Free trade zones (FTZs) are special economic zones that were first established in China in the early 1980s as a way to encourage foreign investment and boost economic development. So, why free trade zones were created in china- the answer to this question lies in the fact that these zones offer foreign and domestic companies a variety of benefits, including preferential tax treatment, relaxed regulations, and easier access to markets. As a result, FTZs have become popular locations for businesses that want to take advantage of the growing Chinese market. FTZs are typically located near seaports or airports and are designed to promote trade and investment.
China currently has five FTZs: Shanghai, Tianjin, Guangdong, Fujian, and Liaoning. In this blog post, we’ll take a look at the history of FTZs in China and how they’ve evolved.
The First FTZ: Shanghai
The first FTZ was established in Shanghai in 1992. The goal of the Shanghai FTZ was to attract foreign investment and create jobs.
The results were immediate. In the first year after the establishment of the Shanghai FTZ, foreign investment increased by 300% compared to the previous year. By 1998, there were more than 8,000 foreign-funded enterprises in the Shanghai FTZ.
The success of the Shanghai FTZ led to the establishment of four more FTZs in Tianjin (in 1993), Guangdong (in 1995), Fujian (in 1996), and Liaoning (in 2002). Together, these five FTZs account for nearly 80% of China’s foreign trade.
In recent years, the Chinese government has also been using FTZs as testbeds for liberalized economic reforms. For example, the Shanghai FTZ was one of the first places in China where businesses were allowed to set their own prices for goods and services. By experiment with different policies in an FTZ, the government hopes to eventually roll out these reforms nationwide.
Evolution of the Chinese FTZs
Over time, the focus of the Chinese FTZs has shifted from attracting foreign investment to promoting trade and investment between China and the rest of the world. To that end, the Chinese government has gradually relaxed restrictions on businesses operating in FTZs and has expanded its scope beyond manufacturing and processing to include areas such as finance, insurance, logistics, tourism, and healthcare.
In recent years, there has been an increased focus on using FTZs as platforms for promoting economic reform and liberalization.
For example, in 2013-2014, China implemented a pilot program to relax its strict controls on currency conversion in three FTZs (Shanghai/Pudong New Area/Luqiao Ouhai).
And in 2015-2016, China conducted pilot programs testing reforms to its business registration system in two more FTZs (Tianjin/Dalian). These pilot programs laid the groundwork for the nationwide implementation of these reforms later on.
The ultimate action
Free trade zones were originally created in China to spur economic development and attract foreign investment. However, their use has evolved over time and they are now considered a key part of the Chinese economy. There are several reasons why free trade zones have been successful in China, including the country’s large population and its position as a manufacturing powerhouse. Additionally, the Chinese government has been supportive of free trade zones and has made it easy for businesses to operate in them.