What do the new FTZs tell us about China’s long term strategy?

A third batch of free trade zones (FTZs) was officially launched this month, as part China’s long-term commitment to opening its market to overseas institutions. Success stories of the first two batches of FTZs, which were all situated in coastal areas (see graphic), enabled Chinese decision-makers to apply the same model to the seven new FTZs that concentrate largely on the inland economy.

In addition to the existing four free trade zones, the seven new provinces, including Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi, will play varied and different roles in China’s go global strategy and its market liberalization ambitions, based on their own geographical and industrial strengths.

The growth in number and the geographic flexibility of the new FTZs demonstrate China’s confidence in its market liberalization reforms. 

China’s new wave of free trade zones are mostly inland

According to Shouwen Wang, vice minister of the Ministry of Commerce, the seven new FTZs will be serving several national strategies such as the One Belt One Road Initiative, the Beijing-Tianjin-Hebei economy, and the Yangtze River economy belt. Liaoning FTZ, a costal province, will take the lead in deepening SOE reform, while the other coastal province of Zhejiang will focus on international shipping and commodities trading.

In terms of inland provinces, Henan FTZ will act as a logistics center while Hubei FTZ will be responsible for industrial innovation and economic growth along the Yangtze River economy belt. Chongqing FTZ and Sichuan FTZ will participate in the Belt Road while boosting the economy along the Yangtze River. Shaanxi FTZ will also participate in the Belt Road, collaborating with the Belt Road countries in the agricultural industry.

The number of free trade zones has increased significantly with the latest batch

China’s FTZs have been successfully attracting investment and boosting the domestic economy. In 2016, the combined income of corporates in the Shanghai, Guangdong, Tianjin, and Fujian FTZs amounted to 409.1 billion yuan. Total investment in these areas reached 88 billion yuan. Economic growth is faster in the four FTZs than the national average.

“The main objective of the pilot FTZs is to figure out a suitable model that could be expanded to the whole country. In the meantime, FTZs can test the potential risks of the open market,” says Wang in a press conference.