Guangzhou-Hong Kong-Macao apply for free trade zone status

As manufacturing activity declines in China, the country’s government needs to find ways to stimulate growth. One way is to encourage domestic consumption; another is to provide incentives for foreign investment by way of free trade zones. The opening of the first such zone, the Shanghai free trade zone (FTZ) in September, has brought forth considerable interest in establishing additional such zones in China. The latest to submit a request for a free trade zone is that of Guangdong, Hong Kong and Macao.

According to the submitted plan, the new zone will cover about 930 sq. km. which is considerably larger than the 28.8 sq km Shanghai FTZ. It will also encompass Guangdang’s three special economic zones: Quianhai, near Shenzhen, Nansha and Hengqin Island. However, it has not yet been decided if the Guangzhou Baiyun Airport area will be included.

The proposed FTZ will focus on manufacturing, logistics, international trade, maintenance, research and development and international trade settlement. It is also expected to be more open and inviting towards foreign companies by allowing them equal treatment as Chinese counterparts.

Additional benefits of the FTZ include easier overland transport through customs as well as lower tax and costs for ships that are registered in Hong Kong or Macau that call in other ports in the FTZ.

This latest possible FTZ is an interesting one as it will link mainland Chinese cities with Hong Kong and Macao, which have their own special economic systems. The FTZ could revitalize and stimulate growth within this region particularly as more factories leave the Pearl River Delta to low-cost countries such as Vietnam. This exodus out of the Pearl River Delta has also had a negative impact on the Hong Kong port. The port, once the world’s busiest container port is expected to fall to the fourth busiest container port this year.

The supposed benefits of these FTZs are great and could indeed help stimulate growth in a particular region however, uncertainty continues to surround the Shanghai FTZ. Perhaps much of the uncertainty could have been prevented if more planning was implemented prior to the opening of the zone. For example, the Chinese government has yet to unveil detailed operating guidelines covering the zone and questions remain concerning what financial institutions will be allowed to do there.

Despite the uncertainties surrounding the Shanghai FTZ, other Chinese cities and regions are using it as a “lesson learn” to sweeten the pot, so to speak, to attract business activity to their respective areas. Chinese cities and regions such as North China’s Tianjin, Southwest China’s Chongqing and Qingdao and in East China, Shandong Province are all supposedly looking towards setting-up FTZs.

As preparations are made, just how far the Chinese government will allow for open and free competition remains to be seen.