Reform of free trade zones to give a boost to national innovation

Recently, the Comprehensively Deepening Reforms Commission of the Communist Party of China’s Central Committee reviewed and approved papers on the topic of promoting high-quality development. Some of the most eye-catching measures for deepening reform and innovation were related to the country’s pilot free trade zones. Although some of the specific measures are yet to be announced, there is a lot that we do already know.

Following the 19th National Congress of the Communist Party of China last year, policy tools were developed to grant greater autonomy for the reform of the pilot free trade zones. These tools were designed to help China continue along its 40-year-old journey of reform and opening up. Twelve pilot free trade zones, including those in Shanghai, Guangdong, Tianjin, Fujian, and Hainan, will take the lead in the implementation of these new policy tools. The pilot zones are expected to formulate plans that cover their policy environment, resources, and markets, and that directly promote the development of the local business environment and raise their competitiveness.

Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China February 13, 2017. [File Photo: VCG]

We also know that these pilot free trade zones have been given greater leeway to explore, experiment, and to break the barriers to their development. They will be trailblazers when it comes to China’s ongoing reform, as they will be increasingly aligned with international markets, along with global capital and technology. They also act as a strong bridge between China’s domestic market and the world economy. The lessons learned through their development will pay dividends for China, and for the world at large.

One of the challenges facing policymakers is how to build a world-class business environment. This includes lowering transaction costs as much as is possible. In the past few years, China’s pilot free trade zones have developed good practices that have helped to lower transaction costs, and these practices are gradually being promoted nationwide. This includes the introduction of one-stop shops for businesses engaging in international trade. This means companies can lodge information about maritime and customs matters electronically to one central point of contact. The pilot zones have also made constant innovations in the management of intellectual property rights, talent and land use and by so-doing improved the international competitiveness of these areas.

The bottom line is that China’s government is seeking to make the most of the opportunities presented by the development of these pilot areas. China is a vast territory, and there are large disparities in economic and social conditions. The lessons learned in one pilot free trade zone can’t simply be applied to the whole country. But they provide policymakers with a sandbox to develop and fine-tune economic innovations that ultimately can help to tackle problems standing in the way of the ongoing reform and opening up of the national economy. They can act as hotbeds of innovation that improve the level of trade facilitation, promote financial innovation in the service of the real economy, and improve the use of the country’s talents through a careful and responsible decentralization of power.