Effects On Processing Trade Enterprises Caused By Establishment Of CSPFTZ

Processing trade is an essential pattern for developing countries to accept global industry transfer from industrialized countries and newly industrializing countries and engage in new international division. It has a history of30years in China. Since the processing trade policy was implemented in late1970s, processing trade in China has been developing in a sustained and rapid manner. The total volume of exports and imports in the form of processing trade increased from US$2.5billion in1981to US$49.6billion in2013, and its proportion in trade increased from5.7percent to48.6percent.China has designated a special area in Shanghai that allows unconventional reforms. The free trade zone is considered a major milestone in the nation’s commitment to open more to world markets. A year has passed since the zone was established and it still aims to pioneer innovative ideas to nurture China’s global competitiveness.There are many tryouts and some new ones are still underway. The output of this study on free trade zone is a source material on policies relating to processing trade that can be assimilated and disseminated by following studies. Walking through door of pilot free trade zone, we’ll be able to find bold ideas and lots of tryouts, from administrative management to trade, from the financial sector to foreign investment. Each step will be connected in the future so as to help make China become an open, fair and innovative field and welcome more international players. At the same time, Chinese processing trade players could also rejuvenate and benefit by using offshore finance, convenient market access and lower tax, thus driving forward economic reforms to improve China’s investment and trade environment.This paper has five parts in total and is structured as follows:Chapter one introduces an overview of the research background and provides a description of the purpose and significance of this study. The Trans-Pacific Partnership known as TPP began in2005and it’s become the new trade rule shared by the international community. More than70countries have signed the agreement. In2013, the United States and the European Union began negotiations on Transatlantic Trade and Investment Partnership (TTIP), the world’s largest bilateral trade deal ever negotiated. But China is not among them. Those are external conditions for the establishment of this zone. China is faced with the problem of how to connect with the international rules of investment and trade while also having to upgrade the country’s management system. Then the literature review part reflects the research status quo home and abroad and reveals the problems existing in current study. Current research on processing trade, especially Chinese processing trade is profound and influential, however, for this newly set-up free trade zone, there are still not much research that combine CSPFTZ with China’s processing trade enterprises and provide suggestions for them to survive in this new situation. This paper reveals the trail zone, encouraging and guiding local processing firms to benefit from increasing demand for financial services, standing at the forefront of financial innovation.In Chapter two, Chinese processing trade has been discussed comprehensively from its development, theoretical reference, current status and geographical distribution. Statistics show that, with the economic growth rate falling and Chinese labor costs climbing, China was no longer able to rely on exports alone to support its economic growth. Considering the economy flagged by excess production capacity and high energy consumption, processing trade has met its bottleneck. Besides, a value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. In the framework of value chain theory, Processing trade in China mainly constitutes processing with materials or given samples, assembling supplied components. Enterprise in this business is only a small part of the whole value chain, it usually accounts for processing link instead of design and marketing, dictating our low end position in the whole value chain, low added value and small profits. When financial crisis occur, these low added value enterprises are easy to collapse. In this aspect, only by marching into high value added value chain and maintaining core competitiveness can Chinese processing trade achieve real transformation.Chapter three aims to provide an overview of China (Shanghai) Pilot Free Trade Zone, which is the fundamental basis for chapter IV. China has given the green light to Shanghai to run a trial of the China’s first international free trade zone, the latest step in a national strategy to open markets wider and build Shanghai into an international trade and finance hub. Supporting numerous reforms in investment, trade, finance and administrative perspectives, the FTZ covers a geographical area of28.78square kilometers and comprises the following four customs supervisory zones:Waigaoqiao Bonded Zone, Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port and Pudong Airport Comprehensive Bonded Zone. The free zone will benefit China with new advantages in international competition and provide a platform for the country to cooperate with other countries in an effort to explore economic potential.Chapter four carries out the internal analysis of policies. All policies relating to trade have been divided into six categories. Supervision, tax, patterns of trade, investment management, financial regulation and law. The most eye-catching policy is Negative list, an innovative management approach that increases foreign investors’freedom because any sectors not banned on the list are open to them. The negative list groups18main sectors of the national economy, such as manufacturing, transportation, IT and finance, and further subdivides them into1,067subcategories. A total of190special regulatory measures on the10-page list outline the sectors off-limits to foreign investors, as well as those from Hong Kong, Macao, and Taiwan, within the28-sq-km free trade zone. For example, foreign investors may set up hospitals in the free trade zone on condition of a minimum investment of20million yuan ($3.27million) and a maximum operating period of20years. Foreign investment in banking, insurance and securities in the zone remains subject to limitations. Foreign stakeholders may have no more than a50percent stake in insurance company, and no more than49percent of a securities company.Based on the analysis of new policies in this zone, Chapter five render three suggestions for processing trade enterprises to survive and outperform in this new open-up environment. What’s more, outlook of CSPFTZ has been mentioned in the last part and the author believe that the pilot area will play an important role for China in unleashing its development potential.Firstly, enterprises could make full use of convenience of cross-border access. Customs administration process has been optimized while the administration of "frontier"(i.e. goods flow between overseas and the zone) and "second-tier"(i.e. goods flow between the zone and other domestic areas) has been coordinated by improvement on e-information network, entry and exit record lists cross check, accounting books management, physical verification, and risk analysis. Processing enterprises could bring goods into the zone with import manifests before completing the customs declaration formalities with entry and exit record list. This largely enhance efficiency and cash flow. For these processing trade enterprises, they could strictly enjoy "Second-tier Effective and Efficient Control" policy.Secondly, setting feet in off-shore finance is processing enterprises’new cut-in point. The form of off-shore currency market is an important symbol of open up, for processing trade enterprises, if they set foot in CSPFTZ, they are at the frontier to foreign investment, which could lower financing cost in a big extend as well as going abroad under the protection of efficient record process. Processing trade enterprises could use off-shore finance to enhance liquidity by freely consolidating domestic and foreign currency accounts.Lower tariff and other tax related rules are also attractive policies for Chinese processing trade enterprises. Since these firms are comply with market access catalog, enjoying15%deduction of income tax. Besides, they will be provided with the option of calculating import duty according to the duty rates applicable to the finished goods or the imported parts. Currently, the imported machines, equipment and other goods required by manufacturing enterprises as well as manufacturing service companies that are set up in the CSPFTZ, may be exempt from import taxes, other than those imported by consumer services companies or those which cannot enjoy import taxes exemption as stipulated in laws and regulations. Tax refund policies on the port-of-departure will be improved, and the expansion on pilot scope is on the way.All in all, the single window platform combines customs, industry and commerce, taxation, foreign exchange and inspection and quarantine all together. All Chinese processing trade companies will benefit a lot by using policies properly. This is also a major milestone for Chinese processing trade to open up to world markets and achieve effective industrial upgrade. At the same time, this innovative pilot zone will be a leading model to pioneer global economy and Chinese sustainable development.