Tianjin, Xiamen also plan to set up FTZs

After Shanghai became the first city allowed by the State Council to build a free trade zone last week, other cities are ready to follow suit.

Tianjin filed its proposal to the central government, while the city government of Xiamen, Fujian province, is collecting documents to submit to the State Council for approval.

While Tianjin's plan might be approved in a month by the State Council, according to a 21st Century Business Herald report on Wednesday, Xiamen's plan is still being drafted, and no details about the time frame or the zone have been decided yet, said an official surnamed Xu with the Xiamen investment promotion bureau.

The Xiamen project has resulted from a proposal to the Xiamen city government submitted in March by Gong Xiaowei, an economist with the Economic Research Institute of the Xiamen Development and Reform Commission.

Gong - a scholar who has been keen on the subject of free trade zones for years - said that Xiamen, as a special economic zone which always played a pioneering role in financial reform, is well-positioned to become a comprehensive FTZ facilitating trade, investment, offshore financial services and cross-Straits economic cooperation.

Since Xiamen already has some duty-free areas and an export-processing zone, a solid foundation has been laid to develop an FTZ in the city, Gong said.

According to Gong's proposal, the FTZ, which would be established on a trial basis, would comprise six separate bonded zones under the special administration of customs, including the Haicang duty-free area, the Xiangyu duty-free area, the Xiamen export-processing zone and the Xiamen Torch (Xiang'an) bonded logistics center.

The Xiamen FTZ would stand out from other zones, given its ability to promote cross-Straits ties, Gong said.

When the project is completed, financial cooperation and convenience between the mainland and Taiwan would be enhanced, Gong added.

Sun Lijian, deputy dean of the school of economics at Fudan University in Shanghai, said that it is desirable that China develops more FTZs.

"There are 15 major free trade zones in the United States, so we could have much more in China as well," he said.

Sun said that he strongly objects to the fever of building financial centers, which require massive resources and are highly overlapping, but that free trade zones focus on providing more convenience to businesses, and thus could stir up their comparative advantages.

"There will be no cut-throat competition, it's up to each area to decide how to make the best use of their rights," he said.

Shanghai, a hub for multinational companies, could try to lure in more overseas capital, Tianjin could rely on its easy access to Beijing and other inland provinces, while Xiamen has close trade links with Taiwan and overseas Chinese people, he said.

However, Sun also warned of potential risks. Loosening controls on the capital account within the zones could result in arbitrage funds.

"We don't know yet whether free trade zones would bring more benefits to the real economy or to the virtual economy, so we need to push forward the expansion gradually and do this in a low-key manner," he said.

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