Waigaoqiao Bonded Zone in Shanghai, the first of its kind in the
country, is also the first trial area to become a free trade zone
following approval from the State Council last year. Other trial
areas include Yantian Bonded Zone in Shenzhen, Guangdong
Province. The volume of freight handled by these two bonded
zones tops 10 million containers every year.
Bonded zones are required initially to convert to free trade
areas through their cooperation with nearby ports. Part of the
ports will be used as extended logistics chains of bonded zones,
where convenient transportation will help simplify goods
distribution formalities and reduce enterprises' production
costs.
On March 23, four companies moved to such areas of Shanghai's
Waigaoqiao Bonded Zone to expand their businesses.
Ratcheting up to the level of free trade zone has become the
goal for China's bonded zones and it is felt that now is the right
time to begin the experiment. The country is expected to finish the
trials by the end of 2006 and establish two or three world-class
free trade zones by 2015, after necessary rounds of adjustment.
China began to set up bonded zones in 1990 and there are
currently 15, including Shanghai's Waigaoqiao, Shenzhen's Futian
and Shandong
Province's Qingdao. By the end of 2002, the total area occupied
by bonded zones was just a hair over 51 square km. Most of the
bonded zones in China handle export processing, import and export,
similar to those of areas for processing export products and
economic and technological development zones.
Chinese laws stipulate that bonded zones are actually special
areas established within the country and supervised by customs.
International practice dictates that goods entering free trade
zones are considered exports and would enjoy tax rebates, while in
China's bonded zones, the goods that are taken into the bonded
zones from outside are considered exports, but or eligible for tax
rebates only after the goods leave China.
Internationally, a free trade zone also offers financial and
logistics services. In China, a bonded zone is not allowed to
provide offshore market business, and logistics services such as
storage, distribution and transportation are not fully developed.
The thorniest problem in logistics is the separation of bonded
zones from ports, which means goods cannot move directly from ports
to bonded zones since they have to go through customs inspections
of both.
Free trade zones are more extensive and flexible than bonded
areas in terms of ?both area and functions. A free trade zone
within a country refers to a duty-free area without trade
restrictions or customs administration.
The other important preferential policy enjoyed previously by
enterprises inside bonded zones was that goods from outside the
zones but within the Chinese mainland were considered exports and
eligible for tax rebate. But since China has reduced the export tax
rebate rate this year, bonded zones have lost much of their
significance.
By 2006, China's tariffs will be cut by a large margin according
to WTO agreements, and non-tariff barriers of bonded zones would be
gradually removed. By then, companies engaged in trade inside
bonded zones--about 80 percent of all registered companies--might
choose to move on.
Liu Shouliang, manager of a company in Qingdao Bonded Zone, said
bonded zones would lose their attractiveness if they were deprived
of policy advantages.
"If not adaptive to the new situation, bonded zones will cease
to exist in all but name," said Liu.
Meanwhile, bureaucracy and poor supervision by customs have
become common complaints in the zones. A company official of a
bonded zone in Shanghai said customs was incredibly inefficient,
and sometimes a single job can drag on for one to two months.
Industrial insiders said China would adopt more open policies
after bonded zones undergo their transformation, such as import and
export protective tariffs, duty- and certificate-free. Companies
can take full advantage of these policies to optimize export
structure, update and upgrade products and enhance their
competitiveness so as to realize a balance of international
payments and increase foreign exchange reserves.
Cheng Siwei, vice chairman of the Standing Committee of the
National People's Congress, said that although free trade zones
could also serve for transit trade, export trade, commercial
exhibition and product processing, their main function was
logistics, not simply export transportation.
Cheng hoped that the conversion of bonded zones to free trade
zones will attract more foreign freight to Shanghai and Shenzhen,
and that multinationals will establish logistics or distribution
centers in free trade zones.
Some analysts believe that it is unnecessary to transform all 15
bonded zones into free trade zones, and that limited trials should
be held. They said that three to four free trade zones are enough
for China, and other bonded zones could become special or exclusive
import and export processing areas or other types of open
zones.
Wei Bingyi, head of the Qingdao Productivity Association,
believes that the smooth transformation from bonded to free trade
zones can be realized through integration with ports, which means
that the bonded zone's area would extend to an entire port. After
conversion into free trade zones, goods could enter into direct
processing, storage and trade after discharge, saving time in
customs inspections.
All is well so far for the trial reform at Shanghai's Waigaoqiao
Bonded Zone. Gong Zheng, deputy director of the General
Administration of Customs, said Waigaoqiao's transformation is not
only a trial, but also an important breakthrough.
All good things must come to an end, and the time for bonded
zones is over. Only by metamorphosing into free trade zones will
the bonded zones fly higher.
(Beijing Review April 8, 2004)
