the time of logistics as much as possible and help the enterprises inside the free trade zone to improve their efficiency.

In addition, the future free trade zone should be equipped with favorable tax policies, especially in the fields of shipping services, ship and plant renting and so on. This can create good tax and traffic conditions for the free trade zone, which are key elements in boosting development.