China doubles size of Shanghai FTZ to include Lingang
August 13, 2019 Category Foreign trade, Weekly
China announced it expanded the Shanghai Free-Trade Zone (FTZ) – doubling its size – by adding Lingang, an area newly reclaimed from the sea. Lingang is roughly the size of Hong Kong and is home to carmaker Tesla’s first factory outside the U.S. The expansion comes after a decade of growing competition between mainland Chinese ports and Hong Kong, with Shanghai mulling plans to transform Lingang into a mini-Hong Kong free marketplace over the next two decades. The 13-month trade war with the U.S. has pushed China to show more openness to the world on trade and Chinese Vice Commerce Minister Wang Shouwen underscored Beijing’s commitment to continue the process. “The expansion of the Shanghai FTZ is also an important step to demonstrate China’s clear stand for all-round opening up in the new era and its active role in guiding the healthy development of economic globalization,” Wang said. He added that Beijing would not hesitate to open its markets further, irrespective of developments in trade ties with other countries.
As part of that commitment, duties would be deferred or even not collected on certain products shipped through the new Lingang section, Shanghai Vice Mayor Chen Yin said. “Goods from abroad entering the fenced customs areas of the new area will be under bonded or tax exemptions,” Chen said. The new Lingang section will include a fenced-in area where special tax policies will apply for goods entering from abroad, as well as goods and service transactions between companies within the area. Shanghai would also cut corporate income tax rates in Lingang from 25% to 15% for companies in preferred industries, including integrated circuits, artificial intelligence (AI), biomedicine and civil aviation. A special development fund, with more than CNY100 billion has also been set up to attract top talent and infrastructure to Lingang over the next five years.
Lingang is on the southeast tip of Shanghai and connected to the city’s Yangshan deep water port by the 32 km Donghai Bridge. The area is home to Tesla’s USD2 billion Gigafactory 3, which is expected to open by the end of this year and initially make about 3,000 Model 3 cars a week. Lingang was widely expected to be added to the zone after Chinese President Xi Jinping announced in November that the FTZ would be expanded to deepen economic reforms and further open up the Chinese market.
Huang Yejing, Research Professor at the Institute of World Economy at the Shanghai Academy of Social Sciences, said authorities faced the daunting task of setting up a secure customs system to ensure the success of the zone. “Customs authorities are supposed to ensure all the goods inside the zone are duty free to boost commercial activities in the area,” Huang said. “But they also need to make sure that those duty-free goods do not flow out of the zone and are sold on the domestic market. It is still an unanswered question facing regulators.” Chinese customs still impose duties on all goods moving through the Shanghai FTZ, the South China Morning Post reports.
The Shanghai FTZ had an area of 28.78 square kilometers when it was established in September 2013 and expanded to 120.72 sq km in December 2014. Lingang has an area of 119.5 sq km. Nearly 60,000 companies are registered in Lingang, a fifth of them with foreign investment totaling USD25 billion.
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