5 Things You Need to Know About China Free Trade Zones (Benefits & More)

Looking to sell into China?

Almost everyone has the China dream. (if only I could get 1 yuan from every person in China…)

To tap into the massive market potential and grow a whole new business channel. Yet we have read over the years the books and articles about the challenges to doing business in China.

Well, time for some good news.

There are more China free trade zones (FTZ) that the Chinese government is establishing in order to help bridge the gap. Yet we have found many people have no idea they exist or what the advantages of such a zone would be for their business.

Today, we will break down the advantages of setting up your company in Qianhai Free Trade Zone – a new one in Shenzhen, China. This can also apply to other free trade zones in China as they develop.

Let’s do a deep dive, read on! And if you want a more advanced version, check out Cross-Border E-commerce Into China, The Definitive Guide.

Want to download slides Mike used to explain cross border e-commerce and free trade zones in China? Get them below

Before we get into the things you need to know – first why were they even created in the first place?

From my personal discussions (and during our GFA events) – government officials have said it is to react to the response of the smuggling of goods into China. This is a way to keep the Chinese consumers protected (by checking quality) as well as capture more tax.

You can read about some of those smuggling tactics on our post “3 Ways to Import Into China” which goes into those underground ways.

Plus the demand for foreign goods has skyrocketed, and this is a faster way to classify new goods and streamline the process.

While many of us operate with our US, Hong Kong, or other overseas companies and try to tap into the Chinese market – there are a lot of roadblocks. By establishing a company in the Free Trade Zone, you are a “genuine” Mainland Chinese company. That means you can sell in China, hire people in China, issue tax receipts, and all the other features and benefits of having a Chinese company.

Only you also get these lower tax and other special support initiatives from the government.

We all know Wechat is the number 1 way to market to Chinese consumers today. And they have been open enough now to allow non-Chinese companies to create business accounts.

But.

Many don’t know (until after) that these overseas Wechat business accounts cannot reach Chinese people. The government has put restrictions to Wechat on allowing foreign companies to influence Chinese people – and therefore these overseas Wechat business accounts can only reach users who are outside of China.

Doh!

Who would open a Wechat business account to reach non-Chinese people? We all know its strength and massive user base is within China.

So how to make one?

You need a Chinese company (or local Chinese person) to do it. By opening a company in these free trade zones, you are “checked off” as a Chinese company – while also getting those FTZ benefits – and can then open a Wechat Business account in this Chinese company. Nice, now you can build Chinese followers and reach more Chinese customers.

As a free trade zone implies, it is more “Free”. But not completely. The corporate tax rate is 16.5% tax – equaling a Hong Kong Limited company. Sure, it is the same- but comparing that to traditional (normal) Chinese companies – that is about half of the average 30 or so percent corporate tax (depending on variables).

So these free trade zones are now lowering the bar for international companies to open up a company directly inside China. As many would go to Hong Kong for the lower corporate tax – you now can match that at Qianhai and other FTZ centers.

Here’s the killer feature. You can import – well let’s call it ship – goods to these FTZ warehouses – before importing into Mainland China.

Yes!

You can avoid having to deal with the massive headache of figuring out how much the import tax will be, how to classify it, etc etc. Just get those goods to your FTZ warehouse and you are good to go.

You can list these products for sale in China, and ship them B2C (business to consumer) direct from this warehouse. That means you can pass the import duties responsibility onto the individual consumer (C in the B2C) or let the China post office handle it for the person receiving the goods.

This has created a massive industry called “cross border e-commerce” that is growing fast and evolving quickly. The Chinese government has been watching it closely and adapting the rules and laws as we go – so if you do choose this strategic advantage, make sure you stay on top of the changing policies.

While this hasn’t been implemented just yet – it is in the plan. The Chinese government as many know has a strict policy on internet regulations and what the Chinese people can see, watch, and read online. This has caused huge sites such as Twitter and Facebook become blocked in Mainland China.

But these free trade zones are a new testing ground for the government to loosen their belts a bit. They have promised that these areas will have “open, unfiltered” internet so that businesses there can freely surf on Western websites that are normally blocked.

This will give businesses stationed in these zones an advantage over other Chinese based companies, and reduce the headaches and limitations that the Chinese internet filtering has caused for so many business owners and staff.

Again, this is an advantage many list in Hong Kong SAR – but now there are some zones directly in Mainland China. This will change the game once again.

The Chinese government has been working hard to attract more startups and innovations to the country. There are often competitions and application events where startups can woo Chinese officials for certain grants. It depends on city to city and local government to local government – but they all have a decent amount of cash on the books and budgeted for this. They want to attract top companies.

In Qianhai, there may be ways to impress the government enough that they can sponsor your company. That could mean a small grant or a full payment of opening and operating the new Chinese company. This is on a case by case basis and should just be a “bonus” as you look to establish your business in the free trade zone.

Reading is one thing, but seeing is taking it to the next level. We have discussed with the Qianhai government about bringing more foreign business owners to visit and learn about the benefits of establishing in Qianhai.

On a regular basis we will leave Admiralty station in Hong Kong bright and early for a full day trip to the Free Trade Zone of Qianhai. Tour a few companies, see how the logistics is set up, listen to some government speakers share. A great learning workshop and a roundtable to wrap up the day. Lunch and dinner is included, as well as transportation to and from – so don’t miss out.

Learn more about this Qianhai Business Trip and register here.

We know it is a big ask to come all the way up to the actual free trade zone. That is why we have different seminar options in Hong Kong for you.

Click here for the full event details.

Getting more questions about the growing trend of free trade zones in China, such as below

keep your questions coming, we will always update this page.

Hope you enjoyed this article. The main point is the Chinese government has made these zones in order to attract foreign investment. They want to also test, in a controlled environment, different tax and government regulations before implementing them country wide.

So be the guinea pig and save money at the same time! Leverage the massive opportunity in China, combined with lower taxes, ease of importing to China, and other special benefits.

What do you think? I’d love to hear in the comments below.

Figure out more on the free trade zones and warehousing in China with this presentation Mike did – get the slides now