Breakthroughs in institutional innovations

Pilot FTZs gear up to play bigger role in reform,opening-up,development

After a decade of expansion over five rounds, China's 21 pilot free trade zones, located in both coastal regions and interior parts, are gearing up to play a bigger role in reform, opening-up, economic growth and high-quality development based on the dual-circulation paradigm, in line with the top leadership's guidance.

China's pilot FTZs will implement higher-level opening-up as China seeks to join high-standard free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement, experts and government officials said.

The FTZs are expected to align themselves better with advanced international trade and economic rules, to facilitate broader market entry and improvements to systemic and institutional innovation in governance policies, they said.

That would mark the next big leap for China's pilot FTZs whose saga began in 2013 with the first venture in Shanghai. In 2018, China proposed setting up a free trade port in Hainan. Steady strides have been made since, leading to the construction of Hainan FTP in 2020.

Impetus for a larger role for FTZs came on Nov 4 last year when President Xi Jinping said the country will implement a strategy to upgrade them, accelerate Hainan FTP's development and tap into their role as pilot platforms for comprehensive reform and opening-up.

A few days earlier, a report to the 20th National Congress of the Communist Party of China had stressed rapid development of Hainan FTP and upgrade of pilot FTZs.

That resolve was reinforced by Premier Li Qiang on July 26. During a two-day inspection tour of Shanghai, Li called for greater efforts to implement the strategy of upgrading pilot FTZs to promote reform and development with high-level opening-up.

At a recent forum in Zhengzhou,capital of Henan province, Qian Keming, former vice-minister of commerce, said pilot FTZs have been effective in promoting high-standard opening-up, deepening reform and pursuing high-quality development. They are expected to further unleash their potential as measures to upgrade them take effect, he said.

The forum itself was a testament to the importance that China places on pilot FTZs. The event's focus was on the development of pilot FTZs.The forum was jointly organized by the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce, and the Department of Commerce of Henan Province, and the city government of Zhengzhou,indicating how agencies at multiple levels are involved in the task of strengthening pilot FTZs.

At the forum, Ma Chengfang,deputy director-general of the MOC's pilot FTZ and pilot FTP construction coordination department, said: "The pilot free trade zones play a crucial role in the implementation of the dual-circulation development pattern. We will thoroughly implement the strategy to upgrade pilot free trade zones to propel their high-quality development."

In the next step, pilot FTZs will focus on key areas - trade and investment, government procurement, intellectual property rights protection and environmental protection - to build institutional systems and supervision models,so as to be abreast with high-level international rules. The larger goal in this regard is to gather relevant experience for implementing path-breaking reforms in those areas, Ma said.

The pilot FTZs will also intensify efforts to increase openness in investment and trade in services.While keeping risks controllable,they will continue to shrink the negative list for foreign investment while expanding opening-up in trade in services. Pilot FTZs' negative list for cross-border services trade will be launched soon, he said.

Coordination on reforms among different government departments,regions, fields and industries will be enhanced, while accelerated institutional innovation will propel the development of a modern industrial system, and increase resilience and openness of industrial and supply chains, Ma said.

MOC data showed that pilot FTZs have pioneered an unprecedented degree of openness in relation to foreign investment and international trade in both goods and services over the last 10 years.

They have been instrumental in driving many institutional innovations covering investment, trade facilitation and financial openness.Why, 302 such innovations have been selected for replication at the national level.

Since 2022, pilot FTZs have effected 537 institutional innovations across investment, trade,finance and regulation. And 120 of them have promoted remarkable development in related areas,according to a report on the development of the pilot FTZs released at the Zhengzhou forum.

The negative list for foreign investment at the pilot FTZs now has only 27 items, as against 193 in the first version in 2013. Not a single item of the 27 is from the manufacturing sector.

Gu Xueming, president of CAITEC, said: "Pilot FTZs are expected to focus on key industries, given their edge in increasing openness and making institutional innovations throughout the industrial chains, which have helped foster world-leading clusters of industries."

Yet, there are some areas where pilot FTZs could still make a big difference. FTZs should strengthen coordination on industrial transfers and promote relocation of industrial capacities from eastern areas to central and western regions, so as to safeguard the comprehensiveness of China's industrial and supply chains, Gu said.

He urged pilot FTZs to better serve national development goals and make more contributions to China's institutional opening-up,while improving their supervision and risk management capability.

"As changes unseen in a century are unfolding in the world, pilot free trade zones, as a test field for deepening reforms and furthering opening-up, must play their role to make more breakthroughs in institutional innovations in the coming years,"Gu said.

In the first half of this year, actual use of foreign direct investment in the 21 pilot FTZs totaled around 130 billion yuan ($17.9 billion), up 8.2 percent year-on-year. The growth rate was 10.9 percentage points higher than the national average.

Imports and exports at the 21 pilot FTZs reached 3.7 trillion yuan during the period, up more than 8 percent year-on-year, which was 6.3 percentage points higher than the national average.

At a meeting of the Political Bureau of the Communist Party of China Central Committee in late July, the top leadership called for support for eligible pilot FTZs and FTPs that seek to align with high-standard international economic and trade rules, and try out reforms and opening-up measures.

In a policy circular published on June 29, the State Council, China's Cabinet, unveiled some pilot measures to deepen reforms and align with high-standard international economic and trade rules in five FTZs - Shanghai, Guangdong, Tianjin, Fujian and Beijing- as well as Hainan FTP, as part of efforts to boost institutional opening-up.

These measures include innovative trade facilitation steps in both goods and services, and improvement to business environment.For instance, the circular urged speeding up Customs clearance for certain goods.

It also said that Chinese and foreign financial institutions should receive the same kind of access when the authorities approve the opening of new services in the pilot areas, except for some strategically important sectors.

Individuals and businesses will be allowed to purchase financial services from overseas, and legal investments of foreign investors can be transferred in and out of China freely and without delay.