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In the vanguard of change
2017-08-28, ANDREW MOODY and ZHANG TONGTONG in She

Yang Shuo hopes to be among the entrepreneurs driving China’s economic future.

The 25-year-old owner of Bo Shi Wen Chang, which supplies items for artists such as pens, recently registered his business in the Governmental Affairs Center of the Shenyang Area of the China (Liao-ning) Pilot Free Trade Zone (FTZ). 

It is currently a small firm employing just five people, but Yang is ambitious for the future.

“We have a five-year plan to be one of the top artists-material companies in China,” he said.

Yang, who studied art and design at Shenyang Urban Construction University, said he was impressed with the efficiency of the center.

“My business is now registered within the zone, although it’s not physically located there. It enables me to take advantage of some of the favorable policies, which include tax advantages and less regulation.”

The government is currently launching seven new FTZs across China including the one in Liaoning province in Northeast China. They bring the total of new zones to 11, with the first, in Shanghai, launched in 2013. 

The new zones are designed to be at the vanguard of China’s efforts to reform and upgrade its industry and manufacturing.

As of the end of July, more than 8,000 businesses, including around 50 foreign ones, had registered in the Shenyang zone. 

Shenyang, capital of Liaoning, is one of the three areas of the zone, which also includes the cities of Dalian and Yingkou. 

Yang Fan, a coordinator at the service center, said many young people in Liaoning are interested in setting up a business.

“The people who come here are of all age ranges, but a lot of young people leaving college now want to set up their own business. Many don’t want to go into a conventional job. They want to do something that interests them,” she said.

State-owned heavy industry enterprises used to dominate the province. But these companies are now shedding labor as the economy of the region is being forced to restructure.

Yang Fan said the service center aims to get away from the bureaucratic culture that exists outside of the zone.

“The important thing here is to have a ‘can do’ culture. If the staff don’t know something, they will try to find out.”

Such zones have been central to China’s economic development since Deng Xiaoping’s reform and opening-up in the late 1970s. The original special economic zones helped kick-start the country’s march toward becoming the manufacturing workshop of the world.

The new generation of development zones are intended to propel China to its next phase of development.

The Shanghai zone has encountered some criticism for not being quite the laboratory for financial reform it was originally intended to be. Businesses within the zone, however, have more freedom to make foreign currency transactions than in the rest of China.

The zone has also been operating at a time when there was pressure on the Chinese currency after a reform of the exchange rate mechanism in August 2015, which has since seen an imposition of stricter capital controls.

Wu Jiangang, research fellow at the Lujiazui Institute of International Finance at the China Europe International Business School (CEIBS) in Shanghai, believes some of the criticism is unfair.

“Perhaps the steps are not so big, but steps have been taken. There has been some good practice and it has so far been a worthwhile experiment,” he said. “We cannot just open the capital account, particularly when there has been pressure on the yuan over the past two years.”

Edward Tse, CEO of consultancy Gao Feng Advisory, believes the government is right to continue with the model and roll out new FTZs this year.

“The Chinese government has done this really well over the past few decades. They have experimented with policy by launching these pilots, and it has been a model for Chinese development. It is a smart idea, and I think it is a good philosophy.”

Wu at CEIBS said that FTZs work well in China because it would be difficult to experiment with policy on a national level.

“China is a very big country and therefore it is more difficult to reform. It is also not like the United States, where every state has its own laws. China’s provinces operate under national laws and regulations,” he said.

“The FTZs give China the opportunity to develop innovative policies and see if they work in practice.”

Back at the headquarters of the Shenyang Area of the Liaoning FTZ, Zhang Shicheng, director of laws and policy, is gearing up for an influx of companies and investment into the zone. 

“It is not that the rules and regulations outside the zone are wrong or not working. We just want to adapt them so they fit better with international regulations,” he said. “Because a lot of international regulation is new to us, we need to understand it better to fit in with the existing mechanisms of our laws.”

Zhang said it is still important for the zone to protect domestic industry, hence it will have the same negative list as Shanghai in banning foreign investment in certain sectors.

“The Shanghai negative list is a national level list, but we are making every effort to shorten it. This means that foreign investment in a wide variety of areas will become much easier over time.”

Munuo Ecology in Shenyang city is one local business that wants to take advantage of the FTZ on its doorstep. The company was founded two years ago by 35-year-old Wang Shengjun, who has tapped into the market of middle-class consumers wanting healthy agricultural products.

Munuo Ecology plans to import seafood through the port of Yingko, which is part of the Liaoning FTZ, and also sell its own domestic produce.

“The launch of the zone has given us a window to contact with the outside world,” he said.

Wang, who graduated from Shenyang Agricultural University in 2008, believes the FTZ will create demand internationally for locally grown produce.

“The northeast region of China is famous for its rich black soil, and we have very good agricultural produce, better than in the south of the country,” he said. “I want to promote the agricultural produce of my home region around the world, and this is one of the reasons why I started the company.”

Fantian Industrial Design is a business that the new FTZ would like to encourage to develop.

It started out as an advertising company but moved into manufacturing design in 2007. It has since won 12 Red Star Design Awards, the prestigious Chinese awards. Its designs include the robotin, a robot that can act as a guide at exhibitions.

Lin Chunwei, the company’s 46-year-old CEO, is mulling whether to relocate the company, which employs more than 60 people, into the zone.

“Our company is still growing and we wouldn’t want to miss an opportunity to boost the development of the company. We are looking at what sort of supportive policies will be introduced.”

Lin, however, is not convinced that establishing an FTZ is the right way to help restructure the economy of the region.

“I think creating a better environment for businesses to operate in generally might do more for the northeast’s economy. We would like to see a business environment where there are fewer limitations, regulations and rules, especially for private companies, so they can develop more freely and be more creative.”

Zhang Shu, Fantian’s 36-year-old brand director, said that if the FTZ is to focus on robotics, it should build on the region’s existing industrial strength.

“I certainly hope that Shenyang could be a center for the robotics industry in the future, but there are many types of robots and I think Liaoning as an industrial area should focus on industrial robots and leave the humanlike service robots to places like Shanghai.”

In fact, the FTZ is expected to be a boost to the services sector in Shenyang as the city receives an influx of people to work in the zone.

Syntio Camilleri, the 53-year-old Maltese general manager of Wanda Vista Shenyang, is gearing up for extra business, from short- and long-term stays.

“We are very optimistic about the launch of the new FTZ, which will bring in more companies to the region, and hence there will be a multiplier effect that hotels will benefit from.”

He said that his hotel already hosted guests from BMW, with many staying for six months at a time.

So far, the FTZs have been an indication of the future direction of policy outside the zones. For example, there has been a reduction of the number of sectors on the negative list.

Falk Lichtenstein, a Beijing-based partner at law firm CMS, said there are risks in this policy for the FTZ’s policymakers.

“Foreign companies were allowed to do motorcycle manufacturing in 2014 in the Shanghai FTZ, but within less than 24 months, they were then allowed to set up anywhere in China and somewhere that may suit them better logistically,” he said. 

“In the future, they may just look at the policy regulation operating in the zones and expect there to be a similar change in national policy a few years later.”

 

Contact the writers at andrewmoody@chinadaily.com.cn 

and zhentongtong@chinadaily.com.cn

 

Cai Shiyu also contributed to this story.


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