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Market Opportunities in the Tianjin Free Trade Zone

Introduction

The China (Tianjin) Pilot Free Trade Zone (TJFTZ) officially launched in April 2015 as part of China's second batch of free trade zones following the establishment of the Shanghai FTZ.[1] Its strategic positioning is intended to make it an open platform for the collaborative development of the Beijing-Tianjin-Hebei region. TJFTZ will fully leverage Tianjin Port’s advantages in being able to serve overseas markets, including Northeast Asia, in order to promote economic growth in Beijing, Hebei and other inland regions. Situated at the eastern end of the Eurasian land bridge, Tianjin benefits multi-modal transportation and other infrastructure for serving trade between countries and regions along the land bridge. It is an important pivot on the China-Mongolia-Russia Economic Corridor, which is integral to the Belt and Road Initiative.

The liberalisation measures involved in the TJFTZ will help Hong Kong companies to attain footholds in this region. Besides benefitting from policies such as lower entry thresholds for foreign investment and simpler procedures for foreign investors, Hong Kong companies – across sectors including internet value-added services, accounting and cultural industries – will be able to make use of the preferential treatment offered by the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA). The TJFTZ will promote cross-border e-commerce, facilitate parallel car imports, improve international shipping and logistics services, and beef up financial leasing. It is an ideal platform for Hong Kong companies intending to penetrate mainland markets, especially in North China.

Photo: TJFTZ is part of China’s second batch of FTZs
TJFTZ is part of China’s second batch of FTZs
Photo: TJFTZ is part of China’s second batch of FTZs
TJFTZ is part of China’s second batch of FTZs

 

Preferential Treatments via CEPA and TJFTZ

The development priorities of TJFTZ are different from the other two FTZs launched at the same time. The Guangdong FTZ stresses Guangdong-Hong Kong-Macau cooperation and integrated economic development, while the Fujian FTZ puts emphasis on further integration with Taiwanese industries and the development of the Western Taiwan Strait (or Haixi) Economic Zone. In spite of these differences, in common with the Shanghai, Guangdong and Fujian FTZs, TJFTZ adopts a negative list approach and record filing system to simplify foreign investment administration.

The Special Administrative Measures (Negative List) on Foreign Investment Access in the Pilot FTZs promulgated by the State Council on 8 April 2015, sets out those management measures for foreign investment access that are inconsistent with national policies and other principles. For sectors falling outside the scope of the "negative list", systems for advance approval for foreign-invested projects and for examining and approving the contracts and articles of association of foreign-invested enterprises will be replaced by filing requirements based on the principle of same treatment for foreign and domestic investors.

The "negative list" is divided into 15 sectors and 50 project fields, in accordance with the Industrial Classification for the National Economy and includes 122 special management measures. It points out in particular that investment in the FTZs by investors from Hong Kong will be administered with reference to the "negative list", but that if any liberalisation measures applicable to the FTZs are more favourable to eligible investors under CEPA and its supplementary agreements, those provisions shall prevail. Thus, Hong Kong investors intending to enter TJFTZ may refer to the provisions of CEPA and the "negative list" to make the most of the market access concessions available.

(For more details on the "negative list" and its bearing on CEPA, see Guangdong Pilot Free Trade Zone: Opportunities for Hong Kong, which was published by HKTDC in June 2015.)

Picture: Foreign investment in TJFTZ is administered via a 'negative list' and record filing system
Foreign investment in TJFTZ is administered via a "negative list" and record filing system
Picture: Foreign investment in TJFTZ is administered via a 'negative list' and record filing system
Foreign investment in TJFTZ is administered via a "negative list" and record filing system

 

Expanding Foreign Investment

The "TJFTZ Master Plan" (the Master Plan) stresses the need to steadily expand the scope of economic opening up by lowering the entry threshold for foreign investment, with particular focus on modern service industries such as shipping services, trade services, professional services, cultural services and social services, as well as advanced manufacturing industries such as equipment manufacturing and new-generation information technology. Foreign investment procedures and restrictions will be simplified on the principle of "relaxed entry requirements and strict supervision". The channels and scale of offshore financing will be widened to help enterprises lower their financing costs.

Table: TJFTZ Lowers Entry Threshold for Foreign Investment
Table: TJFTZ Lowers Entry Threshold for Foreign Investment

 

  • To take service industries as an example, TJFTZ will substantially remove barriers on foreign participation in Internet-related business under "negative list" provisions. Companies with foreign equity not exceeding 50% will be granted an ICP Certificate (Telecommunications and Information Services Operation Permit)[2], which means that foreign investors will no longer need to conduct Internet value-added business through other indirect means. Hong Kong service providers will enjoy greater market access in Guangdong under CEPA, while in places outside Guangdong, and in Tianjin, the market access concessions they enjoy will be similar to that offered by TJFTZ.

  • The Master Plan also allows professionals from Hong Kong and Macau who are qualified as Chinese Certified Public Accountants (CPAs) to become partners in accounting firms in TJFTZ on a pilot basis. Thus, besides being able to join partnership accounting firms in Guangdong on a pilot basis through CEPA, TJFTZ also allows Hong Kong professionals to venture into Tianjin and the North China market.

  • The Detailed Implementation Rules of the China (Tianjin) Pilot FTZ for Cultural Market Opening, promulgated in July 2015, permit foreign-invested companies from Hong Kong, Macau, Taiwan and other countries to set up in TJFTZ (i) foreign-invested performance brokerage agencies; (ii) foreign-invested performance venue business entities and (iii) foreign-invested entertainment venues (including joint-venture and wholly-owned entertainment venues) serving Tianjin. Hong Kong service providers are already permitted to set up wholly-owned performance venues and performance brokerage agencies on the mainland under CEPA, but can only set up wholly-owned entertainment venues in Guangdong on a pilot basis. Thus, the above measure will improve Hong Kong companies’ access to the Tianjin market. 

(For more details concerning market access and opening up for the above sectors, please read the Master Plan, the CEPA arrangements and the relevant laws and regulations.)

Promotion of Trade Transformation and Innovation

In order to improve the quality of trade and more effectively stimulate the development of trade in the Beijing-Tianjin-Hebei region, TJFTZ will actively cultivate new forms of trade and improve its functions in serving international trade, including:

  • Developing cross-border e-commerce

  • Developing service outsourcing 

  • Exploring the launching of fiscal funds to support the establishment of a North China intellectual property rights operations centre and unfold cross-border IPR transaction

  • Supporting the import of advanced technologies and key equipment and parts

  • Implementing pilots for parallel car import 

  • Encouraging domestic futures exchanges to conduct business within special customs supervision areas 

  • Facilitating commodity spot trading and exploring the establishment of foreign exchange administration and customs supervision systems for international commodity exchange

  • Establishing an international online checking mechanism for inspection and quarantine certificates, promoting mutual recognition of testing standards and results, and encouraging the establishment of third-party inspection, testing and accreditation bodies  

Photo: TJFTZ has good international trade service functions
TJFTZ has good international trade service functions
Photo: TJFTZ has good international trade service functions
TJFTZ has good international trade service functions
Photo: TJFTZ pilots parallel car imports
TJFTZ pilots parallel car imports
Photo: TJFTZ pilots parallel car imports
TJFTZ pilots parallel car imports

 

Meanwhile, TJFTZ will gradually improve the relevant support systems and measures for customs supervision, inspection and quarantine, tax refund, cross-border payment and logistics to facilitate the development of cross-border e-commerce. For example, the 18 institutional measures promulgated by the Tianjin Customs department in April 2015 to support TJFTZ in establishing new-style bonded supervision and customs clearance administration systems, a unified record filing list, systems for "centralised declaration of incoming and outgoing batches" and paperless customs, and systems for allowing third parties to make their own transport arrangements for bonded goods, will all promote trade facilitation and boost the development of cross-border e-commerce.

 

 

Promotion of Cross-Border E-Commerce

Although Tianjin has not been included on the list of China's pilot cities for cross-border e-commerce imports[3], information obtained from the Yujiabao sub-zone of the Tianjin Binhai New Area CBD/FTZ indicates that TJFTZ is ready to promote cross-border e-commerce and offering facilitation measures to e-commerce operators, including:

  • Direct mail bonded imports. TJFTZ provides import e-commerce platforms with the convenience of bonded storage and direct dispatch of goods from bonded warehouses after orders are received.

  • Direct purchase imports from abroad. After handling and sorting in overseas warehouses, goods are imported and transported to an airport cross-border customs supervision area and eventually directly delivered to consumers after customs and commodity inspection declarations are made on the electronic system.

  • Direct mail imports from Hong Kong. After handling and sorting in Hong Kong warehouses, goods are transported by land to the airport cross-border customs supervision area and eventually directly delivered to consumers after customs and commodity inspection declarations are made on the electronic system.

Some domestic enterprises are stepping up their preparations to seize business opportunities in TJFTZ. For example, a Tianjin company told HKTDC it has successfully completed electronic declaration networking with the Tianjin Customs department and is negotiating cooperation with logistics and payment companies. It has also set up a company in Hong Kong in the hope of making use of Hong Kong's strength in international procurement, logistics and other areas to develop cross-border e-commerce in Tianjin. The representative of another company, Tianjin Tianyi Sunton International Logistics Co Ltd, said that its facility in the Dongjiang Bonded Port Area, inside TJFTZ, provides clients with import declaration, inspection and quarantine declaration services, product labelling and processing, and other services, including general logistics services. The company also effectively supports general commodity imports and cross-border e-commerce import activities, helping to expand business opportunities in Tianjin and North China.

 

 

Tianjin is also one of China's major ports for car imports. TJFTZ supports parallel car imports to further boost car sales and promote car ownership. The relevant liberalisation measures stipulate that parallel imported vehicles must comply with the state's quality and safety standards and that the importers are responsible for after-sale service, recall and the "three guarantees" of repair, replacement and refund of faulty products, besides warnings about risks to consumers.

 

 

Parallel Car Imports

The Pilot Implementation Plan of the China (Tianjin) Pilot FTZ for Parallel Car Imports, promulgated in May 2015, specifies the qualifications for the relevant pilot platforms and enterprises in TJFTZ. The market entry requirements for pilot enterprises, including registered capital of not less than Rmb20 million and car sales revenue of not less than Rmb200 million in the preceding fiscal year, are much lower compared with the thresholds for a similar pilot programme in the Shanghai FTZ.[4] This will enhance the prospects for parallel car importers looking to tap business opportunities through TJFTZ.

According to the Information Section of the Tianjin Municipal Commission of Commerce, Tianjin's annual car imports currently account for about 40% of the national total and the municipality has supported close to 500 car import enterprises over the past decade. Tianjin's customs, inspection and quarantine departments have therefore accumulated rich experience in supervision and customs clearance inspections of car imports. These will be of benefit to parallel car imports in TJFTZ, including in Dongjiang International Automobile City, in the Dongjiang Bonded Port Area. It started a trial operation in May 2015 as Tianjin's first parallel car import platform, providing a one-stop service for inventory, car exhibition and trade, "three guarantees" insurance, maintenance and after-sale technical support. According to figures from the Tianjin Municipal Commission of Commerce, parallel imported vehicles at Tianjin ports account for about 70% of the national total.

 



Improving International Shipping Services

As far as international shipping for promotion of trade is concerned, Tianjin Port is an integral part of the Bohai Bay Economic Zone, which is one of the three biggest economic zones in China. As the largest comprehensive commercial port in North China, it provides services to over 400 ports in more than 200 countries and regions all over the world. It handled 540 million tons of freight (+8%) and 14.3 million TEUs (+10%) in 2014. Meanwhile, the Tianjin Binhai International Airport, a major air cargo freight centre in North China, handled 233,000 tons of freight and mail and 12 million passenger-times in 2014.

Against this backdrop, TJFTZ plans to improve its international shipping service functions, especially the sea-air intermodal services provided by the Tianjin Port and Binhai International Airport. Measures include:

  1. Allowing the establishment of wholly foreign-owned ship management enterprises.

  2. Easing foreign equity ratio restrictions on Sino-foreign equity joint venture and contractual joint venture international shipping enterprises.

  3. Allowing foreign companies to engage in public international shipping agency business through equity and contractual joint ventures, with the allowable foreign equity share raised to 51%.

  4. Encouraging domestic and foreign shipping service intermediaries, including shipping insurance companies and insurance brokerage firms, to set up business operations.

  5. Promoting the development of international transit and the consolidation of sea freight container and air courier services.

  6. Giving support to the Tianjin Binhai International Airport through increasing the number of international cargo and passenger flights and building it into an aviation logistics centre.

In fact, under CEPA Hong Kong companies already benefit from liberalisation measures for shipping services which are similar to those offered by TJFTZ. For example, CEPA allows Hong Kong service providers to set up wholly-owned shipping companies on the mainland and to establish equity joint ventures offering third-party international shipping agency services, provided their shareholdings do not exceed 51%.[5] However, TJFTZ will introduce more measures to encourage domestic and foreign shipping insurance and other service intermediaries to set up business within the zone and promote provision of international transit and consolidation services for sea freight and air courier businesses. These should provide more convenience to those Hong Kong companies which intend to open up the market in North China via Tianjin.

Notably, several advanced manufacturing enterprises and many large companies have already moved into parts of TJFTZ, such as the Tianjin Airport Area (including the 1 km2 airport area of the Tianjin port free trade zone and the 1.96 km2 Binhai New Area integrated free trade zone).  Key sectors include:

  • Aviation: industrial output value amounted to Rmb41.5 billion in 2014. Companies in this sector include Airbus, which operates an A320 general assembly line; Bombardier, which has established a business aircraft service and maintenance centre; AVIC Helicopter; and Airbus Helicopters.

  • Advanced equipment manufacturing: industrial output value amounted to Rmb27.5 billion in 2014. Companies in this area include Caterpillar (machinery equipment), Magna (automotive dies), Alstom (hydro equipment manufacturing), and Becker Mining (electronic controls and equipment for mining).

  • New-generation information technology: industrial output value amounted to Rmb23 billion in 2014. Companies in this area include the Tsinghua University Group, Taiwan Asus, Spreadtrum, ZTE Corp and Datang.[6]

Photo: Tianjin Port: North China’s largest comprehensive commercial port
Tianjin Port: North China’s largest comprehensive commercial port
Photo: Tianjin Port: North China’s largest comprehensive commercial port
Tianjin Port: North China’s largest comprehensive commercial port

These high-end industries in the FTZ entail a keen demand for producer services. The Dongjiang Area (including part of the Dongjiang Bonded Port Area) of TJFTZ not only has an operation area for loading and unloading at its container terminal but also has facilities for logistics, processing, commerce and trade, providing support to shipping activities of Tianjin Port. Tianjin's seaport and airport also serve import and export trade in the Beijing-Tianjin-Hebei region, together helping to boost the development of Tianjin's international shipping and logistics industries.

TJFTZ currently focuses on areas such as the Tianjin Port Bonded Area and Tianjin Aviation Logistics Area in order to accelerate the development of international trade and modern marine and aviation logistics. The objective is to harness the "joint development" of seaport and airport to achieve the efficient coordination of international logistics services and boost air transport, mail and courier services, cold chain logistics and other shipping logistics services.

A propos of these developments, many enterprises have established a presence in TJFTZ in order to tap business opportunities in transportation and logistics. For example, as of May 2015, over 1,800 investment companies from Hong Kong – including the Kerry Group, China Merchants Group, Jebsen Group and OOCL – had set up in the Tianjin Airport Area, investing more than US$20 billion.[7]

Extending Financial Openness and Innovation

In keeping with the development of Tianjin, and the Beijing-Tianjin-Hebei region as a whole, TJFTZ focuses on financial openness and innovation to support the development of the region's real economy. The Master Plan spells out the need to promote and facilitate investment, interest rate marketisation and cross-border use of Renminbi. For example, the trial implementation of policies such as limited capital account convertibility and allowing qualified institutions within the FTZ to freely engage in direct investment, mergers and acquisitions, debt instrument trading, financial investment and other transactions will help reduce the financing costs of enterprises. Meanwhile, TJFTZ will concentrate on strengthening its financial leasing business and develop shipping finance and shipping insurance in the hope of building Tianjin into North China's international shipping finance centre.

Already, TJFTZ has formed a leasing industry cluster of considerable scale. The Reply of the State Council on the Construction Plan for Core Functional Areas of the Tianjin North International Shipping Centre, issued in 2011, clearly supported the development of the Dongjiang Bonded Port Area into a national-level leasing innovation demonstration area. As of May 2015, as many as 1,097 leasing companies had registered in the Dongjiang Bonded Port Area, with total registered capital amounting to Rmb74.3 billion. Together they handled the leasing of 493 planes, 11 aircraft engines, 71 international vessels and eight offshore drilling rigs.[8]

To promote the development of the leasing industry, TJFTZ has outlined measures to further facilitate investment by domestic and foreign investors and encourage leasing business both in China and abroad. These include:

  • Unifying access requirements, approval procedures and on-going and ex post supervision for domestic and foreign financial leasing enterprises.

  • Supporting offshore financing for the leasing industry and encouraging various types of leasing companies to expand cross-border use of Renminbi.

  • Where the import and export of aircraft, vessels, marine engineering structures and other large equipment by financial leasing enterprises registered in the TJFTZ Special Customs Supervision Area are concerned, cross-location entrusted customs supervision shall apply.

In addition, TJFTZ will also promote the full opening up of the financial sector to private capital, including allowing qualified private capital to set up small and medium-sized private banks and other financial institutions and supporting the establishment of foreign banks and Sino-foreign joint venture banks within the FTZ. At the same time, it will also promote and facilitate investment, including unifying offshore lending policies for domestic and foreign enterprises, and establish a system of macro-prudential management of foreign debt. Furthermore, it will ease approval and size restrictions for the offshore issuance of local and foreign bonds by enterprises within the zone and allow the repatriation of the raised capital back to the zone to reduce the financing costs and alleviate financing difficulties for FTZ enterprises, especially small and medium-sized enterprises.

Appendix

According to information released by the China (Tianjin) Pilot FTZ Management Committee, TJFTZ has a total area of 119.9 km2 and consists of three areas:

  1. The 30 km2 Tianjin Port Dongjiang Area is the FTZ's core functional zone and the international shipping and logistics centre of North China. Priority in the area has been given to modern service industries, such as shipping and logistics, international trade and financial leasing. The area has introduced pilot policies across four major categories, namely international vessel registration, international shipping taxation, shipping finance and leasing business. The area has some 3,200 registered businesses, including 1,039 trade settlement firms, 96 shipping companies and 844 leasing companies. It also has a logistics warehouse space of 1.386 million m2.

  2. The 43.1 km2 Tianjin Airport Area (which includes the 1 km2 airport area of Tianjin port free trade zone and the 1.96 km2 Binhai New Area integrated free trade zone) is a major cluster of enterprises engaged in advanced manufacturing and R&D conversion. Priority in the area has been given to advanced manufacturing industries such as aviation and aerospace, machinery manufacturing, new-generation information technology and producer services such as R&D design and aviation logistics. The area hosts some 12,000 registered businesses and over 160 investment projects involving Fortune 500 companies. It also has a 7.5 km2 aviation logistics park. Clusters of industries such as civil aviation, equipment manufacturing, electronics and information, biomedicine, fast-moving consumer goods and modern services have taken shape.

  3. The 46.8 km2 Binhai New Area CBD (which includes the seaport area of the Tianjin port free trade zone and the 4 km2 Bonded Logistics Park) is a hub for Tianjin's financial reform and innovation as well as the urban core of the Binhai New Area. Priority in the area has been given to modern service industries focusing on financial innovation. The area hosts some 2,900 registered businesses and has attracted over 500 financial service institutions of various kinds. Currently, 63 office buildings in the CBD are under construction, while another 10 have been completed and are open for business. The area maintains rapid growth in fund servicing, factoring, leasing, financial settlement and other businesses.

 


[1]  China's second batch of pilot free trade zones comprises the China (Guangdong) Pilot FTZ, the China (Tianjin) Pilot FTZ and the China (Fujian) Pilot FTZ.

[2]  Under the provisions of China's Measures for the Administration of Internet Information Services, business websites – that is, websites providing paid-for information, website production and other services to online subscribers through the Internet – must obtain a value-added telecom business operating licence (ICP Certificate) before they can operate legally.

[3]  China's pilot cities for cross-border e-commerce imports include Shanghai, Chongqing, Hangzhou, Ningbo, Zhengzhou, Guangzhou and Shenzhen.

[4]  According to the Circular on Starting the Pilot Programme on Parallel Car Imports in the China (Shanghai) Pilot FTZ issued by the Shanghai Municipal Commission of Commerce on 7 January 2015, applicants for the pilot programme must have been in business for at least five years, made profits in the past consecutive three years and show sales revenue of more than Rmb400 million in the past year.

[5]  For details, please refer to the relevant preferential policies granted to Hong Kong service providers under CEPA.

[6]  Source: China (Tianjin) Pilot FTZ Airport Area.

[7]  Source: China (Tianjin) Pilot FTZ Airport Area.

[8]  Source: Dongjiang Bonded Port Area.

Content provided by Picture: Wing Chu
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