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Doing Business in Free Zones in China

Updated on Friday 10th April 2020

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Import-and-Export-in-China.jpgThere are 66 free trade zones in China that address to foreign investors looking for special business conditions among many other things. Considering the success of these important free zones in China, the government continues to develop even more centers like these by the end of 2020. If you would like to know about how business is done in China’s free trade zones and the ways in which you can register a company, we kindly invite you to talk to our team of company formation agents in China.

What are China's main free trade zones?

Each free zone in China is named after the municipality or province it is established in followed by the term FTZ (Free Trade Zone):
  • Henan FTZ – 4
  • Shaanxi FTZ – 7
  • Shanghai FTZ – 8
  • Hubei FTZ – 5
  • Chongqing FTZ – 1
  • Zhenjiang FTZ – 11 
  • Fujian FTZ – 2
  • Guangdong FTZ - 3 
  • Sichuan FTZ – 9
  • Liaoning FTZ – 6
  • Tianjin FTZ – 10
Even though the business focus is on the seaports in China, the authorities have decided to also concentrate on the free trade zones which can be developed inside the country and the ways in which the economy can be even better sustained.

The reasons for opening a business in China’s free trade zones

The attributes of the free trade zones in China are important to foreign investors who want to benefit from lower tax rates or who are interested in developing their operations in a reliable and prolific manner. The following aspects can describe the reasons why entrepreneurs decide for opening companies in the free zones of China:
  • duty-free warehousing is at the disposal of foreigners in China’s FTZ before importing goods in mainland China;
  • there are specific laws regarding the cross-border e-commerce in Chinese FTZ;
  • there are no strict policies on the websites and social media channels;
  • small grants or bonuses are offered to investors in free trade zones in China;
  • a series of incentives and governmental policies are offered in FTZs.

Activities in China’s FTZs

Henan FTZ was created to develop the traffic and logistics system for an important project named “One belt, one road”. Guangdong free trade zone acts as a pilot zone for hi-tech companies, financial firms and sustains the business collaboration with Macao and Hong Kong. The shipping activities and the tourism activities with Taiwan are promoted with the help of Fujian Free Trade Zone. This is where a part of the Maritime Silk Road develops. Chongqing Free Trade Zone is representative for high-end manufacturing and tariff-free services, besides being a significant center that connects the “Yangtze River Economic Belt” with “Western Development” and “One belt, one road”. Hubei Free Trade Zone sustains the industrial transfer and promotes the development of “Yangtze River Economic Belt” where foreign investors already offered their support in terms of business. As for Shaanxi FTZ, this is extremely representative because it sustains the cultural and educational exchanges, the technological agriculture and the high technology in these areas. Shanghai Free Trade Zone is one of the most important FTZs in China which focuses on financial services, international shipping, and which is open to an offshore tax structure. A free trade logistics park and an important airport are part of Shanghai FTZ. Foreign investors might be attracted by Sichuan FTZ with a total area of 120 km 2 and varied business opportunities sustained by modern services and technologies. Having a business in FTZ in China means knowing the rules and regulations in this direction which can be entirely explained by our team of consultants in China, at any time.

Attracting international investors in China’s FTZs

Growing the attention of foreign investors in China have made the authorities develop many free zones with lots of advantages, among which the ones related to the taxes are extremely significant. Complete access to cross-border countries and lower taxes, plus exemptions for specific import and export operations. Wholly foreign-owned companies or WFOEs as they are known can be easily registered in the free zones in China, and company owners can benefit from complete ownership and control in the firm. This is also an important advantage for foreign investors in China.

The characteristics of SEZ in China

The special free zones in China are directed to those kinds of investors who want to protect their assets and take advantage of special tax incentives and complete control of their assets and company. International companies interested in placing their operations in the import and export field should direct the attention to the special economic zones in China and set up joint stock companies, joint ventures, and wholly foreign-owned enterprises. Having complete independence and being sustained by the Chinese authorities, the special free trade zones in China sustain the economy in the country in a large amount, the FDI and the exports being on a positive trend in the past decade. We remind that the Chinese WFOE formation can be explained by our team of consultants in China.

Short facts about the free zones in China

The industrialization in China started a few decades ago when the government started a series of initiatives to support the economy and develop specific regions in the country. The first special economic zones developed in 1984 with the appearance of 14 coastal cities which were established as free trade zones: Beihai, Guangzhou, Wenzhou, Zhanjiang, Ningbo, Fuzhou, Nantong, Shanghai, Qingdao, Dalian, Lianyungang, Yantai, Tianjin, and Qinhuangdao. Considering the success of these free trade zones, the Chinese authorities decided on establishing other special areas part of the coastal belt: Pearl River Delta, Yangtze River Delta, the Shandong Peninsula, Hebei Province, Xiamen-Zhangzhou-Quanzhou, the Liaodong Peninsula and Guangxi. Here are a few facts about the free trade zones in China:
  • all special economic zones were created with the idea of sustaining the country’s economy with the help of foreign investments in large, medium and small-sized cities in China. 
  • the high-tech industrialization started in 1992 with varied and privileged rules among which, the possibility of trading in foreign exchange in the import and export sector. 
  • lower tax rates, different administrative schemes and the ease of doing business where only a few of the business strategies which developed in China back in the ‘90s. 
  • for instance, Shenzhen, one of the special economic zones in China, registered up to 40% of the city’s total industrial value, approximately CNY 82 billion in 1999. 
Special policies were developed and implemented, mostly directed to the income tax and the customs duties. Also, since the 2000's, foreign investors were allowed to set up financial institutions in China. More than that, Shanghai, a special economic zone in China, had the permission of the Chinese authorities to set up a stock exchange and approve foreign investment funds. In addition, businessmen took advantage of the double taxation treaties signed by China with numerous countries around the world to avoid paying twice the taxes on incomes.
Doing business in the free trade zones of China is both easy and convenient, especially for entrepreneurs who would like to protect their assets from a taxation point of view. If you would like to open a company in China’s free trade zones, we kindly invite you to contact our team of company formation specialists in China and solicit comprehensive support in company formation.

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