China's government has given the green light to set up a duty-free zone at Shanghai's port and the city's free-trade zone, in the biggest step yet to bypass Hong Kong as the midway stop in easing global commerce with the worldwide marketplace.
A fenced customs area will be established at Shanghai's Yangshan Deep Sea Port and at the Lingang free-trade zone (FTZ), where cargo inside the bonded area will be exempted from import duties, according to the November 4 circular by the The General Administration of Customs, a copy of which was obtained by South China Morning Post.
"The zero tariff policy to be implemented inside the zone means that a concrete step has been taken towards largely bolstering international trade via Shanghai," said Chen Bo, a professor at Huazhong University of Science and Technology, and an adviser to local governments including Shanghai. "The bonded area will sport an offshore status that encourages free commodity flows."
Shanghai's entire bonded territory at Yangshan - the world's largest container port in 2018 - and Lingang measures 137.8 square kilometres (53.2 square mile), larger than the combined area of Kowloon and Hong Kong Island. The total duty-free area in mainland's premier commercial hub was given a boost in August when the Chinese government allowed Shanghai to add Lingang into the area, and demarcated the Yangshan port - connected by the 32-kilometre Donghai Bridge - to double the size of the FTZ.
The incentives given to Shanghai, similar to those handed out to Shenzhen in southern China and elsewhere, are coming at the end of a tumultuous year for Hong Kong, which has been rattled for the past six months by the city's worst political crisis.
Anti-government protests, interrupted by frequent bouts of violence and vandalism, have shaken the confidence of foreign investors and businesses in the city. The role of Hong Kong, the traditional middleman in China's trade link with the world, has also been brought into question as the year-long US-China trade war drove many factories to relocate their mainland China factories to Southeast Asia to skirt US tariffs.
At the same time, cities in the Greater Bay Area - a cluster of 11 cities in southern China, including Hong Kong and Macau - are zooming ahead in their growth. Shenzhen overtook Hong Kong with the most number of high-growth companies, according to the inaugural SCMP-Statista Growth Champions survey of revenue growth between 2015 and 2018.
The newly expanded FTZ will be a laboratory to test China's economic liberalisation and policies aimed at attracting foreign investors. The Lingang free zone would roll out additional tax incentives in the hope of becoming a modern city that can boast "the greatest level of openness," Shanghai's Mayor Ying Yong said in late October.
Government sources said that zero tariff, one of the key much-needed policies to enhance the zone's attractiveness to foreign investors, would be approved by Beijing although no time frame was announced.
Beijing has been reiterating its determination to further open up its market to foreign businesses amid the bruising US-China trade war that began last year.
Over the past six years, the Shanghai FTZ failed to live up to expectations due to a slow progress in deregulation.
Import tariffs were still levied inside the zone, except for goods stored at bonded warehouses.
Shanghai's stepped-up efforts to further open its market to international businesses come at a crucial time for Hong Kong, where business confidence has been shaken since unprecedented civil unrest and street violence arising from a now-abandoned extradition bill began in June.
Tesla, the producer of the world's bestselling electric vehicle, owns a plot of land in Lingang, the site of the carmaker's US$2 billion Gigafactory for building the bestselling Model 3. Lingang would be Tesla's first assembly plant outside the US.
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