Since the start of the open-door policy, many locations in China have been designated as special zones by either the central government or local government. These special zones offer various preferential treatments to attract foreign investors. One of the earliest such zones to be established in the late 1970s is the Shenzhen Special Economic Zone. Since then, various types of special zones have mush-roomed across the country, but mostly along the coastal areas. They comprise:
-special economic zones (five)
-Shanghai Pudong New Area (one)
-economic and technological development zones (32)
-coastal open areas (277)
-provincial capitals (19)
-high and new technology industrial development zones (52)
-border cities (13)
-free trade zones (15)
-others (too many to count).
Shanghai has some of the longest-established and most developed zones. The earliest are the three state-approved economic and technological development zones (ETDZ) established in the 1980s by the Shanghai government. They are Minhang ETDZ, Honggiao ETDZ and Caohejing ETDZ, all of which are located in the western and south-western parts of Shanghai, areas that were then largely undeveloped.
The major tax incentive offered in these ETDZs is a preferential income tax rate of 15 percent for manufacturing foreign investment enterprises (FlEs), compared with a normal rate of 30 percent elsewhere or 24 percent for old city districts in Shanghai. Manufacturing enterprises situated in these ETDZs can also enjoy the same tax holiday (two years of income tax exemption followed by three years of 50 percent reduction in income tax) made available to all other manufacturing enterprises, wherever situated.
As economic reform and growth picked up pace in the 1990s, so did the growth in the number of development zones in Shanghai. The most prominent and widely promoted one is the Pudong New Area, situated to the east of the Shanghai city center across the Huangpu River. As with the ETDZs, special tax incentives (such as a preferential income tax rate of 15 percent and tax holiday) are granted to manufacturing FIEs in Pudong. In its bid to attract more foreign investment, the Pudong government has also introduced various local preferential policies, including grants and subsidies that are normally provided in the form of tax refunds to FIEs.
Within Pudong New Area itself, specific zones have been established such as the Lujiazui zone for the financial services sector, Jinqiao processing zone, Waigaoqiao free trade zone and the Zhangjiang High-tech Industry Park. Pudong has also been selected for several pilot projects in sectors previously restricted to foreign investors. One example is the granting of licences a few years ago to establish Sino-foreign joint venture trading companies in Pudong and Shenzhen Special Economic Zone.
During the same period, various local-level industrial parks and zones sprang up in suburban areas, such as the Jiading and Xinzhuan industrial zones. All in all, there are approximately 40 zones of different types in Shanghai. Some of the recently established zones have generated considerable interest among investors, including the Songjiang Export Processing Zone, Caojin Chemical Industrial Zone and Pudong Software Park.
Songjiang Export Processing Zone (SEPZ) is one of the first batch of export processing zones approved in April 2000 by the State Council. SEPZ is located in the planned area of Songjiang Industrial Zone, 18km from Shanghai downtown, 20km from Honggiao International Airport and 42km from Pudong International Airport.
SEPZ is intended to attract investors producing primarily for export and it offers the following incentives:
A 15 percent preferential income tax rate exemption from VAT and consumption tax for processing and production of goods and provision of taxable services within the zone goods transferred between the zone and abroad will not be subject to import and export quota and licence equipment and machinery needed for manufacturing, building materials, self-used office equipment, etc can be imported free of customs duty. Raw materials, spare parts and components for export processing can be imported under bonded condition domestic equipment and machinery, raw materials, spare parts, components and building materials purchased domestically for self-use within the zone can be deemed as export and enjoy export VAT refund the raw materials, spare parts and components sent outside the zone for processing can enjoy bonded treatment if returned to the zone within six months.
SPEZ also offers other incentives to newly established foreign investment enterprises, such as an income tax refund for up to three years after the normal tax holiday, depending on the total investment amount and the type of industry.
Caojin Chemical Industrial Zone (CCIZ) is a green-field site being built in the suburbs of Shanghai. The first phase of the zone will have a land area of about 5 sq km. This municipal-level industrial zone has received much attention from Beijing as it strives to improve the country's chemical manufacturing base. CCIZ claims that many significant chemical manufacturers already have plans to establish facilities in the zone.
Pudong Software Park (PSP), established in late 1997, is one of two national software industry bases (the other is in Beijing). It is located inside the Zhangjiang Hi-Tech Park and its aim is to develop the information technology industry in Shanghai.
PSP claims that it can provide enterprises with centres for digital communication, software training, software publishing and software evaluation. Businesses already in the PSP are involved in computer network security, information security, video-on-demand, management information systems, virtual reality and office automation.
Of the zones discussed above, some arc of a general nature while others have industry focus. The quality of infrastructure varies and each may offer its own set of incentives. So potential investors should carefully study the location options available and choose the one that best serves their investment objectives.
Written by Betty Ko, Tax Partner, and Alan Wu, Senior Tux Manager Pricewaterhouse Coopers in Shanghai. The above information is not intended to be comprehensive or final. Professional advice is recommended before entering into any planning arrangements.