Shanghai free trade zone's new area to boost edge in emerging industries

Ever since the State Council, China's Cabinet, announced on Tuesday that the China (Shanghai) Pilot Free Trade Zone would be expanded to include the Lingang New Area, Song Changjun has been bombarded with phone calls and messages from local real estate agencies touting apartments and even villas in the area.

But the 34-year-old Song, manager of an information technology company registered in Lingang six years ago, was not much interested in property. Nonetheless, the calls and messages worked.

Three days after the expansion plan was announced, Song stopped by the administrative service center — despite the municipal government's warning earlier that day that people should stay indoors as the strongest typhoon so far this year, Lekima, was about to hit the city with heavy rain and high winds.

The purpose of his brief visit was simple: Song wanted to check out the opportunities presented by the plan to include Lingang in the Shanghai FTZ.

"I was here for some company affairs in May. In less than three months, the center has been renovated, with an investment services counseling counter set at the entrance. I have read through the inclusion plan several times after it was announced, which puts much emphasis on the real economy, especially the modern manufacturing industry," he said.

According to the plan to add the Lingang New Area to the Shanghai FTZ, companies specializing in key industries, such as integrated circuits, artificial intelligence, biomedicine and civil aviation, will be granted a 15 percent business income tax for five years after their registration in the area. Under the country's tax system, the business income tax rate usually is 25 percent.

More important, by being included in the Shanghai FTZ at this stage, the 119.5-square-kilometer Lingang New Area will grow into a special economic zone with strong global market influence and competitiveness by 2035, according to the plan.

Sun Yuanxin, a professor of management and a researcher of free trade zones at Shanghai University of Finance and Economics, said Lingang will not only take the upper hand regarding the four key industries mentioned in the plan, but also will take the lead in the development of smart manufacturing, new electric vehicles and big data.

"Defining the newly included area as a special economic zone will encourage more emerging industry companies to settle down in Lingang and help Shanghai to achieve more results in strategically important industries, which is in line with the country's development trajectory," he said.

Lingang, which is in the farthest southeastern part of east Shanghai's Pudong district, has provided many manufacturing industry success stories since the municipal government started to build an industrial cluster in 2003. Artificial intelligence giants such as Cambricon and SenseTime have set up operations in Lingang.

The Lingang administrative committee rolled out a plan in May 2018 to build a demonstration zone that will allow testing of driverless cars, boats and even planes. Tesla's gigafactory in Shanghai, which attracted over 50 billion yuan of investment, is also in the Lingang New Area.

Lingang's capability in high-end manufacturing is crucial at a time when China's economic development faces mounting uncertainties worldwide, said Yin Chen, secretary-general of the FTZ research institute at Fudan University.

"It is of the utmost importance now to enhance the country's industrial competitiveness and move up to the top of the value chain. To that end, the improved capability in science and technology innovation is a must for a city and for the country generally," he said.

Given the higher opening-up level to be seen from inclusion of the Lingang New Area, Shanghai will be more able to attract high-end talent and other resources worldwide. This will boost Shanghai's competitiveness and global cooperation, said Yin.

The inclusion of Lingang is the second expansion of the Shanghai FTZ, which was the first of its kind in China when it was launched in September 2013. The first expansion of the FTZ occurred in late 2014, when the 28-sq-km area grew to 120 sq km by including more parts of Pudong district.

The second expansion reflects the Shanghai FTZ's huge success in the past few years, said Zhao Xiaolei, director of the FTZ research institute at Shanghai University of Finance and Economics. The latest expansion also comes at a good time, since Shanghai is calling for a new round of strategic development.

"While supervision and systematic innovation was stressed over the past few years, we can see that the newly included area for the Shanghai FTZ will focus more on freedom of investment, trade, capital, transportation and employment, which is another step forward," said Zhao.