China is moving steadily towards creating its first batch of free trade zones as seven of China's 15 bonded zones have been given the green light from the State to follow Shanghai to set up pilot zone-port interactive areas (ZPIAs).

The move is a prelude to the ultimate goal of setting up free-trade areas, experts say.

"The State Council has recently approved all seven applicants to kick off zone-port area pilots," Dai Bin, an official with the Xiamen Xiangyu Bonded Zone, told China Daily. He says approval has been "long-awaited" and "welcomed."

The awarding has eliminated early worries that only two or three applicants would be approved.

Xiamen Xiangyu Bonded Zone is among the list of the seven applicants. The other six are in Qingdao, Dalian, Zhangjiagang, Tianjin, Shenzhen and Ningbo.

Upon approval, the area of China's ZPIAs will reach 9.17 square kilometers.

The State's go-ahead follows the successful setting up of Shanghai Waigaoqiao zone-port interactive areas, selected as a pilot late last year and completed as a ZPIA in April.

A ZPIA is a combination of bonded land and a nearby international port. A bonded logistics zone will usually be set up in the port area.

The combination will benefit enterprises in the former bonded zone by offering better logistics services, helping solve bottlenecks affecting China's bonded zones, Dai said.

"The ZPIA can be seen as an enlarged bonded zone which includes a sea port," he said. "All preferential policies will be extended from the former bonded area to the whole coverage of the ZPIA."

Updated tax rebate mechanisms will also be adopted in a ZPIA, Dai said.

Rebates will be granted on the entry of domestic goods flowing into zone-port areas, rather than the current practice of providing refunds after those goods leave China.

This is seen by many investors as one of the zones' biggest attractions.

And firms in the zone will be able to enjoy more relaxed foreign exchange controls.

Goods circulated within the zone are exempted from value-added taxes and consumption duties.

Under these policies, customs clearance will be quickened and delays in goods delivery will be greatly scrapped. This will help firms slash costs.

However, processing trade activities will still remain in the former bonded areas, Dai said.

Foreign-invested companies have hailed the moves, saying they will have more business opportunities when the ZPIAs are put into place.

"Our business will be better," said an official with the BAX (Xiamen) Global Logistics Co, a logistics firm located in the Xiamen Xiangyu Bonded Zone. "The ZPIA will witness increasing logistics needs and thus empower our business."

In a larger picture, the ZPIA endeavour will be conducive to the ultimate establishment of China's first free-trade areas, said Zhang Xiaoji, a senior researcher under the State Council Development and Research Center, who was an initiator of the ZPIA moves.

"It (the ZPIA) is the first step," said Dai.

"We are committed to turning bonded zones into free-trade areas, although the process may be gradual and thorny."

All seven applicants have expressed the intention of being developed into free-trade areas.

It is reported that the Chinese mainland will have two or three world-class free trade zones by 2015, if the transformation of the bonded zones is successful.

The move also aims to inject new incentives into lustre-lacking bonded zones, which have been losing advantages as the nation continuously reduces tariffs and opens up markets as part of its World Trade Organization commitments.

Once magnets for foreign funds, these zones have been complaining that their attraction is diminishing as they suffer land shortages and shrinking tariff advantages.

(China Daily August 26, 2004)