Development Zones in China

China´s Development Zones are playing a key role in the rise of China´s economy. Its time to have a deeper look into their benefits for foreign Investors.

Although economic Development Zones are often linked with China and its great economic growth of the last decades, they are not entirely a Chinese invention. In numerous other countries around the world similar zones were established long before to promote the local economy and test structural reforms. However, much of the Chinese growth is owed to the expansion and use of Development Zones nationwide. They are essential to the Chinese model of controlling the opening-up of the domestic economy without endangering the country’s (state-owned) enterprises through foreign competitors. Development Zones are defined as geographically marked areas with special economic status in which investors and businesses are offered special incentives, for instance tariff-free imports, lower tax burdens or comparatively well-developed infrastructure levels. There are six different types of Development Zones in China – the first two types are large in size and more diversified industrially; the other four types provide specific services and offer an investment environment more fitting to the needs of particular industries.

1. Special Economic Zones (SEZ)

SEZs were introduced to the South of China for the first time in 1979 by Deng Xiaoping as he initiated the country’s opening-up strategy. At the start, a total of six SEZs were set up alongside China’s eastern coastline (Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Shanghai Pudong). Today they represent major metropolitan regions that offer significant tax advantages, for example lower corporate income tax rates than the regular 25 percent.

2. Economic and Technological Development Zones (ETDZ)

ETDZs are usually smaller in scope and often specialize on attracting companies from selected industries. They generally provide high quality in terms of infrastructure and facilities and are therefore often certified as the country’s most developed state-level zones. Investors should, however, be cautious: Many of the so-called Regional ETDZs are not certified as such and often prove to be less regulated.

3. Free Trade Zones (FTZ)

FTZs are mostly located within the port cities along China’s east coast. Naturally, their greatest advantage lies in the transportation of locally manufactured products: A modern infrastructure allows comparatively smooth logistic processes. The import license can be obtained easily, sometimes even free of any license fees. Furthermore, fast customs clearance and the almost instant reimbursement of export VAT encourages international trade.

4. Hi-Tech Industrial Development Zones (HTIDZ)

The focus of HTIDZs lies on the area of new technologies – by supervising start-up companies and supporting research and development activities, related industries can grow locally in so-called incubators. Often, HTIDZs are located as subzones within larger state-level Development Zones and may therefore be subsidized by local or state-level bureaus due to their often strategic importance to develop cutting-edge technology.

5. Export Processing Zones (EPZ)

EPZs are comparable with FTZs as both consider the ease of exporting and trading internationally as their key advantage. Significant differences do, however, arise with regard to the size and scope of both zone types. As part of larger Development Zones, EPZs are relatively small and allow only export-oriented companies the chance to invest. Although these firms are ensured incentives for customs clearance and international trade, however, domestic sales are more difficult to process.

6. Bonded Logistics Zones (BLZ)

The main function of BLZs is the gathering and storage of products for export and international shipments. Within the zone itself, only the most basic processes of value creation are performed – the main purpose of a BLZ is rather to clear the notorious Chinese customs. Whenever a customer places an order for the shipment of products from the zone, they can immediately be taken out of storage and be dispatched without delay.

If you have further questions concerning Development Zones in China, you are always welcome to contact Richard Hoffmann via email richard.hoffmann@ecovis.com.

	Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter, give us a call +49 (0) 6221-9985639 or contact us directly via Beijing@ecovis.com.