Logistics providers to benefit from the Shanghai Free Trade Zone

The Shanghai Free Trade Zone (FTZ) opened this week with much fanfare. Expectations are high for this FTZ as China tests opening its markets further to global competition. China’s State Council indicated it would open its mostly sheltered services sector to foreign competition along with financial reforms that include a convertible yuan and liberalised interest rates. However, uncertainty on just how far the Chinese government will take this “experiment” to open its financial industry and international trade remains to be seen.

The FTZ spans almost 29 sq km in Shanghai’s Pudong New Area including the Waigaoqiao duty-free zone and the Yangshan Port. It is believed it may eventually expand to cover the entire Pudong district which covers 1,210.4 sq km of land.

In all, 18 industries are to be liberalised. The government has grouped these industries into six focus areas for the FTZ:

  1. Financial industry

  2. Shipping and logistics

  3. Commercial trade

  4. Professional services such as law and construction

  5. Culture and entertainment

  6. Social services including education and healthcare

According to various sources, China’s Ministry of Culture also plans to remove a 13-year old ban on video game console manufacturing and sale for companies registered in the zone. Microsoft has noted great interest in this opportunity.

For the logistics and transportation market, the FTZ is supposed to relax the proportion of foreign companies in joint ventures within international shipping enterprises and also allow for wholly foreign-owned shipping management enterprises to be established within the zone.

Another interesting prospect was noted in a recent article from the ‘South China Morning Post’. The newspaper interviewed the chairman of China Eastern Airlines which is based in Shanghai. The airline hopes to obtain approval for a cross-border e-commerce business in the FTZ. The tax breaks offered within the FTZ, mean that the airline anticipates an increase in purchases by consumers for foreign products. According to the chairman, “We have plans to take advantage of the FTZ to bolster our logistics business. With the establishment of the zone, airfreight will become one link in the chain of our comprehensive logistics business.”

Within the FTZ is Pudong International Airport. Much like other Chinese airports, Pudong has witnessed declines in cargo. However, the benefits of such an economic area could be beneficial to not only the airport but also to such air cargo providers as China Cargo Airlines, Lufthansa Cargo and UPS, all who operate independent terminals at the airport.

Sea shipments also will likely benefit as well. Waigaoqian and the Yangshan deep water port, part of the Port of Shanghai operations, are also included in this zone.

While critics of the Shanghai FTZ note a certain vagueness of thes “liberalisation” rules, others have made comparisons to a new “Hong Kong”. Regardless, the potential for this zone may allow for further expansion plans to other locations such as the economic zone in Qianhai, Shenzhen.

*Image courtesy of Clifford Chance The Wall Street Journal

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