China (Shanghai) Pilot Free Trade Zone and the Future of Asia
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China (Shanghai) Pilot Free Trade Zone and the Future of Asia Main Report Joint Research: Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) Shanghai Academy of Social Sciences (SASS) Contents Foreword v Contributors vi Executive Summary vii Chapter 1 Current Situations and Problems in Operation and 1 Development of China (Shanghai) Pilot Free Trade Zone Shen Kaiyan and Xu Lin Chapter 2 Impacts of Construction of China (Shanghai) Pilot Free 29 Trade Zone on Economic Development of the Yangtze River Delta Xu Bingsheng and Wang Zhen Chapter 3 Economic Impacts of China (Shanghai) Pilot Free Trade Zone: 51 Geographical Simulation Analysis by IDE-GSM Satoru Kumagai, Ikumo Isono, Toshitaka Gokan, Kazunobu Hayakawa, Kenmei Tsubota, and Keola Souknilanh Foreword WANG Zhan Takashi SHIRAISHI President President Shanghai Academy of Social Institute of Developing Sciences Economies, Japan External Trade Organization Construction of the China (Shanghai) Pilot East Asian countries have been attracting the Free Trade Zone (SHFTZ) is an important attention of the international economic initiative taken by the Chinese Central community because of their continued Government to achieve a strategic upgrade to economic growth. Needless to say, one of the increase openness. It is designed to echo the engines to this locomotive is China. Currently, new trend of economic globalization, establish SHFTZ, which is aiming for a new round of an open economic system in line with reforms as well as being on its way to opening top-class international standards, procure new up, is receiving a lot of attention as new fuel advantages in international competition, build for economic growth in China. a new platform for cooperation and joint development with other countries, expand to There is a compelling need for rigorous make room for economic growth, and create research on SHFTZ to answer the following an improved version of the Chinese economy. question: What will the consequences from On the whole, China sincerely expects to take SHFTZ be on the Chinese economy, East Asian advantage of SHFTZ to explore whether it can economies, and the future of Asia, and be replicated nationwide and promoted as a particularly in concert with an integrating Asia method for future opening-up at a higher level. as well as changing trade and investment This is not intended to initiate a new special regimes? In 2014, IDE-JETRO and SASS economic zone, as has been done in the past launched a collaborative research project with three decades, although the successful and the theme of “Shanghai Pilot Free Trade Zone effective experience of the special economic and its economic effect.” The aims of this zone still holds. project are two-fold: to clarify the Functionally, SHFTZ greatly emphasizes implemented reforms and the current status of opening up of investment fields, including the SHFTZ; and to analyze its impact on domestic introduction of foreign capital and overseas economic interdependence and economic investment, and this is not limited to integration in East Asia. These aims are elimination of tariffs to promote trade in approached by simulation using the goods in bonded areas. SHFTZ attaches great IDE-Geographical Simulation Model importance to the development of the service (IDE-GSM). IDE-GSM is a unique simulation sector and focuses attention on construction of model that can visualize the economic impacts Shanghai’s trade functions, shipping, and of SHFTZ at the sub-national level (i.e., at the multinational headquarters. SHFTZ should city/prefecture/region level) in East Asian demonstrate the force of reform for opening economies. up and symbolize exploration toward comprehensive innovation and opening up of It is our hope that this collaborative research the financial sector, rather than simply will contribute to increased understanding of focusing on the introduction of foreign direct the state of SHFTZ as well as its economic investment. Therefore, a pilot program for influences within China and neighboring opening up and institutional reform, launched economies in Asia. by SHFTZ, mirrors China’s future strategic orientation toward reform and opening up. I am very pleased to witness research efforts bearing fruit and expect close and extensive cooperation between IDE-JETRO and SASS! Contributors SHEN Kaiyan, Deputy Director and Research Professor, Institute of Economics, Shanghai Academy of Social Sciences (SASS) XU Lin, Associate Research Professor, Institute of Economics, Shanghai Academy of Social Sciences (SASS) XU Bingsheng, Researcher, Institute of Economics, Shanghai Academy of Social Sciences (SASS) WANG Zhen, Vice President, Shanghai Academy of Social Sciences (SASS) Satoru KUMAGAI, Senior Researcher, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) Ikumo ISONO, Researcher, Integration Studies Group, Inter-disciplinary Studies Center, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) Toshitaka GOKAN, Researcher, Integration Studies Group, Inter-disciplinary Studies Center, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) Kazunobu HAYAKAWA, Researcher, Bangkok Research Center, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) Kenmei TSUBOTA, Researcher, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) KEOLA Souknilanh, Researcher, Integration Studies Group, Inter-disciplinary Studies Center, Institute of Developing Economies- Japan External Trade Organization (IDE-JETRO) Executive Summary vii Executive Summary Since the China (Shanghai) Pilot Free Trade added trade. From this report, three Zone (hereinafter referred to as “SHFTZ”) important conclusions can be drawn. First, officially opened on September 29, 2013, in trade within the global value chain, which is accordance with the requirements of the CPC mainly dominated by multinational Central Committee and State Council, SHFTZ companies in developed countries, accounts has enjoyed good progress as well as initially for about 80% of global trade. Second, the set up a basic institutional framework and existence of a global value chain leads to begun to show the effects of the reforms repeated “double counting” of current global (Table 1). Starting from four hot spots with a trade data according to customs statistics. total area of less than 30 square kilometers, According to new data, approximately 28% the Chinese Government sowed the seeds for of gross exports is the value added to a new round of reform and opening up. products or services which are initially imported into the exporting country. Global Value Chain and Service Therefore, of the gross global exports of USD 19 trillion in 2010, double counting Trade amounted to USD 5 trillion. Finally, the global value chain contains a large amount of On February 27, 2013, the United Nations service trade. Service trade currently Conference on Trade and Development accounts for only 20% of gross global (UNCTAD) issued its latest research report, exports according to customs statistics, but Global Value Chains and Development: the service trade industry creates nearly half Investment and Value-added Trade in Global (46%) of the imported added-value of global Economy. This report investigates the added exports because the manufacturing of value of international trade in global products for export requires extensive distribution and gives a new perspective for services. understanding the pattern of global value- Table 1: The Progress of SHFTZ 2013 2014 2015 Area 28.78km2 120.72km2 To be newly established: Waigaoqiao Bonded Lujiazui Financial China (Guangdong) Free Zone District, Zhangjiang Trade Zone Waigaoqiao Bonded High-Tech Park and China (Tianjin) Free Logistics Zone Jinqiao Development Trade Zone Pudong Airport Free District are included China (Fujian) Free Trade Zone Trade Zone Yangshan Free Trade Port Area Negative 190 139 Planned to be less than 100 List 110 restrictions and 29 prohibitions Institutional Introduce a “single Establish a system for Start to replicate the Innovation window” system announcing the reform measures of Establish a system for company’s annual report SHFTZ nationwide market supervision with and the names of poorly social audits managed companies Improve the system for Improve the social credit sharing information and system comprehensive legal Improve the professional enforcement auditor system Source: Authors. viii Mega FTAs and the Role of SHFTZ policies, SHFTZ is designed to focus on system innovation and distribute the fruits hThe emp asis in the negotiations for global of that system innovation and opening-up trade and investment rules is changing and through policy adjustments and diversifying to reflect the need to redesign transformation of government functions. global production. The WTO Global Multilateral Trade System, which makes up The core feature of SHFTZ is system the negotiated trade rules, is gradually being innovation, which highlights innovation in replaced by various bilateral, plurilateral and investment administration, trade regulation, regional institutional arrangements for trade finance and integrated supervision. First, it is and investment, with equal emphasis on necessary to further open up the investment negotiation for trade rules and negotiation field and administer foreign