The aim of the People’s Republic of China Government of establishing a new Free Trade Zone (FTZ) after the one established in Shanghai in 2013 will finally become a reality the 18th of March. There is no need to say that foreign investors have been longing for this news; given its strategic geographical location, it will function as China’s gateway to overseas trade, not only to Hong Kong and Macao, but also Africa, Latin America and Europe.
With the confirmation of the FTZ by the State Council of the People’s Republic of China (PRC), Guangdong province will experiment a huge impulse on its economy. The zone, that will rise over 116.2 km2, is divided into three different cities within the Pearl River Delta Region, which includes the Guangzhou’s Nansha New Area, the Zhuhai’s Hengqin New Area, and the Shenzhen’s Qianhai and Shekou block.
It’s important to bear in mind that Guangdong is one of the leading industrial provinces of China through nine main industries, namely electrical appliances and machinery, petrochemicals, garments and textiles, food and beverage, construction material, paper making, pharmaceuticals, and automotive. In addition, Guangdong holds the largest share of China’s electronics industry, which comprises over 41 percent of the province’s total industrial output.
MAIN INDUSTRIES BY AREA
. Guangzhou’s Nansha New Area: Car manufacturing, advanced equipment manufacturing, modem services, high-tech industries.
. Zhuhai’s Hengging New Area: Electronic information, bio-pharmaceuticals, petrochemicals, food and beverage, electrical appliances, precision machinery manufacturing, energy.
. Shenzhen’s Qianhai and Shekou block: Financial and information services, modem logistics technology, professional services, cultural and creative industries, garments and textiles.
This FTZ is expected to focus on customs clearance and the finance industry, and will apply some of the features that have already been implemented in Shanghai’s FTZ. Each area will develop its own function: Qianhai (Shenzhen) will work with Hong Kong on financial measures; Hengqin (Zhuhai) will intend to create free trade platforms with the Portuguese speaking countries of Angola, Brazil and Portugal (gateways to Europe, Africa and Latin America will be established on each country, facilitating China’s access to such markets); Nansha, due to its central location in the Pearl River Delta will provide port facilities, taking advantage of it as an strategic point for business development.
Furthermore, banks and financial service companies in Hong Kong will also take advantage of it. Enterprises established and operating in the Guangdong FTZ will be permitted to borrow RMB directly from Hong Kong banks. This new situation not only will give the possibility to Hong Kong’s companies and banks to compete directly with companies and banks in the FTZ, but also Hong Kong’s services industry can be extended to the PRC.
China’s aim of keep strengthening its relationship with Hong Kong and Macau after the signature in 2003 of the Closer Economic Partnership Arrangement (CEPA) –that granted them a preferential access to market in Mainland China– is easily noticed with the implementation of this new FTZ. Within this area, investors from Hong Kong and Macau will find fewer restrictions or won’t find them at all in terms of qualification, distribution of shares, scope of business within the professional, trading, financial and scientific service industries.
Nevertheless, one of the most important milestones that the FTZ brings is that it will simplify the companies registration procedures within the zone, what will suppose a really valuable advantage for investors when it comes to saving time and cost. In Mainland China, new companies have to obtain several certificates from different departments of the Government. It won’t happen anymore in this new FTZ, where the organization code certificate and tax registration certification will no longer be issued separately; the local Administration for Industry and Commerce will provide a special business license that will include both codes on it.
In conclusion this FTZ will help to break down business barriers and it will play a major role in deepening cooperation within the province of Guangdong, Hong Kong and Macau, which will help to strengthen relationships with both places and improve economic development, scientific research and other high-end services.