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China announces pilot free trade zones

China plans to run pilot free trade zones in Guangdong, Tianjin and Fujian and to reform the existing zone in Shanghai, Chinese state-owned news agency Xinhua has said. 21 Apr 2015

The Chinese cabinet sees free trade zones as crucial in promoting reform, boosting trade and helping investment, Xinhua said.

The pilot free trade zones will operate on a 'negative list' basis, where specific investment sectors are off-limits to foreign investors, Xinhua said. These will include some non-ferrous metal mining, air traffic control systems management, 'postal enterprises' and the production of radio and television programmes.

In other sectors foreign investment will only be allowed as part of joint ventures with Chinese companies. This includes oil and natural gas exploration, aeroplane design, manufacture and maintenance, and rare earths smelting, Xinhua said.

In January, China announced that it would allow foreign investors to fully own e-commerce companies in the Shanghai Free Trade Zone (FTZ) as part of a pilot scheme.

The 29 square kilometer zone in Shanghai was launched in 2013. Technology law expert Peter Bullock of Pinsent Masons, the law firm behind Out-Law.com, said that it was it was always expected that the Shanghai free trade zone system would be extended to other cities.

"The Shanghai experiment was not without its teething problems. Although ambitious in the range of sectors it catered for, uncertainties in the language around what was allowed and what disallowed, together with the relatively limited size of the zone itself, were a brake on take up of the scheme," he said.

"For example, the idea of the ‘negative list’ is initially appealing, as it suggests certainty by allowing everything except what is written in the negative list. In practice however this is not how the list was interpreted, with many areas, such as TMT, being heavily restricted in the Shanghai free trade zone. It is hoped that the uncertainties will be clarified as the free trade zones gain traction across the country," Bullock said.

In March the Political Bureau of the Communist Party of China (CPC) Central Committee said that the Shanghai free trade zone had made "positive progress" over more than a year, and had created a model that could be replicated elsewhere, Xinhua said.