The establishment and expansion of pilot free trade zones (FTZs) is a major initiative launched by China to accelerate the formation of a new pattern of all-around opening up. Shandong, Jiangsu, Hebei, Yunnan and Heilongjiang Provinces along with Guangxi Zhuang Autonomous Region have recently been approved to set up pilot FTZs. A new system of pilot FTZs covering coastal, border and inland areas is coming into being. 

Since the first pilot FTZ was launched in Shanghai on Sept. 29, 2013, China’s pilot FTZs have achieved good results in promoting reform and opening up. The Report on the Development of China’s Pilot Free Trade Zones (2019) says that by the end of 2018, the first three batches of 11 pilot FTZs, which cover less than two ten-thousandths of the country’s land area, had absorbed 12% of foreign capital and generated 12% of import-export volume. Further data shows that in the first half of 2019, the first four batches of 12 pilot FTZs attracted nearly RMB 70 billion of foreign actual investment, accounting for about 14% nationally.

Pilot FTZs have also made progress in the institutional innovation of such aspects as a foreign investment management system focused on pre-establishment national treatment (PENT) with a negative list, a trade facilitation system focused on a single window for international trade, and a commercial registration system. 

The newly established six pilot FTZs based on the first four batches are located in coastal or border areas. They will play a great role in China’s opening up. For example, the construction of the Yunnan pilot FTZ will innovate with free trade along the border, promote common development and deepen economic and trade relations with neighboring countries.

Proper innovation with systems and mechanisms is needed for pilot FTZs to play a bigger role in boosting high-level opening up and establishing a new pattern of comprehensive openness.

First of all, the implementation of some measures should be accelerated to help China drive its economic transformation and upgrading and move towards high-quality development, such as speeding up the transformation of government functions, deepening reform in the investment field, pushing forward trade transition and upgrading, and intensifying open innovation in the financial field. All pilot FTZs still have room to optimize the business environment.

At present, there are differences in the degree of economic development and the level of openness among the areas where pilot FTZs are located. Some pilot FTZs should have the right to conduct autonomous reform to implement pioneering practices. For example, those with good foundations and mature conditions may be offered the right to formulate negative lists.

Also, pilot FTZs may be encouraged to accelerate institutional innovation in various fields according to their own positioning. Some are focused on service trade, so they could be endowed with greater autonomy in that respect. Those focused on opening up borders may be given more authority on economic and social administration along borders.

As for areas that are not approved to establish pilot FTZs, they may explore the implementation of free trade policies within industries. Based on their resource endowment and comparative advantages, some regions can try implementing free trade policy in such industries as medical treatment and health, tourist culture, energy mineral resources and the digital economy to inject new vitality into high-level opening up. 

This article was edited and translated from Guangming Daily. Kuang Xianming is director of the Center of Economics at the China Institute for Reform and Development in Hainan Province.