Shanghai FTZ was a ‘template’ for rest of China

Mathias Cormann, secretary-general of the Organization for Economic Cooperation and Development.

Mathias Cormann uses words like “innovation,” “experimentation,” and “template” to describe the China (Shanghai) Pilot Free Trade Zone.

When it was created in September 2013, the Shanghai FTZ was indeed born with a pioneering spirit embedded in its DNA, being the first of its type in China.

A decade later, China has 21 free trade zones and a free trade port in Hainan, which, according to the secretary-general of the Organization for Economic Cooperation and Development (OECD), is “a powerful testament to its success.”

Nearly half of the 302 institutional innovations developed in free trade zones and then promoted nationally were pioneered in Shanghai FTZ.

“The establishment of this free trade zone was an important moment in China’s trade liberalization journey,” he added, praising more open services, easier currency exchange, and lower regulatory constraints. “It became a real and important magnet for trade investment.”

Shanghai FTZ acts as a hub of policy experimentation and innovation “with respect to financial sector liberalization, trade facilitation, and more efficient customs procedures,” he said in a video message delivered at the Forum on the 10th Anniversary of China’s Pilot Free Trade Zone in Shanghai.

It provided a template that was successfully replicated throughout China.

Over the last decade, the zone expanded from roughly 29 square kilometers to more than 240 square kilometers. The expansions have aided the development of the high-tech sector by introducing new regulatory approaches in areas such as intellectual property rights.

Cormann said there are around 7,000 free trade zones spreading across 145 countries, working as significant drivers of development and fostering numerous beneficial commercial partnerships.

“In 2022, China’s 21 free trade zones attracted just under 19 percent of total foreign investment with less than 0.4 percent of China’s land area,” he said. “China has made progress in liberalizing its services sector, ultimately encouraging more investment and innovation while boosting competition.”

According to the OECD’s FDI (foreign direct investment) Regulatory Restrictiveness Index, China has been among the top reformers in relaxing foreign shareholding restrictions across various industries, including financial services, manufacturing, agriculture, and pharmaceuticals, during the last decade.

The OECD expects global growth to reach 2.7 percent this year and 2.9 percent next year. But in China, the OECD expects growth to rebound to 5.4 percent this year, up from 3 percent last year.

“Having contributed approximately 1 percentage point to global growth per year for the past decade, China undoubtedly will remain a key driver of the economic recovery moving forward,” he said. “China’s free trade zones can be effective catalysts for more vibrant global trade and ultimately for stronger development and growth in China and beyond.”

But Cormann pointed out the need to tackle illicit trade in free trade zones. The reduced customs presence in free trade zones, which offer many benefits for businesses in terms of lighter regulatory burdens and restrictions, also increases the risks of illicit trade, including trade in counterfeit and pirated products.

He suggested it was possible to deal with these risks in three ways:

* Public authorities need access to sufficient, timely information on the goods that transit through or are assembled within the free trade zone;
* Inter-agency cooperation, both domestically and internationally, is essential to effectively tackling illicit trade.
* Effective partnerships and awareness-raising among other stakeholders that have an important role to play in combating illicit trade are also important.