Advances in Social Science, Education and Humanities Research, volume 403

International Academic Conference on Frontiers in Social Sciences and

Management Innovation (IAFSM 2019)

The Successful Cases of Inland Free Trade Zones and Inspirations to

China
Peng-Hao YEa and Hua-Rong ZHANGb,*
School of Business Administration, Zhongnan University of Economics and Law, Wuhan 430073,
China
a
[email protected], [email protected]
*Corresponding author: Hua-Rong ZHANG

Keywords: inland free trade zone, opening-up, balanced development, (pilot) zone

Abstract. The free trade zones (FTZ) are developed from the free ports, usually located in the coastal
areas. But with the further development of a country’s’ economy, some industries moved to the
hinterlands where location are key to a country, this laid the foundation of inland free trade zones.
The development mode of inland free trade zones is different from that of coastal free trade zones due
to heterogeneous geographical location and production factors. This paper summarized the
establishment process of China's inland free trade zones, made statistical analysis current theoretical
research on inland free trade zones by knowledge map, and combined with the status quo of several
typical inland free trade zones in foreign countries, then finally provided suggestions for the
development of China's inland free trade (pilot) zones which was established in 2017.

1. Introduction of Free Trade Zones in China

1.1 A description of the establishments of Free Trade Zones in China
With the continuous deepen of the Reform and Opening-up, the degree of internationalization of
China's economy is also increasing, and the regional economic trade between China and other
countries in the world has made great progress. Especially since China's accession to the WTO, with
the gradual liberalization of various WTO policies, China's economy has achieved rapid
development, ranking the second in the global economic aggregate, and becoming the world's
largest exporter and second largest importer. But, in 2008, the world financial crisis, domestic excess
production capacity since 2014, and barriers to trade and investment barriers to ascension in recent
years, making China's past economic development model, trade patterns and foreign investment
policy need to be adjusted. At the same time, China also needs to summarize the experiences of
early to set up special economic zones, after a series of deepening reform, to carry on the Reform
and Opening-up. On this background, China's free trade zones (FTZ) have also emerged.
China's first (pilot) free trade zone was approved in Shanghai in 2013. Shanghai is one of the
earliest trading ports in China, and has become the first free trade zone set up by the state due to its
long development history, superior geographical location, convenient transportation and high degree
of opening to the outer economies.
The second batch of free trade zones were set up in 2014, located in the coastal cities of Tianjin
city, Fujian province and Guangdong province, all of which are suitable for the development of free
trade zones with advantageous geographical location, foreign trade tradition and history that similar
to Shanghai.
In 2017, the third batch of free trade zones was approved, and they were formally found in the
following year, which are distributed in 7 provinces or municipalities, including Henan, Hubei,
Chongqing, Sichuan and Shaanxi. This batch of FTZs are all inland free trade zones. So far, China's
11 pilot free trade zones have been extended from the most developed and open areas in the coastal
areas to the northeast and inland areas, the great development of the western region, the revitalization of the
northeast, the rise of the central region and other major themes, further demonstrating that China's opening up and
communication with the outside world is further enhanced in the process.

Copyright © 2020 The Authors. Published by Atlantis Press SARL.

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Fig. 1 The current existence of Free Trade Zone in China

Hainan free trade (port) zone, the 12th pilot free trade zone in China, was established in April 2018
and its area is the whole island of Hainan, an independent island which were set as a independent
province in 1988.
1.2 The necessities of setting up Inland Free Trade Zones
Although inland regions cannot possess ports by sea, they have been still essential to a nation’s
development, which can be summarized as follows:
(1) Balance the current uneven regional development and expanded the achievements of the
Reform and Opening-up. In the first stage of Reform and Opening- up, China has achieved substantial
economic achievements as a whole, but the coastal cities occupy the majority of the development
achievements, and the economic gap between inland and coastal areas is basically in an expanding
state. The establishment of inland free trade zones can bring economic vitality and development space
to the inland areas, then narrow the gap between inland areas and coastal areas and achieve balanced
development in the second stage of Reform and Opening-up.
(2) Optimize the allocation of production factors nationwide. Although the economy of
southeast coastal areas has been highly developed, in recent years, a series of problems such as
limited land space resources, high labor costs and other constraints on development have also
emerged, leading to rising export costs. On the contrary, the land resources and human resources used
to serve the production factors in the inland areas are relatively sufficient and have low costs, and
some labor-intensive industries transferred to the inland areas can make full use of this advantage.
The science and technology industries also have development potential due to the abundant resources
of universities and scientific research in the inland areas.
(3) Adapt to the new information age of high-speed railway aviation. With the development of
science and technology, international railway transport and cargo plane may catch up and even
surpass the traditional way of cargo ship. Takes the advantage of less, existing Han-Euro trains,
Chongqing-Euro trains and the cargo airport in Zhengzhou where iPhone are sent out, have already
send millions tons of goods per year. Foreign railway hub of transportation and airport center often
exist in the inland region key city, if they are included in the free trade zone and given necessary
support policy, the efficiency of foreign trade and foreign investment or outward foreign investment
can boost across the country.

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2. Typical Inland Free Trade Zones Worldwide

2.1 Manaus Free Trade Zone in Brazil
Manaus, Brazil, is located in the central part of the Amazo n River plain in Brazil, with a population
of more than 20 million and about 1700 kilometers away from the estuary of the Amazon river. It is a
typical hinterland city in northern Brazil, as well as the capital of Amazonas state. It is a large
industrial city with a long history. At the time of the serious imbalance of regional development under
the background of the era of (with Sao Paulo, Rio DE Janeiro's southern coastal region economic gap
is too big), Brazil's government in June 1957, for the first time put forward setting up free trade area in
Manaus, and import and export tariff reductions and other measures, to the region for industrial
upgrading, development of foreign trade, and hopes to promote the development of relatively
backward area north. Brazil's Free Economic Zone of Manaus was formally established in February
1967 with the establishment of a central Zone management committee for the region and relevant
plans.

Fig. 2 The geographic position of Manus city in Brazil (Source: Google map)
Manaus free trade area is located at the junction of Negro and amazon river surrounding natural
resource endowment, the abundant human resources (Some inland cities in China such as Wuhan
shares this feature). At the same time, the Brazil government has also set up the free trade zone
administration bureau for the FTZ, to formulate appropriate policies in the zone and provide legal
support.
The development of Brazil Manaus free trade zone has gone through four development stages:
tourism, industrial services, agriculture and animal husbandry, and comprehensive industries. The
development path is orderly based on its own needs and local resources, and each stage shows the
overall characteristics of mutual promotion and common development. The land use planning of the
park is also in line with the fact that the local land resources are sufficient, which is suitable for the
development of ecological agriculture in the inland free trade zone, and also provides sufficient
development space for the multinational companies stationed in the free trade zone.

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Start-up Stage
Internediate stage
build
Deepening Stage
Develop primary and
infrastructure, Drawing FDI, upgrade
secondary industries,
develop tourism, industries and
drive relevant
build trade promote service
industrial chains,
centers for sectors,
and expand the scale
primary products, environmental-
of commodity trading
and develop friendly
market
shipping

Fig. 3 The developmental stage of Manus FTZ

2.2 Noida Free Trade Zone in India
As another enormous developing country, India has set up special economic zones earlier than
China. In 1965 the India government had set a Free Trade Zone in Kandla Free Trade Zone nearby the
border with Pakistan, and then set export processing zones or FTZs successively in Mumbai, Falta,
Madras, Cochin, and Visakhapatnam. Yet these special economic zones are all by sea. Noida Free
Trade zone in India, also known as New Okhla Industrial Development Authority, is the only special
economic zone with no outlet to the sea, established in 1976.
Noida, as one of the four satellite cities nearby the Indian capital New Delhi, the reason why it had
been set up free trade zone was different Manaus in Brazil. Setting Manus FTZ is for to balance the
regional development, and Noida case is to undertake the industrial transfer from the congested
capital New Delhi, evacuate non-essential industries and elements in the capital, and making the
distribution of the working population more reasonable. In the meantime, Noida will make use of its
status of transportation hub to develop large trading transfer and trading platforms or other economic
functions, aiming at realizing the inland free trade zone with export processing, low tax or exemption,
and concentration of advantageous industries.

Fig. 4 The location map of Noida FTZ

2.3 Shannon Free Trade Zone in Ireland

Shannon free trade zone in Ireland originally covers an area of 2.43 square kilometers, which is
located in the west of Ireland and more than 200 kilometers away from the capital Dublin. Shannon
free trade zone is the first free trade zone in the world, and is also an international business park
originated from the airport duty- free shop. Established in 1942, Shannon airport was the first airport
connecting Ireland and the United States. In 1947, the world's first Duty Free Shop was open there,

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offering duty-free sales of alcohol, tobacco and other goods. In 1959, the Irish government set up a
special manufacturing zone in the area adjacent to Shannon airport. The government agency,
Shannon Development, was established and gradually introduced supports including tax, financing
and financial to create jobs and output.

Fig. 5 The location map of Shannon FTZ in Ireland

(Source: Civil Aviation Management, 2010 (03))
To adapt the different stages of economic development, the Irish Shannon free trade area has
experienced 5 periods, as: (1)Air refueling and duty-free sales service mode (1940s); (2)Export
processing mode (1950s-60s); (3)Science, technology and industry model (1960s-1980s);
(4)Information technology industry model (1990s-2000s); and (5)Today's high and new technology
industry cluster s[1]. In phase (1), Shannon international airport in the park makes full use of the
geographical advantage of the aviation central axis between continental Europe and the US,
providing refueling and duty-free sales services for trans-oceanic aircraft. Subsequently, in the late
1950s, due to the improvement of aircraft range, the demand for refueling service was greatly
reduced. The Shannon free trade zone set up a duty-free export processing zone mainly attracting
foreign investment. In the 1960s to 1980s, the Ireland government set up institutions of higher
learning in this region, such as Limerick University and Limerick Institute of Technology, providing
sufficient talent and knowledge reserves for upgrading the region from labor -intensive export
processing zone to technology-intensive technology industrial zone. Then, in the information age
began at 1990s, Ireland implemented a corporate income tax cut (statistics reduced to 12.5%), which
allowed more high-tech enterprises and international financial industry to flourish further. Now, the
area of Shannon free trade zone has expanded to more than 10,000 square kilometers, covering
industries such as aerospace, healthcare, finance, logistics and tourism, etc. By 2014, it had settled
more than 130 companies and provided more than 7,000 jobs, with annual sales of more than 3 billion
euros and annual output value of more than 600 million euros.

3. Experience Summary and Inspirations to New Inland FTZs

Throughout the successful inland free trade zones abroad, the reasons for their successes are not
only the rationality of the site selection, but also the full support of governmental policies. At the
same time, they also conform to the overall environment of world economic development and
domestic industrial transfer. On the supply side, the lower production cost of the inland free trade
zone has well undertaken the transfer of some domestic foreign trade industries, enabling the
potential of resource location in the inland region to be brought into play. On the demand side, the

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inland free trade zone reduces the cost of imports and enables citizens in inland areas to enjoy
imported goods and services at lower prices as in coastal regions. In addition, the effective operation
of the inland free trade zone also optimizes the distribution of population and industries, easing the
crowded population, land resource shortage and natural environment pressure in coastal areas.
China's inland free trade zones are still in the initial stage of development. The free trade zones in
various inland areas still have great room for development in terms of industrial development,
construction of supporting transportation facilities, introduction of foreign capital and optimization of
supporting policies. The development of inland free trade zones has also greatly contributed to the
balanced development and further implementation of China's regions. Meanwhile, as China's inland
free trade zone is still in its infancy, the following points should be noted:
(1)Using "Negative List" in the free trade zone and follow up the observation and adjustment.
(2)FTZs should highlight their own features to avoid vicious homogenization of competition.
(3) Improve supporting transportation infrastructure, such as air transport or railway.
(4) Strengthening personnel training and introduction, as well as improving supporting policies,
like Shannon FTZ had set up colleges to feedback the local’s development.

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