China doubles size of Shanghai Free-Trade Zone to include Tesla town in drive to open markets
- FTZ expanded to encompass Lingang, the site of American carmaker’s new factory
- Tax incentives and exemptions offered to attract talent and infrastructure
China announced new tax incentives and import duty exemptions on Tuesday, as it formally expanded the Shanghai Free-Trade Zone (FTZ) amid rising trade war tensions with the United States.
The State Council, the country’s cabinet, unveiled the plan to double the size of the zone by adding Lingang, an area newly reclaimed from the sea.
Lingang is roughly the size of the Hong Kong special administrative region and is home to carmaker Tesla’s first factory outside the US.
The expansion comes after a decade of growing competition between mainland ports and Hong Kong, with Shanghai also mulling plans to transform Lingang into a mini-Hong Kong free marketplace over the next two decades.
The 13-month trade war with the US has pushed China to show more openness to the world on trade and at the announcement on Tuesday, Chinese vice-commerce minister Wang Shouwen, a key player in the trade talks with Washington, underscored Beijing’s commitment to continue the process.
“[The expansion of the Shanghai FTZ] is also an important step to demonstrate China’s clear stand for all-round opening up in the new era and its active role in guiding the healthy development of economic globalisation,” Wang said.
He said Beijing would not hesitate to open its markets further, irrespective of developments in trade ties with other countries.
As part of that commitment, duties would be deferred or even not collected on certain products shipped through the new Lingang section, Shanghai vice-mayor Chen Yin said.
“Goods from abroad entering the fenced customs areas of the new area will be under bonded or tax exemptions,” Chen said.
According to the overall plan, the new Lingang section will include a fenced-in area where special tax policies will apply for goods entering from abroad, as well as goods and service transactions between companies within the area.
Shanghai would also cut corporate income tax rates in Lingang for companies in preferred industries, including integrated circuits, artificial intelligence, biomedicine and civil aviation.
“The new area of the FTZ will put industrial development in a more prominent position,” Wang said.
A special development fund, with more than 100 billion yuan (US$14 million) has also been set up to attract top talent and infrastructure to Lingang over the next five years.
Lingang is on the southeast tip of Shanghai and connected to the city’s Yangshan deep water port by the 32km (20-mile) Donghai Bridge.
The area is home to Tesla’s US$2 billion Gigafactory 3, which is expected to open by the end of this year and initially make about 3,000 Model 3 cars a week.
Lingang was widely expected to be added to the zone after Chinese President Xi Jinping announced in November that the FTZ would be expanded to deepen economic reforms and further open up the Chinese market.
“It is a vast area that can accommodate mega manufacturing projects, commercial complexes and entertainment facilities,” said Cao Hua, a partner at private equity firm Unity Asset Management.
“The announcement [about its inclusion in the FTZ] is not a surprise, but it boils down to whether land resources and financial capital will be used effectively to turn Lingang into a boomtown.”
Huang Yejing, a research professor at the Institute of World Economy at the Shanghai Academy of Social Sciences, said authorities faced the daunting task of setting up a secure customs system to ensure the success of the zone.
“Customs authorities are supposed to ensure all the goods inside the zone are duty free to boost commercial activities in the area,” Huang said. “But they also need to make sure that those duty-free goods do not flow out of the zone and are sold on the domestic market. It is still an unanswered question facing regulators.”
Chinese customs still impose duties on all goods moving through the Shanghai FTZ.