China pushes ahead with plans to woo international investors

Pulling a page from the playbook of previous years, China has instituted a series of Free Trade Zones to boost international investments and to serve as a test bed for economic reforms. The 100-square-kilometre-plus zones in Fujian, Guangdong and Tianjin are modelled on Shanghai’s free trade zone, which debuted in 2013.

The Special Economic Zones of the past were designed “to encourage urbanisation and foreign direct investment, largely into sectors generating activity in China’s ballooning manufacturing sector”, says Peter Bullock, Pinsent Masons partner heading the firm’s technology practice in Asia-Pacific.

Today’s Free Trade Zones are geared towards liberalising the financial sector, boosting investment flows and encouraging the domestic services industry. The plan is to cut red tape, boost private consumption and buttress the services industries in order to put the Chinese economy on a sustainable growth path.

“Although the schedules of potential benefits are very wide ranging with ‘something for every sector’, the real impetus appears to be as part of the liberalisation of the yuan,”  Bullock says. That’s a view shared by Li Xiaoyang, assistant professor of economics and finance at Cheung Kong Graduate School of Business. These free trade zones share “a focus on capital accounts, they promote the internationalisation of the yuan and banking services, and they help make capital more mobile”, Li says.

The rollout of these free trade zones has been paced by the reality of China’s desire to cautiously implement changes in these trial balloons. “Initial delays with the announcement and implementation of the Shanghai FTZ processes rather blunted the attraction of the zone as a streamlined alternative to other zones or the remainder of Shanghai,” Bullock says.

One initially heralded change was a switch to a “negative list” system in which, unless investment in a category was specifically forbidden, that field or industry was deemed to be open for international firms. While the negative list is being winnowed, the impact will be muted to the extent that the “effective negative list turns out to be very similar to the old catalogue system, with predominantly all of the restrictions on telecoms and internet related business remaining intact”, Bullock says.