New Chinese FTZs introduced to help spur growth

The first quarter of 2015 witnessed China’s economy growing at its slowest pace in 6 years at an annual 7.0%, lower than 7.3% for the fourth quarter 2014. Reuters points out that industrial output grew at its weakest since the global financial crisis in 2008 and the real estate sector noted investment rose an annual 8.5% in the first quarter, the weakest rate since 2009.

In fact, the Wall Street Journal has questioned if the country is now facing a warehousing bubble. Because of the downturn in the country’s housing and commercial property segment, the newspaper notes that warehouses have been a particular interest in the real estate sector thanks to the growth of e-commerce. However, property management companies are beginning to note an oversupply of warehousing in some locations and not enough in other areas of China.

One way to help spur economic growth as well as to utilize and/or create demand for warehousing has been the 2013 creation of the country’s first free trade zone (FTZ) in Shanghai. The purpose of the FTZ was to loosen the country’s constraints on some industries and cut red tape. But, how successful it has been depends on who you ask. Members of the American Chamber of Commerce in Shanghai were surveyed their thoughts and almost three-quarters of the respondents believed the FTZ offered no tangible benefits for their business. Around half indicated they had not noticed any change for their business since the zone opened in September 2013.

Still, since the creation, cities and regions have filed petitions requesting additional FTZs. As a result, the Chinese government has recently introduced three additional free trade pilot programs in Tianjin, Fujian and Guangdong.

According to Chinese publications, these new zones will basically operate on the same set of rules as the Shanghai FTZ but will also include regulations based on localized government initiatives. For example, according to Caixin Online, the Tianjin FTZ will integrate the region comprising Beijing, Tianjin and Hebei Province. The Guangdong Province zone will work towards cooperation between Hong Kong and Macao and the Fujian province zone will focus on stronger trade ties between the mainland and Taiwan.

In order for these new trade zones to succeed, it may be wise for the Chinese government to heed the results of the survey of the American Chamber of Commerce and provide information to help foreign businesses understand how the zones work. The lack of information was cited by almost half of the respondent as a concern. Even better, the government could involve foreign businesses in discussions in how to improve these zones so that they will serve as models for future ones and provide a much needed economic boost to the country.