2nd LD Writethru-China Focus: China announces plans for pilot free trade zones

China released more details regarding pilot free trade zones (FTZ) in Guangdong, Tianjin and Fujian as well as plans to further reform and open up the Shanghai FTZ on Monday.

The plan is a crucial step for the country to promote reform and opening up as well as boost trade and facilitate investment, according to a statement released by the State Council, or the cabinet.

Each of the three new FTZs will make full use of its geographic location. According to Wang Shouwen, assistant minister of commerce, the Guangdong FTZ aims to deepen economic cooperation between the mainland and Hong Kong and Macao, the Tianjin FTZ is part of a push to coordinate development of the Beijing-Tianjin-Hebei region, while the Fujian FTZ is focused on deepening economic cooperation between the mainland and Taiwan.

According to the plan, the Guangdong FTZ will consist of three parts in the cities of Guangzhou, Shenzhen and Zhuhai while the Fujian FTZ will cover three areas in Xiamen, Fuzhou and Pingtan, a new industrial park targeting investment from Taiwan.

The country plans to spend three to five years in developing the three FTZs.

Wang said the three FTZs will be launched soon, but did not give a specific timeline.

China officially launched the Shanghai pilot FTZ in September 2013. As of its first anniversary, the Shanghai FTZ had seen nearly 12,000 registered enterprises.

FTZs are part of the government efforts to test reform policies and better integrate the economy with international practices in a landscape where China's old export-reliant model is no longer sustainable.

Dragged down by a housing downturn, softening domestic demand and unsteady exports, China's economy logged its lowest annual expansion in 24 years in 2014 and the weakness continued into 2015. Authorities have dubbed the slower growth China's "new normal" and called for more opening-up policies to spur development.

To that end, the government has been working on regulations that will more easily allow foreign investors to set up businesses in the country.

Monday's State Council statement said the country will use the FTZs to test a "negative list" approach, which specifies investment sectors off-limits to foreign investors.

The approach will allow foreign investors access to the same regulation rules for new investment as domestic firms, as long as the business is not on the "negative list."

Under the "negative list", released on Monday, FTZ foreign investments will be prohibited in sectors such as non-ferrous metal mining, air traffic control systems management, postal enterprises and production of radio and television programs.

Foreign investments are restricted to joint ventures with domestic companies in sectors such as oil and natural gas exploration and development, general-purpose airplane design, manufacture and maintenance as well as rare earths smelting, according to the list.

The list also maintained the existing 49 percent cap for foreign companies investing in securities business joint ventures and restricted foreign investments in air cargo operations, stating that air cargo operations had to be controlled by a Chinese party and a single foreign investor could not hold more than 25 percent stake.

The list, effective in May, will be applied to the four FTZs.

Wang Shouwen said the new FTZ "negative list" detailed a total of 122 items, 17 less than a 2014 list put in place for the Shanghai FTZ, an indication that there will be greater openness and transparency.

On Monday, the cabinet also unveiled rules concerning a national security review of foreign investments in the FTZs.

Foreign companies in the FTZs will be subject to a national security review if they are investing in certain "sensitive industries, technologies and locations."

Under the rules, effective in May, FTZ foreign companies will have to go through such review if they invest and have a controlling stake in the military industry, certain agricultural produce, major energy and resources, major infrastructure projects and telecommunication products that may affect national security. Endi