7 / 54
Context of treasury
Accounting, tax and regulation
The Shanghai Free Trade
Zone is a leader in financial
services, with multiple
international banks, and
domestic Chinese banks
using it as their headquarters
in China. Other service
industries in the free trade
zone include shipping
services, business services,
professional services, and
cultural and social services.
Furthermore, the
Shanghai Free Trade Zone
has attracted some large
multinational companies,
including technology giants
Microsoft and Sony. Some
90% of companies in the
zone are Chinese and
they are benefiting from
the liberal policies for
outward investment.
internationally and then
progress its convertibility.
A key part of China’s
financial reforms is the
establishment of free trade
zones, which are designed
to test the impact of free
market reform and the
liberalisation of FX policies
on the Chinese economy
before these are rolled out to
the rest of China. It is hoped
that the free trade zones will
accelerate the liberalisation
of the financial sector,
increase cross-border trade
and investment flows, and
boost growth in domestic
services and innovation. The
first free trade zone, which
was established in September
2013 in Shanghai and its
surrounding area, is 120.7km
2
in size.
Specifically, the pilot free
trade zones (PFTZs) aim to:
• Promote free trade;
• Progress financial reform;
• Simplify administration;
• Upgrade customs
procedures;
• Open up China’s
investment sector;
• Create a competitive
regulatory and tax
environment; and
• Operate as a test market
for national reform.
Following in
Shanghai’s footsteps
Earlier this year, China
unveiled three new free trade
zones that are modelled
on Shanghai, but have
different local economies
and geographies.
Tianjin Free Trade Zone
has been established to
operate as a gateway to the
economic zone in northern
China. Its industries include
aerospace, automotive,
financial leasing, high-
end manufacturing,
petrochemicals,
pharmaceuticals, metals and
mobile phones. With modern
infrastructure including
Tianjin Port (the largest
port in northern China) and
Tianjin Airport, it is expected
The first wave of overseas
investment in China
began in the 1990s.
Those early adopters saw
the potential of the Chinese
market and its vast
population. Twenty-five
years later, the second wave
of international investment
has begun, prompted
largely by the Chinese
government’s establishment
of free trade zones.
In the past, international
investment in China has
been limited for a number
of reasons. These include:
all investment being
restricted and subject to
approval; the Chinese not
being allowed to own foreign
debt; and the Chinese capital
markets not being open to
foreign investors.
The slowdown in China’s
GDP growth over the past
10 years has led the Chinese
government to introduce
an alternative strategy,
however. It has adopted
internal financial reform and
a process to internationalise
its currency, the renminbi.
As a result, the focus of the
People’s Bank of China is
to increase the liquidity
and circulation of the
renminbi, increase its usage
FREE TRADE ZONES IN THE WORLD’S SECOND-LARGEST
ECONOMY OFFER LIBERAL FINANCIAL AND TRADE
POLICIES, AIDED BY MODERN INFRASTRUCTURE AND
SUPPORTING BUSINESSES, SAY YANG DU AND EASON SHI
A foothold
in China
SHANGHAI FREE TRADE ZONE IN NUMBERS
l
Trading
59%
l
Service
19%
l
Manufacturing and R&D
12%
l
Foreign-owned
10%
59%
19%
12%
10%
23,000
companies
47
banks
300,000
workers
IAFEI Quarterly | Issue 29 | 5