China Releases New Measures to Further Open-Up its Free Trade Zones

Released end of last month, China’s FTZ Opening-Up Measures streamline trade procedures, reduce barriers, and enhance efficiency within six FTZ and FTP regions – Shanghai, Guangdong, Tianjin, Fujian, Beijing, and Hainan. By doing so and ensuring equal treatment, China aims to create a favorable environment for foreign businesses and demonstrate its commitment to economic liberalization.

On June 29, 2023, the State Council published an official document titled Notice Regarding the Implementation of Several Measures to Promote Institutionalized Opening-Up of Qualified Free Trade Pilot Zones and Free Trade Port in Accordance with International High Standards (hereinafter referred to as the “FTZ Opening-Up Measures”), intending to implement a range of international trade regulations within six of China’s 21 free trade zones and free trade port (FTZs and FTP).

The FTZ Opening-Up Measures encompass a comprehensive set of 33 items, addressing six key aspects to foster a thriving trade environment. The six eligible FTZs and FTPs are Shanghai FTZ, Guangdong FTZ, Tianjin FTZ, Fujian FTZ, Beijing FTZ, and Hainan FTP. These regions serve as experimental grounds for testing and implementing innovative policies and reforms to promote international trade and investment.

By adopting a proactive and experimental approach, China aims to attract foreign businesses, investors, and talents, while also nurturing the growth of domestic industries and boosting overall economic productivity.

In terms of trade in goods, the FTZ Opening-Up Measures introduce import trials for remanufactured products in key industries, temporary duty exemptions for aircraft and ships temporarily exported for repair, customs duties exemption for goods temporarily imported for repair, and preferential treatment for selected imported goods.

Find Business Support

Build Your Asia Business with Turnkey Market Entry and Cross-Regional Support

Furthermore, the measures ensure equal treatment for both domestic and foreign financial institutions, allowing foreign financial institutions to offer services similar to their Chinese counterparts.  The facilitated entry and stay of personnel, senior professionals, and family members is also ensured.

These measures, along with China’s large consumer market and strategic location, make the pilot regions highly attractive for international investment. Additionally, the measures align trade practices with international standards, foster cooperation, and contribute to China’s economic integration into the global marketplace.

In this article, we will delve into the specific actions that China has taken to promote innovative development in free trade zones and ports.

Understanding China’s Pilot Free Trade Zones and Free Trade Ports

China’s Pilot Free Trade Zones and Free Trade Port (FTZs and FTP), also known as pilot regions, are designated areas within the country that implement innovative policies and reforms to promote international trade and investment.

Since the first FTZ in Shanghai in 2013, China established 20 other FTZs in the following years in batches across the country, including Guangdong FTZ (2015), Tianjin FTZ (2015), Fujian FTZ (2015), Chongqing FTZ (2016), Sichuan FTZ (2016), Shaanxi FTZ (2016), Henan FTZ (2016), Zhejiang FTZ (2016), Hubei FTZ (2016), Liaoning FTZ (2016), Hainan FTZ (2018), Jiangsu FTZ (2019), Shandong FTZ (2019), Hebei FTZ (2019), Heilongjiang FTZ (2019), Guangxi FTZ (2019), Yunnan FTZ (2019), Beijing FT (2020), Anhui FTZ (2020), and Hunan FTZ (2020). Hainan FTZ was upgraded to Hainan FTP in 2020.

These areas are strategically located in key economic hubs and coastal regions, making them ideal platforms for facilitating trade and attracting foreign businesses and investments.

In the following sections, we provide a comprehensive overview of the key actions included in the 2023 FTZ Opening-Up Measures. These apply to all the six mentioned FTZs and FTP in China (hereinafter “pilot regions”) unless differently specified.

Promote innovative development of trade in goods

Import trials for remanufactured products

This initiative aims to facilitate the importation of quality remanufactured goods while ensuring compliance with national technical requirements and relevant regulations.

Remanufactured products refer to goods that have undergone a rigorous process of refurbishment, restoring them to a condition equivalent to new products.

Custom duty exemptions for aircraft and ships temporarily exported for reparation purposes and then re-introduced in the Hainan FTP

The FTZ Measures introduce a custom duty exemption for aircraft and ships (including relevant parts and components) transported into the Hainan FTP after temporary reparation overseas, regardless of whether they are value-added or not. This favorable policy applies to both domestic and foreign-owned aircraft and ships operated by aviation and shipping companies based in the Hainan FTP.

For aircraft:

• The exemption covers those operated by aviation enterprises that have designated the Hainan FTP as their main operating base.

For ships:

• Those eligible for the exemption are those operated by shipping companies registered and possessing independent legal status within the FTP, with their registered at ports in the pilot area.

Customs duties exemption for goods temporarily allowed to enter the Hainan FTP for repair

The Hainan FTP will implement an exemption from customs duties for goods temporarily imported for repair and re-export subsequently. However, it is important to note that if these goods are sold domestically instead of being re-exported, customs duties will apply in accordance with regulations.

Preferential treatment of selected imported goods

As per the FTZ Opening-Up Measures, certain goods imported from overseas to the pilot regions are eligible for exemption from import duties, import value-added tax, and consumption tax. These goods serve specific purposes and must be re-exported within six months from the date of importation. However, if it is necessary to extend the time limit for re-shipment out of the country, the extension formalities should be followed in accordance with the regulations.

The eligible goods include:

• Professional equipment necessary for business, trade, or professional activities of temporary arrivals in accordance with China’s law, including software, instruments, equipment, and supplies used for news reporting, film, and television production;
• Goods used for exhibitions or demonstrations;
• Commercial samples, advertising films, and recordings;
• Sports goods necessary for sports competitions, performances, or training; and

As the preferential treatment only applies to goods serving temporary purposes, it is essential to ensure their timely re-exportation within the specified period, without engaging in unauthorized commercial activities, such as sale or lease.

Streamlined custom procedure for imports and exports within the pilot regions

The FTZ Opening-Up Measures also provide streamlined customs procedures for imports and exports within the region. For example, for air and express shipments, if the necessary customs documents are submitted and the goods comply with China’s customs supervision requirements, they should be released within six hours upon arrival.

Find Business Support

Our professional advisors can help you navigate China’s market complexity and tap available incentives

Similarly, for other goods that have submitted all the required clearance information and have completed the necessary quarantine procedures in accordance with relevant laws and regulations, customs authorities should aim to release them within 48 hours from the time of arrival.

Besides, the FTZ Opening-Up Measures also provide other custom clearance facilitations, such as:

• Customs authorities are not allowed to refuse preferential tariff treatment for goods solely based on minor errors such as printing or typing mistakes.
• Applicants for advance rulings can request an extension of the ruling period from customs authorities in the FTZs if there have been no changes in the applicable laws, facts, or circumstances.
• If the customs duties, other import-related taxes, and fees are not determined before or upon the arrival of goods, but the goods meet the release conditions in other aspects, and the guarantee has been provided or the payment procedure has been fulfilled as required, the customs authorities should release the goods.
• For imported information technology equipment products, relevant departments should allow the supplier’s declaration of conformity as a clear guarantee of compliance with electromagnetic compatibility standards or technical regulations.

Additionally, wines imported into the FTZs are allowed the following descriptive words or adjectives on their labels: “chateau,” “classic,” “clos,” “cream,” “crusted/crusting,” “fine,” “late bottled vintage,” “noble,” “reserve,” “ruby,” “special reserve,” “solera,” “superior,” “sur lie,” “tawny,” “vintage,” or “vintage character”.

Liberalization and facilitation of trade in services

Equal treatment for domestic and foreign-funded financial institutions

As part of the efforts to promote the liberalization and facilitation of trade in services, the Chinese government has introduced a significant provision allowing foreign financial institutions to provide a broader range of services. Except for some specific new financial services, foreign financial institutions in the pilot regions should be allowed to carry out similar services if Chinese financial institutions are allowed to carry out a new financial service. This move aims to create a level playing field and provide equal opportunities for both domestic and foreign financial institutions operating within the pilot regions.

Find Business Support

Speak to our team about the services that are essential to your business success in China.

To be noted, however, the financial regulatory authority may, in accordance with its authority, determine the type and nature of the institution to carry out this new financial service and require permission to carry out this service.

At the same time, the financial authority shall make a decision within a reasonable period of time and may withhold permission only for prudential reasons.

Streamlined approval processes for financial services

In an effort to streamline processes and enhance efficiency, specific timeframes have been established for financial regulatory authorities to make decisions regarding applications from overseas financial institutions and cross-border service providers. These are as follows:

• The financial regulatory authorities are obligated to make a decision within a specified timeframe of 120 days upon receiving complete and legally compliant applications related to financial services.
• To ensure transparency and timely communication, applicants should be promptly notified of the decision outcomes.
• In situations where a decision cannot be reached within the designated timeframe, the financial regulatory authorities are responsible for informing the applicants and striving to decide within a reasonable period.

Cross-border access to overseas financial services

As per the new FTZ Opening-Up Measures, to foster international connectivity and facilitate cross-border transactions, enterprises and individuals residing in the FTZs and FTP are now allowed to lawfully purchase overseas financial services.

The specific types of overseas financial services eligible for cross-border access will be defined by the financial regulatory authorities, considering the evolving needs of businesses and individuals.

Facilitated entry and stay for business personnel and accompanying family members

According to the FTZ Opening-Up Measures, key professionals, senior personnel, and accompanying family members will have the opportunity to enjoy facilitated entry and stay within the FTZs and FTP, as highlighted in the table below.

Promotion of digital trade and business environment

Relaxation of requirements that software import and distribution

In a significant move to promote digital trade and protect intellectual property, the FTZ Opening-Up Measures prohibit the requirement of transferring or acquiring software source code as a condition for the importation, distribution, sale, or use of mass-market software (not including software for critical information infrastructure). This provision ensures that businesses involved in digital trade are not compelled to disclose their proprietary source code, safeguarding their valuable intellectual assets.

Consumer rights protection and online commerce

Recognizing the growing importance of e-commerce and online commercial activities, the FTZs and FTP are also committed to enhancing consumer rights protection systems. This commitment involves implementing measures to prevent fraudulent and deceptive practices that could harm or potentially harm consumers in online transactions.

Business environment and intellectual property

To optimize the business environment and attract foreign investment, the FTZ Opening-Up Measures provide a series of business facilitations and improved protections to foreign investors. For example:

• The FTZs and FTP will facilitate the repatriation and remittance of capital, allowing businesses to freely and promptly transfer their legitimate and compliant transfers related to foreign investment.
• Such transfers include capital contributions; profits, dividends, interest, capital gains, royalties, management fees, technical guidance fees, and other expenses; total or partial proceeds from the sale of investments, total or partial proceeds from the liquidation of investments; payments made under contracts, including loan agreements; compensation or damages obtained in accordance with the law; and amounts arising from dispute resolution.
• The pilot regions have emphasized transparency in government procurement processes, requiring procuring entities to provide reasons for adopting single-source procurement methods.
• Intellectual property rights protection will be enhanced through the prompt provision of intellectual property-related remedies by local people’s courts when businesses submit requests for protection. After the applicant has provided reasonably available evidence and preliminarily proved that their rights are being infringed or are about to be infringed, the local courts shall promptly take relevant measures in accordance with relevant judicial rules without prior hearing of the statements of the other party. This streamlined process enables businesses to safeguard their intellectual property rights and seek effective legal remedies in a timely manner.

Establishing risk prevention and control systems

The last point of the FTZ Opening-Up Measures focuses on the task of strengthening and improving the risk prevention and control system. To achieve so, several key actions are proposed.

Firstly, it is emphasized that FTZs and FTPs should establish a comprehensive system for identifying significant risks and preventing systemic risks. This involves close coordination between the Ministry of Commerce and relevant departments to ensure effective evaluation, monitoring, and early warning of various risks. These authorities are also responsible for:

• Creating a security assessment mechanism; and
• Establishing a comprehensive security protection system.

In addition, local authorities will be primarily responsible for implementing such preventive tasks.

Summary

The FTZ Opening-Up Measures are expected to play a crucial role in China’s pursuit of economic recovery, growth, and global integration.

Foreign investors are recognized as key contributors to China’s economic development and attracting their investments has been a priority at all levels of the government. The introduction of the FTZ Measures is a recent effort in this regard, aimed at creating a more favorable environment for foreign businesses, streamlining trade procedures, and reducing barriers.

Furthermore, China has been actively working towards integrating its economy with the global marketplace. To do so, the country is gradually aligning with international and regional standards, such as those outlined by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which China has applied to join. The FTZ Opening-Up Measures align with this broader objective, as they facilitate international trade, promote fair competition, and ensure compliance with international standards.

• Previous Article China’s Human Genetic Resources Regulation: Key Points for Foreign Stakeholders
• Next Article China Monthly Tax Brief: June 2023