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Special Economic Zones (SEZs) (also called Free Trade Zones) in China are defined as small geographical areas that allow foreign companies to have access to lower taxes and better economical conditions for their business.
SEZs were created as a ‘catalyst’ for the Chinese economy to transition from a centrally planned economy to one that incorporated aspects from both a centrally planned and a free-market economy.
In this article, we want to show you what are the Special Economic Zones in China and how they can benefit your company.
- What are the Special Economic Zones in China?
- Purpose of the Special Economic Zones
- Where are the Special Economic Zones located?
- Benefits of opening a company in a Special Economic Zone
What are the Special Economic Zones in China?
A Special Economic Zones (SEZ) can have different definitions and officially, in China, there are 14 Open Coastal City, 5 Special Economic Cities, and 1 Special Economic Province.
Some of these zones and areas could be close in nature, but the content of the “experiment” is further specified for SEZs. For example, some focus on the coordinated development of urban and rural areas, and some focus on resource and environmental issues.
Shenzhen, Zhuhai, Xiamen, Swatow (or Shantou), and Hainan Province, were the first SEZs established in the 1980s. Kashgar SEZ and Khorgas SEZ are the following two established in 2010.
They are part of China’s gradual reform strategy, a first conducting partial trials and then promoting experience adopted in the early period of reform and opening up.
Purpose of the Special Economic Zones
SEZs are mainly used as the “new beginning” of China’s foreign trade after the reform and opening up period.
They have received the country’s comprehensive opening policy in terms of the environment for investment, operating conditions, and preferential policies.
The country has comprehensively explored the establishment of SEZs that can quickly adapt to the laws of the national market. Special policies of currency exchange control and tariff reduction are to better connect with foreign countries, and also to attract foreign investments to China.
To a large extent, these SEZs in China have developed rapidly in terms of cultural, economics, and trade. Compared with the surrounding provinces and cities, SEZs are clearly one step ahead. Judging from GPD, CPI, PMI, and other data, their overall economic contribution to the country is rather obvious.
SEZs focus on the introduction of foreign capital, the overseas Chinese capital, and Hong Kong and Macao-funded enterprises.
Products from SEZs’ are mainly sold to foreign countries. Through the improvement and promotion of their own economic conditions and preferential policies, they attract foreign investment to build factories in China to produce those products.
While developing the local economy, SEZs introduce cutting-edge advanced science and technology, as well as management technologies.
In terms of capital control, many enterprises have been reorganized from state-owned enterprises into joint ventures and partnerships.
“FAW Honda”, “Shanghai Volkswagen”, “BMW Brilliance” are examples of achievements of SEZs on China’s socialist route.
Where are the Special Economic Zones located?
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Below we are listing the Special Economic Zones in China. They are divided into free trade zones, state-level new areas, open coastal cities:
State-Level New Areas
- Shanghai City
- Tianjin City
- Chongqing City
- Zhoushan City, Zhejiang Province
- Lanzhou City, Gansu Province
- Guangzhou City, Guangdong Province
- Xi’an City and Xianyang (Hsienyang) City, Shaanxi Province
- Guizhou City and Anshun City, Guizhou Province
- Tsingtao (Qingdao) City, Shandong Province
- Dalian City, Liaoning Province
- Chengdu City and Meishan City, Sichuan Province
- Changsha City, Hunan Province
- Nanjing City, Jiangsu Province
- Fuzhou City, Fujian Province
- Kunming City, Yunnan Province
- Harbin City, Heilongjiang Province
- Changchun City, Jilin Province
- Jiujiang City and Nanchang City, Jiangxi Province
- Baoding City, Hebei Province
- Swatow (or Shantou)
Pilot Free Trade Zones
Coastal Open Cities
- North Sea
- Yingkou City
High-Tech Industrial Development Zones
168 is the number of total High-Tech Industrial Development Zones spread through China. Most provinces have at least 1 High-Tech Industrial Development Zone, and many have more than a dozen.
Benefits of opening a company in a Special Economic Zone in China
Foreign-invested enterprises established in special economic zones and foreign enterprises engaged in production and operations in establishments and places in special economic zones shall be levied corporate income tax at a reduced rate of 15%.
Production foreign-invested enterprises located in coastal economic open zones, special economic zones, and old urban areas of cities where economic and technological development zones are located are subject to a 24% reduction in corporate income tax.
Production foreign-invested enterprises located in economic and technological development zones are subject to corporate income tax at a reduced tax rate of 15%.
If a foreign-invested enterprise located in a high-tech industrial development zone is recognized as a high-tech enterprise, the corporate income tax shall be levied at a reduced tax rate of 15%.
These are only the stippled-in-paper version of the benefits, and the most direct ones. China has been famous for its socialism regime with a relatively tight grip upon foreign capital. The greatest benefits of opening a company in a SEZ or places of that nature is that local governments are often allowed, and most importantly, motivated to loosen up somewhat.
In 1984, Deng Xiaoping said: “The special zone is a window, a window of technology, a window of management, a window of knowledge, and a window of foreign policy. From the special zones, technologies can be introduced, knowledge acquired, management learned, and management is also knowledge. SEZs as an open base will not only benefit us in terms of economy and cultivating talents, but will also expand our country’s external influence.”
Special Economic Zones in China are very attractive to a lot of foreign businesses that want to enter the country.
Taxes reduction, better local policies, and openness to foreign investments are key elements used by the Chinese government to attract foreign expertise into the country.
We at FDI China support everyday companies that want to set up their entity in one of these Special Economic Zones, creating the company or helping them to hire employees if they don’t want to set up a local entity.
If you want to know more about the SEZs and how we can help your company, contact us to discuss further.