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China economy

China pushes reforms in free trade zones as scepticism grows among foreign investors

  • Beijing announces a series of changes for its 12 free trade zones, but foreigners demand the government move faster to open entire sectors to overseas investment
PUBLISHED : Friday, 23 November, 2018, 7:05pm
UPDATED : Friday, 23 November, 2018, 7:43pm

China has unveiled a series of measures to deepen reforms in the nation’s free trade zones amid growing scepticism among trading partners over its commitment to opening up new markets to foreign investment.

China is in the midst of an escalating trade war with the United States and the two nations have slapped tariffs on billions worth of each other’s goods since July.

Washington is demanding China change its trade practices, taking aim at its subsidies to state-owned enterprises and forced transfer of technology from US businesses to Chinese partners. But China has said the US accusations are unfair and that it will pursue reforms at its own pace.

In recent years, China has been touting the free trade zones – where many mainland restrictions on investment and business practices do not apply – as success stories in attracting foreign investment and boosting international trade.

China State Council guideline prioritises land use for free-trade zones, sets stage for further liberalisation

The State Council, the nation’s cabinet, said on Friday that it would lower the minimum investment thresholds in designated free-trade zone for building facilities and recruitment of workers by foreign firms, according to a document published on the central government’s website.

The government will also allow foreign carriers to offer passenger and cargo services from Zhengzhou and Xian, two free trade zones in central China, to other countries.

Red tape for car imports would also be cut in qualified free trade zones, the government promised.

Qualified individuals approved by the government will also be allowed to invest directly in overseas securities from free trade zones – China now only allows locals to buy overseas stocks and bonds via cross-border investment channels such as the Shanghai-Hong Kong stock connect programme.

Banks in the free trade zones will be encouraged to offer yuan loans to overseas institutions and projects and qualified financial institutions will be able to conduct yuan derivative businesses with foreign investors.

The new measures for free trade zones showed China’s determination to deepen domestic reforms and further open up its market, Tang Wenhong, head of the department of foreign investment administration at the Ministry of Commerce, said on Friday.

Tang said successful experiences in the free trade zones would be promoted in the rest of the country.

China has set up 12 free trade zones in the past five years to support local development and boost foreign investment. The latest, and biggest, project is making the entire tropical island of Hainan in southernmost China a free-trade zone.

To end the trade war, ‘China must deliver on its promises to reform and open up’

In China’s first imports expo in Shanghai this month, President Xi Jinping said the free-trade port on Hainan would speed up the process of opening up, while Shanghai would have greater autonomy for “free trade” trials.

But foreign firms remain sceptical about China’s commitment to improving market access in the form of free trade zones.

Earlier this month, the European Union Chamber of Commerce in China, said China’s pledges to further strengthen free trade zones to test new policies and liberalise the economy indicated a “timid” approach to reform. “European businesses are increasingly disenchanted with free trade zones,” it said.

The chamber said that in free trade zones, producers were often separated from their customers, presenting logistic challenges. China should focus on opening up new mainland sectors for foreign investment rather than pursuing pilot reforms in areas that were “ring-fenced” from the rest of the country, it said.