China is aiming for a higher level of opening up and the report of the 19th CPC National Congress proposes to explore the construction of free trade port.
Why should we explore the construction of free trade port? What is the difference between the free trade port and the free trade pilot zone? What are the main areas of the free trade port? Recently, the 21st Century Business Herald (hereinafter referred to as “21st Century”) interviewed Wei Jianguo, Vice Chairman of the China Center for International Economic Exchanges and former Vice Minister of Commerce.
Free Trade Port Is Not A Simple Upgrading of the Free Trade Pilot Zone
21st Century: What kind of role should the free trade port play in China’s further opening-up?
Wei Jianguo: The report of the 19th National Congress of the Communist Party of China proposed that we should promote a new pattern of opening-up, create the best business environment in the next five to ten years and become the leader in promoting trade and investment facilitation.
A key to full liberalization is that the exploration of the free trade port should bring a high-level development for the Chinese economy and promote openness in all aspects. Therefore, the free trade port opens a new window for China’s future opening-up.
21st Century: what is the difference between the free trade port and free trade zone?
Wei Jianguo: Free Trade Zone and Free Trade Port have different strategic positioning. The former can be seen as an experimental field, in which successful experience can be generated and spread to the rest of China. The latter is expected to have the highest level of openness and thence, it has to make a series of special policy arrangements in terms of market access, financial system and taxation.
Therefore, the free trade port can not be regarded as a simple upgrading of the free trade zone. If the free trade pilot area is regarded as the secondary education, the level of the opening-up of the free trade port can be regarded as a postgraduate education with the aim of achieving the highest level of opening-up.
21st Century: what areas should we explore in establishing the free trade port?
Wei Jianguo: The biggest difference between the free trade zone and the free trade port is that the free trade zone focuses on the opening-up of the circulation of goods, while the free trade port aims for an all-around opening-up, including the flow of goods, currency, personnel, and information, more importantly, a comprehensive reform in relevant laws and regulations is needed. At the moment, goods declaration is still compulsory in the free trade zone, however, the free trade port will allow free flow of goods without declaration. To achieve that goal, the government and regulatory agencies need to work harder and come up with corresponding policy reform. For example, monetary flow involves the access of foreign-funded banks, the opening up of the RMB exchange rate and the liberalization of capital. Other issues like tax reliefs, free flow of personnel and information also require new institutional arrangements.
The most crucial change comes from the government’s reform and thus we need governments that are more efficient than that of Singapore, Hong Kong, and Rotterdam and the Netherlands.
Six Conditions for Building the Free Trade Port
21st Century: In your opinion, what are the hardware and software required for the free trade port?
Wei Jianguo: The exploration of the free trade port may require six major conditions.
First, free trade ports should be adjacent to major transport hubs. Generally speaking, the free trade port gathers a large number of goods, capital, people and information and thus, it needs a highly-efficient transportation system. For example, free trade port such as Hong Kong, Singapore are all transport hub which consists of great shipping and aviation network. All free trade ports have a “harbor” element, either a harbor or an airport.
Second, the free trade port needs to rely on a huge economic hinterland. There are many places with excellent transport facilities in the world, nonetheless, many of them are incapable of establishing themselves as free trade ports due to the lack of support from the economic hinterland. The hinterland should have the ability to provide a steady supply of goods, personnel and currency to the free trade port, and hence create demands for re-export, construction and bonded services. In return, the free trade port will also have a radiating effect on the hinterland.
Third, the free trade port should be able to attract highly qualified personnel. Apart from recruitment at local scientific research and education institutions, the local governments should also be able to attract highly-skilled personnel from other places by providing them with the convenience in entry and exit, preferential policies, and a better living environment. Successful free trade ports such as Singapore and Hong Kong are clusters of high-end scientific research and education, which can supply a large number of qualified personnel each year.
Fourth, the free trade port needs a government which can offer good management and services, and a market-oriented operational agency. For instance, New York and Singapore have specialized operating companies that are market-oriented and operate efficiently. Besides, they have an authoritative and efficient government to oversee this agency.
Fifth, the free trade port should have a complete supporting system, including financial, legal and other intermediary agencies, apart from logistics and good living environment.
Finally, the free trade port should have the best business environment, which mainly includes three aspects. Firstly, perfect protection of intellectual property. Secondly, everyone should have the equal rights, rules and opportunities. Lastly, a just and open legal system is needed to ensure policy stability.
21st Century: Free trade port will open the “front line” and control the “second line”, how to understand the “second line control”?
Wei Jianguo: Opening the “front line” means to improve the general openness of the free trade port, while controlling the “second-line” means to have an appropriate control over tax, fees and finance, which is also a common practice in other international free ports.
The exploration of the free trade port should only select a few places with the best conditions, and make them the benchmark for high-quality and high-level opening-up. The number and scope of the free trade port will be limited because it is impossible to turn the entire country or a particular province into a free trade port.
We Should Take the Initiative to Conduct Necessary Reform
21st Century: What is the difference between the free trade ports we are building and other successful free ports around the world?
Wei Jianguo: I think the biggest gap is the understanding, especially the understanding of top-level design. The socialism with Chinese characteristics has entered a new era, requiring the authorities to make the top-level design for reform and opening-up.
The exploration of free trade port needs the cooperation of local governments because it involves the re-design of administrative regions and the reform of many departments, such as the reform of the financial sector, capital, RMB exchange rate. Specifically, the flow of personnel requires the reform of the public security department, while the flow of goods needs the reform of various departments such as customs, commerce, development, taxation, finance and quarantine, all this requires a sound top-level design from the central government.
The top-level design of free trade port is more important than that of the existing 11 free trade zones as the free trade port not only attract the manufacturing and service industries, but also is a gathering place for headquarters and is an all-around liberalization in various fields.
21st Century: “Forcing reform through opening-up” has been quite successful in China, how can we promote higher-level reforms through the opening up of the free trade port?
Wei Jianguo: At the very beginning, China established the special economic zones and later on, it created the free trade zone, which can be seen as a gradual process. However, the changes from free trade zone to free trade port is a leapfrog.
Today, the world’s highest level of opening up is the free trade port. It is remarkable that China measures itself against the highest level of opening up. If more than half of the world’s top 10 free trade zones come from China in the future, China will have the best business environment in the world and become a leader in global trade facilitation and liberalization.
However, we must take the reality into account and make sure that we can keep pace with this kind of openness, which requires all departments, laws and regulations to move in the same direction. Furthermore, we must take the initiative to conduct reforms in other areas and speed up comprehensive reform.