The Chinese government has approved plans for the country's fourth harbor area with preferential tax rates in a major step towards a free trade zone with the Association of Southeast Asian Nations (ASEAN).

The State Council authorized the Yangpu Bonded Harbor Area in the Yangpu Economic Development Zone, south China's Hainan Province, covering 9.21 sq km and to be completed in three stages.

The first phase of construction had already started, said Hainan Vice Governor Jiang Sixian.

Fifty billion yuan will be spent on construction and the area will host industries with a total output value of 100 billion yuan, generating 12 billion yuan in taxes annually by 2012.

Three other bonded harbor areas are located in Yangshan of Shanghai, Dongjiang of Tianjin and Dayaowan of Dalian, Liaoning Province.

Yangpu Economic Development Zone is on the 150-sq-km Yangpu Peninsula in northwestern Hainan, 40 km north of the provincial capital, Haikou, and covers 30 sq. km..

Established in 1992, the zone was originally planned as an export-oriented industrial district focusing on advanced technology and the development of tertiary industry.

The 1997 Asian financial crisis, however, had a negative impact on Yangpu from which it never fully recovered.

To attract overseas investors, the Yangpu Economic Development Zone has been allowed to apply preferential policies.

Li Lanxue, chief of Haikou Customs, said the Yangpu Bonded Harbor Area would offer tax breaks on imports, and rebates on China-made commodities, while trade between companies inside the harbor area would be exempt from value added and consumption taxes, in addition to preferential policies granted to Yangpu Economic Development Zone.

The establishment of the Yangpu Bonded Harbor Area was important to regional economic development and energy strategies, said Jiang Sixian. "This will help to advance economic development of this province and of the Beibu Gulf between Hainan and ASEAN member states."

Yangpu bonded harbor area bordered the ASEAN trading zone, close to key international shipping routes, and had a deep-water shoreline of more than 50 km where 80 berths with dead-weight-tonnages of up to 300,000 tons could be built, said Jiang.

It would be the closest industrial base to the oil and gas resources in the South China Sea.

"Yangpu bonded harbor area will be built into the most open shipping center on the Beibu Gulf, and a logistics center for bonded and transit services in petroleum, gas, raw materials for the chemical industry, pulp, paper products," said Jiang.

"Yangpu bonded harbor area, now a large petrochemical production base, will become an important international base for processing and export of petrochemical commodities," Jiang added.

China and ASEAN are seeking to establish a free trade area by 2010.

Since July 2005, China, Brunei, Malaysia, Indonesia, Myanmar, Singapore and Thailand have cut tariffs on more than 7,000 items in compliance with the Trade in Goods Agreement of a Framework Agreement for Overall Economic Cooperation between China and the ten ASEAN member states.

By 2010, China and Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, will impose zero tariffs on most products, while China and the four newer ASEAN members of Cambodia, the Laos, Myanmar and Vietnam will do the same in 2015.

The China-ASEAN free trade area has a population of 1.8 billion and US$2 trillion in gross domestic product (GDP). It will become the third largest global trading region after the European Union and the North America Free Trade Zone.

(Xinhua News Agency October 12, 2007)