China Tests Measures to Lure Foreign Businesses to Free-Trade Zones

04 Jul 2023

(Bloomberg) — China rolled out a number of measures to open up its free-trade zones as state leaders go on a charm offensive to woo foreign investors.

The government will test a slew of international trade rules in qualified free-trade zones or ports, according to a document released Thursday by the State Council, China’s cabinet.

“It signals to the foreign investment community that China is gradually opening the door wider,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc in Hong Kong.

Chinese President Xi Jinping and Premier Li Qiang have in recent weeks delivered speeches on China’s commitment to opening up and pledged to protect and welcome foreign investors. Industry crackdowns and raids at foreign companies have dampened investor confidence and efforts to “de-risk” supply chains further cloud China’s prospects for future growth.

The new measures are an attempt to “proactively align with rules” of the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP, Assistant Minister of Commerce Chen Chunjiang said Friday in a briefing.

China in 2021 applied to join that trade deal, which was once pushed by the U.S. as an economic bloc to isolate Beijing. China’s application is still pending. Meanwhile, the nation’s exports — which drove growth in the country during the pandemic — have been flagging as global demand weakens.

According to the new measures, foreign financial institutions in pilot-test areas will be allowed to provide similar new services to their Chinese counterparts, and companies or individuals in the regions will be allowed to buy overseas financial services.

Measures relating to the financial sector show China is making “a step forward” in opening up, according to May Zhao, managing director and head of equity research at Zhongtai Financial International Ltd. She’s looking next for more detailed guidance on permitting foreign institutions to conduct the same services as Chinese businesses in pilot zones, she said.

Neumann said the initiatives will allow for “much smoother financial operations” for the multinational corporations operating in the free-trade zones. Despite the geographic limitations of those zones, Neumann called the measures a “stepping stone” for overseas businesses.

“I’m sure that foreign companies will want to expand the footprint to access the wider Chinese economy,” he said.

The notice also cited measures to:

• Permit cash remittances by foreign investors in the trial regions without delay.

• Ban governments from asking for software source code from developers to allow its import, sale or use.

• Allow companies or individuals living or working in the pilot regions to buy overseas financial services.

• Allow remanufactured product imports for key industries.

• Extend a temporary period of stay for executives of companies that plan to set up units in trial areas to two years