HKTDC Research | 25 Nov 2015

Tapping the Cross-Strait and Maritime Silk Road Opportunities of Fujian Free Trade Zone

Promoting Liberalisation of Investment and Trade between Fujian and Taiwan

According to the overall plan for the FJFTZ, its development goals are to give full play to its Taiwan advantages, adopt innovative cross-Strait cooperation mechanism, and promote the free flow of goods, services, capital and personnel. The move will enhance economic ties between Fujian and Taiwan, as well as serving to take the lead in introducing liberalisation measures for investment and trade with Taiwan, including:

For instance, the FJFTZ has already given the green light to Taiwanese architects holding certificates issued by relevant organisations in Taiwan to start business in the FJFTZ upon obtaining approval. At the same time, Taiwanese professionals who have obtained the mainland’s Class 1 registered architect or registered structural engineer qualification are also allowed to act as partners, and to set up construction and engineering design offices and supply relevant services in the FJFTZ in accordance with the corresponding qualification requirements. [2]

Opening up to Regions Other than Taiwan

The overall plan also pointed out that the FJFTZ will open up to regions other than Taiwan at the same time. This will take advantage of being at the frontline of opening up to the outside world, accelerate the formation of a new pattern of trade interaction at a higher level, and expand in depth and breadth exchanges and cooperation with countries and regions along the 21st-Century Maritime Silk Road under China’s Belt and Road development strategy.

The FJFTZ is among the second batch of free trade zones launched by China in April 2015. [3]  Since the launch, steps have been taken to reform the administration and management system, lower the market access threshold for foreign investors and simplify procedures for foreign investment. It is hoped that after three to five years of reform and experimentation, a free trade zone offering investment and trade facilitation, prominent financial innovation features, sound service systems, highly efficient and convenient supervision, and a regulated legal environment will be established. Detailed policies and measures include:

1.  Lowering market access threshold for foreign investors

Where foreign investment access is concerned, the FJFTZ, in line with the Shanghai, Guangdong and Tianjin FTZs, has simplified foreign investment management by way of adopting the negative list and record filing system and using the same negative list for approving foreign investment access. As a result, the degree of opening up of all the above mentioned FTZs to the outside world is similar.

In the Special Administrative Measures (Negative List) on Foreign Investment Access promulgated by the State Council on 8 April 2015 (hereinafter called the Negative List), it is stated that for sectors falling outside the scope of the special administrative measures for foreign investment access on the Negative List, the principle of national treatment for foreign and domestic investors will apply. This replaces the system of advance approval for foreign-invested projects and the system of examining and approving the contracts and articles of association of foreign-invested enterprises by the record filing system. Foreign investors’ access to the mainland market by way of investing in FTZs will be greatly enhanced as a result.

The Negative List also specifies that Hong Kong investors in FTZs will be subject to the provisions of the Negative List. However, where liberalisation measures provided for under CEPA are applicable to FTZs and offer even more preferential treatment to qualified investors, CEPA provisions will prevail. Hence, Hong Kong investors wishing to take advantage of the FJFTZ to enter the mainland, especially coastal regional markets such as Fujian, should refer to the provisions of both CEPA and the FTZ Negative List so that they can make full use of the market access advantage to develop mainland opportunities.

[For more information on the Negative List and its relations with CEPA, please see Guangdong Pilot Free Trade Zone: Opportunities for Hong Kong released by HKTDC in June 2015 and Market Opportunities in the Tianjin Pilot Free Trade Zone released in September 2015.]

 

2.  Changing government functions to raise administration efficiency

The FJFTZ is also devoting efforts to accelerating reform of the administrative examination and approval system, as well as improving the mechanisms for such services as intellectual property administration and enforcement, dispute settlement, and arbitration. Meanwhile, government functions, including asset appraisal, certification, and inspection and testing, which used to be undertaken by government departments, will be gradually turned over to professional service suppliers in the legal, accounting, credit rating, inspection, testing and certification sectors. One of the examples is to set up, both at the various areas in the FTZ and online, a unified window and integrated services hall serving companies, as well as implement the “one licence, one code” unified enterprise registration system in a bid to raise the government’s efficiency of administration and management over domestic-funded, Taiwan-funded and other foreign-funded enterprises. [4]

3.  Introducing innovative customs clearance mechanism

At the special customs supervision areas within the FTZ, system innovation will be implemented with emphasis on trade facilitation, and efforts will be made to streamline requirements for the submission of certificates of origin by Hong Kong products meeting CEPA rules of origin and by Taiwan goods imports meeting ECFA requirements. This aims to facilitate the development of international trade, bonded processing and bonded logistics, while promoting domestic sale facilitation. Currently, enterprises can use terminals such as mobile phones to make appointment with Customs for inspection, while local Customs uses RFID technology to carry out paperless and fast-track customs clearance of vehicles going through customs. The Fujian entry-exit inspection and quarantine bureau has also reformed and simplified procedures for the issuing of certificates of origin [5].

 

Liberalisation Measures and Tax Concessions in Pingtan Area China’s main objective for launching free trade zones is to advance system innovation, implement administration and management system reform, and strengthen opening up to the outside world, but not to offer preferential policies. As such, the overall plan does not embody any tax and fee reduction or exemption incentives. However, Pingtan Area in the FJFTZ is not only eligible for the liberalisation policies of the FTZ, but also entitled to the preferential policies offered by the Pingtan Experimental Zone, as the Area falls within the Fujian Pingtan Comprehensive Experimental Zone. Pingtan is the largest island in Fujian, with a total area of 392 km2 and a population of about 400,000. The Pingtan Experimental Zone is a demonstration zone playing the role of a first-mover in exploring cross-Strait exchanges and cooperation, as well as a pilot zone for the development of the Haixi Economic Zone. Planning in this zone focuses on undertaking the industries relocated here from Taiwan and other regions to establish an advanced manufacturing base; develop emerging industries, such as electronic information, marine biology and clean energy; as well as developing into a modern ecological island city. [6] Enterprises operating in the Pingtan Experimental Zone can enjoy up to 28 preferential policies, including more relaxed customs supervision, Class 1 port liberalisation, an integrated reform pilot for land management, a cross-border e-commerce pilot, and a marine transport pilot. Moreover, enterprises in Pingtan Experimental Zone engaging in specified industries in encouraged categories are even entitled to a reduced enterprise income tax rate of 15%. These industries include: √  High-technology                           √  Equipment manufacturing √  New materials                              √  New energy √  Modern logistics                           √  Commercial services √  Cultural and creative industries      √  Technical and business services √  Agricultural & marine industries      √  Ecological and environmental protection √  Public facilities management Meanwhile, production-related goods sold to Pingtan from other parts of the mainland will be treated as exports and are thus entitled to the VAT and consumption tax rebate policy. Goods within the area sold between enterprises in Pingtan are also exempted from VAT and consumption tax. As Pingtan Area in the FJFTZ also belongs to the Pingtan Experimental Zone, enterprises wishing to take advantage of Fujian to tap the mainland market and capture export opportunities can consider making use of Pingtan’s special position to enjoy the liberalisaton and preferential policies offered by both the FTZ and the experimental zone. [7]

 

Exploring New Horizons of Trade with Taiwan and Other Regions

Under the premise of opening up to the outside world, the FJFTZ proactively develops all kinds of trade with Taiwan and other regions in the hope of enhancing its competitive edge in foreign trade by way of technology, branding, quality and services. Its key development directions include:

• Developing cross-border e-commerce, and improving the relevant customs supervision, inspection and quarantine, cross-border payment and logistics systems

• Building international and domestic bulk commodities trading platforms

• Allowing the local futures exchange to set up a bonded futures delivery pilot

• Promoting service outsourcing with regard to creative industries, information/data processing, supply chain management, and aircraft and parts maintenance

• Establishing a pilot point for parallel imports of automobiles, with importers responsible for after-sale service, product recall and the “three guarantees” (guaranteed repairs, guaranteed replacement and guaranteed return of goods)

 

Exploring Cross-Border E-Commerce Import Opportunities in FJFTZ China has, up to now, approved seven cross-border e-commerce import services pilot cities. According to information released by the Fujian government, Fuzhou and Pingtan are tipped to become new pilot cities. In view of the increasing demand of Fujian and other mainland consumers for quality import products, many companies are devoting greater efforts to developing cross-border e-commerce. Taking advantage of FJFTZ’s determination in developing cross-border e-commerce, these companies can make use of the facilitation measures offered by the FTZ in such areas as customs supervision, inspection and quarantine, and cross-border payment in order to develop e-commerce import business. They can also apply for permission to pay personal postal articles tax on their import goods and enjoy the relevant preferential treatment. This development generates additional opportunities for Hong Kong companies wishing to make a foray into the mainland market by way of the cross-border e-commerce platform. [More …]

 

 

Enhancing Shipping Services

Apart from goods trading, the FJFTZ also looks into new development systems and operating modes for the shipping industry in the hope of enhancing its shipping services. Fujian is one of the coastal provinces in China which had an early start in development. For instance, Xiamen port in the province is not only one of leading foreign ports in the mainland, but also an international shipping centre in southeast China, a shipping logistics centre on the west coast of the Strait, and a major port for shipping to and from Taiwan. In 2014, Xiamen port’s cargo throughput reached 200 million tons, up 7.4% from a year earlier; while container throughput topped 8.57 million TEUs, up 7.05% from a year earlier. Its container port ranked 8th in China and 17^th worldwide. [8]

Against this backdrop, FJFTZ is determined to enhance the province’s international shipping services and strengthen the shipping and industrial development of the ports in the various areas of the FTZ. For example, the positioning of Haicang Bonded Port Zone in the FTZ’s Xiamen Area aids the development of shipping logistics, bonded logistics, bonded processing and international trade. The zone implements the policy of “tax rebate for those entering the zone and tax exemption for equipment imported into the zone”. It also adopts investment, taxation and foreign exchange administration policies applicable to export processing zones, bonded zones and bonded logistics parks. Currently, a number of well-known international companies have established a presence here. These include: Hella, one of the world’s largest suppliers of automotive relays; Xiamen Tungsten, the world’s largest tungsten products company; Kerry Logistics of Hong Kong; and Kodak (China). The zone is now moving in the direction of developing into a modern industrial cluster, with emphasis on high value-added industries and service outsourcing.

The industrial development within different areas in the FJFTZ, together with the seaport and airport of Xiamen, not only serve the international trade in import/export goods conducted inside and outside Fujian province as well as its surrounding regions, but also cross-Strait trade. This will in turn propel the development of related international shipping and logistics industries. Moreover, FJFTZ’s overall plan and measures for enhancing shipping services also include:

• Allowing the establishment of wholly foreign-owned international ship management enterprises

• Relaxing restrictions on the foreign equity ratio of Chinese-foreign equity joint-venture and Chinese-foreign contractual joint-venture international shipping enterprises set up within the FTZ

• Allowing foreign investors to engage in public international ship management business in the form of equity joint venture or contractual joint venture, with foreign equity ratio capped at 51%

• Streamlining procedures for obtaining international shipping transportation business licences

• Allowing the FTZ to conduct (on a trial basis) the business of transshipping and consolidating express parcels to and from Taiwan, Hong Kong, Macau and foreign countries

• Allowing “flag of convenience” cruise ships belonging to mainland-funded cruise enterprises registered in the FTZ to carry out cruise business between the mainland, Taiwan, Hong Kong and Macau, on approval

In fact, under the CEPA framework, Hong Kong companies are, in general, entitled to certain shipping liberalisation measures similar to those offered by the FJFTZ. For instance, under CEPA Hong Kong service suppliers can set up wholly-owned shipping companies in the mainland, as well as set up equity joint-venture enterprises in the mainland holding equities not exceeding 51%, in order to provide third-party international shipping agency service [9]. However, it can be expected that the FJFTZ will introduce more liberalisation measures for shipping services, encouraging cross-Strait and international trade, as well as advancing the business of transshipping and consolidating express parcels to and from Taiwan, Hong Kong, Macau and foreign countries. All these efforts should provide more convenience to Hong Kong companies wishing to expand the coastal markets in southeast China through Fujian.

 

Capturing Opportunities Arising from 21st-Century Maritime Silk Road FJFTZ is positioned to expand the depth and breadth of exchanges and cooperation with countries and regions along the 21st-Century Maritime Silk Road, under China’s Belt and Road development strategy. Fujian province, as home to major ports along the ancient maritime Silk Road, as well an important foreign trade province in the mainland. With its advantages of being an international shipping centre in southeast China, the FTZ is making greater efforts to establish ties with countries along the Maritime Silk Road, in the hope of further promoting investment and trade. It can be expected that its demand for relevant support services will generate opportunities for companies wishing to capitalise on the Road and Belt initiative. [More …]

 

 

Advancing Financial Liberalisation and Innovation

In order to complement the development of different industries and services in the zone, apart from introducing measures encouraging cross-Strait financial cooperation, the FJFTZ will also further open up its financial sector and enhance investment and financing facilitation and efficiency for the benefit of enterprises within the zone. Specific areas of liberalisation include:

• Improving the mode of managing RMB foreign accounts, further expanding two-way cross-border RMB financing business

• Piloting capital account convertibility under a quota system, allowing qualified institutions to conduct such transactions as direct investment, merger and acquisition, debt instruments and financial investment under a quota system

• Foreign exchange capital under the foreign direct investment account may be settled any time

• Giving support to multinational companies to centrally operate and manage their RMB and foreign currency two-way capital pool

• Giving support to the setting up of cross-border RMB equity investment funds to develop two-way cross-border RMB investment

• Giving support to enterprises to conduct various offshore financing activities, such as international commercial loans

• Allowing enterprises and financial institutions in the FTZ to issue RMB bonds offshore and channel the funds back to the country for use

• Advancing RMB interest rate marketisation

• Allowing banks, payment institutions and trust companies in the FTZ to conduct cooperation in cross-border payment with offshore banks and payment institutions

Under these development directions, the Fuzhou, Pingtan and Xiamen Areas are also planning to undertake different projects in order to complement their own positioning and meet their respective needs for industrial development.

 

Appendix: According to the overall plan for the Fujian FTZ, the FTZ covers a total area of 118.04 km2 and consists of three areas: 1.  Fuzhou Area With an area of 31.26 km2, the Fuzhou Area of Fujian FTZ comprises two zones: Fuzhou Economic and Technological Development Zone and Fuzhou Bonded Port Area. The two are further divided into six sub-zones, known as “two zones, six sub-zones”. The Fuzhou Economic and Technological Development Zone has an area of 22 km2 and is divided into four sub-zones: namely Majiang-Kuai’an, Chang’an, Langqi and Nantai Island. The zone also houses two special customs supervision areas: Fuzhou Free Trade Zone (0.6 km2) and Fuzhou Export Processing Zone (1.14 km2). The Fuzhou Bonded Port Area has an area of 9.26 km2 and is divided into two sub-zones: Zone A borders the west port (or Xigang) to the east, Xinjiang Highway to the south, Jinqi Road to the west and Weiliu Road to the north; Zone B borders berth No. 14 to the east, Xinghua Road to the South, the mudflat (or Tantu) to the west and Xinglin Road to the north. The Fuzhou Area will be turned into an experimental ground for reform and innovation with the creation of an international, market-oriented business environment with sound legal system, revolving around the strategic requirements of gaining a foothold across the straits, serving the country and keeping abreast with the world. As pioneer in reform, it will take the lead in promoting investment and trade with Taiwan and give full play to the advantages of being a provincial capital city, with proximity to Taiwan and the ocean, and focusing on the construction of an advanced manufacturing base, important platform for the 21st Century Maritime Silk Road and demonstration zone for cooperation in cross-Strait service trade and financial innovation. 2.  Pingtan Area Covering an area of 43 km2, the Pingtan Area of Fujian FTZ will focus on boosting ties with Taiwan and attracting foreign tourists to the island. It will implement more liberal measures to facilitate investment and trade, capital and personnel exchanges. Pingtan Area consists of three functional zones: Port economic and trade zone (16 km2). The zone’s positioning: accelerating the construction of port logistics cluster, business services cluster, and electronics industry cluster; focusing on the development of international trade, modern logistics, business services, and electronic information equipment manufacturing; and building cross-Strait free trade demonstration area, regional comprehensive bonded industries demonstration zone and the cross-Strait electronics industry integrated development cluster; and gradually expanding into an international free port. New- and high-tech industrial zone (15 km2). The zone’s positioning: exploring cross-Strait cooperation in building high-tech industrial bases; connecting the Pingtan high-speed rail hub with the central business district and science, technology, culture and education districts; accelerating the construction of R&D headquarters cluster, marine industry cluster, high-end light manufacturing industry cluster; giving full play to policy advantages of place of origin; focusing on the development of marine life, medical equipment, packaging materials and light equipment manufacturing and other high-tech industries; and promoting cross-Strait in-depth cooperation in high-tech industries. Tourism and business zone (12 km2). The zone’s positioning: being a window to Taiwan, the zone will give full play to the tourism resources including fine beaches, headlands and sand dunes, linking the international tourism development of the city centre and Pingtan, focusing on connecting Taiwan tourism and tourist services, accelerating the construction of coastal tourist enclave, cross-Strait tourism business cluster, agricultural and fishing products processing industry cluster to enhance service standards of international tourism, focusing on the development of coastal resort, sports tourism, leisure and wellness, tourist shopping and other tourism products, extending and expanding the high-end sector of tourism, striving to create an international coastal resort island, international maritime cultural and sports base, international tourism and leisure destination, and gradually expanding into an international tourist island. 3.  Xiamen Area The Xiamen Area of Fujian FTZ which comprises the cross-Strait trade centre core zone and the southeast region international shipping centre Haicang port area, is a unique pilot FTZ in China featuring joint development of land and sea ports, airports and cruise homeports. The cross-Strait trade centre core zone covers an area of 19.37 km2 (including the 0.6 km2 Xiangyu Bonded Zone and 0.7 km2 Xiangyu Bonded Logistics Park). The positioning of the zone is the development of new- and high-tech R&D, information consumption, airport-based industries, international trade related services, financial services, professional services, cruise economy and other emerging industries and high-end services as well as building the cross-Strait economic and trade cooperation region to become a regional centre for international trade facing the Asia-Pacific region with foothold in the mainland. The southeast region international shipping centre Haicang port area covers an area of 24.41 km2 (including the 9.51 km2 Haicang Bonded Port). The positioning of the port area is the development of modernised port-based industries such as shipping and logistics, import and export, bonded logistics, value-added processing, service outsourcing, commodities trading, and the building of an efficient and convenient, green and low-carbon shipping logistics network service system to become an important container hub port of the Asia-Pacific region based in Haixi with global shipping resources capacity facing the world, providing service across the Straits.

 

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[1]  CEPA here refers to the Mainland and Hong Kong Closer Economic Partnership Arrangement and its supplementary agreements.

[2]  For details, please see HKTDC’s Business-Alert China article: Fujian FTZ Announces Third Round of Initiatives (29 July 2015).

[3]  Following the establishment of the China (Shanghai) Pilot Free Trade Zone in September 2013, the second batch of pilot free trade zones in China was officially launched in April 2015, including China (Guangdong) Pilot Free Trade Zone, China (Tianjin) Pilot Free Trade Zone and China (Fujian) Pilot Free Trade Zone.

[4]  Starting from 1 October 2015, Fujian province has fully implemented the “one licence, one code” registration system for enterprises and farmer cooperatives in the province. For details, please see Circular of the Provincial Industry and Commerce Bureau on Deepening the “One Licence, One Code” Registration System Reform forwarded by the Fujian People’s Government Office (Min Zheng Ban [2015] No.130 (16 September 2015)).

[5]  For details, please see HKTDC’s Business-Alert China Fujian FTZ Announces Third Round of Initiatives (29 July 2015).

[6]  For details, please see Overall Development Plan for Pingtan Comprehensive Experimental Zone (November 2011).

[7]  For details on Pingtan’s preferential tax policies, please see Circular on Enterprise Income Tax Preferential Policies and Catalogue of Preferences for Guangdong Hengqin New Area, Fujian Pingtan Comprehensive Experimental Zone, and Shenzhen Qianhai Shenzhen-Hong Kong Modern Services Cooperation Zone (Cai Shui [2014] No.26) and Circular on VAT and Consumption Tax Policies for the Development of Hengqin and Pingtan (Cai Shui [2014] No.51).

[8]  Source: Xiamen Port Authority

[9]  For details, please refer to the preferential treatments granted to Hong Kong service suppliers under CEPA.

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