Free trade zone expected to be model for China’s opening-up

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China has unveiled a new plan to build Hainan into a pilot free trade zone with upgraded trade facilitation, where market access will be substantially expanded for foreign companies. The release of the plan follows the announcement of the central government’s decision in April to transform the entire island of Hainan into the country’s 12th FTZ, covering 35,400 square kilometers – an area 32 times the size of Hong Kong. 

“As a demonstration area of China’s initiative to further open up and promote economic globalization, the island will be granted more autonomy to enact reforms and speed up the fostering of a law-based, international and convenient business environment,” said Wang Shouwen, vice-minister of commerce. 

He said the Hainan FTZ will adopt pre-entry national treatment and negative list management systems for foreign investment that encourage openness, especially in areas such as seed production, healthcare, telecommunications, internet, aviation, marine economy and new energy vehicle manufacturing. 

According to the plan, stock ownership ratio limits for foreigners in new vegetable variety breeding and seed production will be abolished. The central government will transfer its power to approve foreign investment in value-added telecommunications services to Hainan province. Foreign companies are expected to hold up to a 51 percent ownership share in life insurance companies and restrictions on foreign share ratios in vessel and general aircraft design, manufacturing and maintenance will be removed. 

Both domestic and foreign shipping companies are welcome to set up operational or regional centers in the FTZ, as part of the efforts to build the area into an international shipping hub. More cruise lines that include Hainan as a destination will be developed to foster the local tourism industry, according to the plan. 

As part of its opening-up policies, China unveiled a new negative list in June for foreign investment in FTZs, with the number of items down to 45 from 95 in the previous version.  The government plans to make Hainan FTZ an international tourism and shopping center, as well as offer services and support for development of the Belt and Road Initiative and other national strategies. 

By 2020, Hainan island is expected to become a high-quality FTZ that promotes trade and investment facilitation, provides a sound legal environment, thorough financial services, efficient regulation and a favorable ecological environment, and help lay a solid foundation for the construction of Hainan as a free trade port. 

Shen Danyang, vice-governor of Hainan, said the provincial government has drafted an action plan, including efforts to enhance a risk management system and mechanism, to create a better business environment. He said one of the key agendas for the development of FTZ is the innovation of mechanisms that are crucial for a fair and efficient market environment. 

Zhang Yantong, vice-chairman of the State Council’s Counselors’ Office, said that the construction of Hainan FTZ needs to draw on advanced international experience to help build the island into the world’s largest free trade port, which is expected to enjoy the highest level of openness. 

He encouraged Hainan to take advantage of its huge space of the whole island to create complementary pilot innovative experiences that can be replicated and popularized in the country. 

“Hainan should pioneer free trade policies in tourism, shopping, healthcare, cultural and entertainment, education and shipping to stimulate market vitality and achieve breakthroughs in opening the service sector,” said Chi Fulin, president of China Institute for Reform and Development. 

Bi Jiyao, vice-president of the Chinese Academy of Macroeconomic Research of the National Development and Reform Commission, said the new policies will push the Hainan FTZ to accelerate and strengthen infrastructure connectivity and regional integration in service and manufacturing businesses with economies of the Association of Southeast Asian Nations and other countries and regions involved in the Belt and Road Initiative. 

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