When you’re planning on manufacturing or sourcing in China you probably already come across the term of special economic zones. We want to to bring light into darkness, by giving a quick overview about what manufacturing in these zones means for you and especially when it’s economically reasonable for a company to choose a supplier in a free trade zone.
What is it?
Special economic zones are defined areas where laws concerning business and trade vary from the law that is effective for the rest of the country. The special economic zones are therefore situated within the national borders of a country. The basic idea is to stimulate investment and trade, to create jobs and to increase the effectiveness of administration. This is realized by introducing financially libertarian policies oriented on free market policies and flexible governmental measures.
What types are there?
There are several types of special economic zones with different objectives. The relevant type discussed here is the free trade zone, which is supporting trade in this specific area.
What does it affect?
These regulations typically affect the tax rate, investment, trade, quotas, customs or labor regulations. It depends on the objective which regulations apply for a certain zone.
Where can I find free trade zones in China?
China uses special economic zones to create impulses for foreign investments. In China the four existing free trade zones are located in Shanghai, Tianjin, Guangdong and Fujian.
China 2 West’s headquarter is located in province Guangdong, in Zhuhai, which is also part of the free trade zone. To read more about Zhuhai take a look at our Blog.
The new policies in the Free Trade Zones are related to the following four topics: expansion of the finance sector, simplification of administration processes and expanding market access, upgrading of customs supervision framework and creation of a competitive regulatory and tax environment.
Advantages and Disadvantages:
The advantage of choosing a free trade zone in China is that this zone is a bonded zone. This means that the products there are already costumed cleared.
The disadvantages of the free trade zones are that the labor rates and the warehousing costs are typically higher than elsewhere.
Conclusion: Is it important to pick a supplier in a free trade zone?
Free trade zones make sense for large companies that source material from several different countries, or companies that accumulate goods with different destinations, so the company sets up a factory in the free trade zone. When it’s only about sourcing, it shouldn’t be a primary determinant whether the supplier is located in a free trade zone or not.
By considering your personal interest and decisive factors on site, at China 2 West we make sure to get you the right supplier in the right location.