Question

What policies China adopted to promote its exports and extract benefits from free trade? Elaborate.

Answer 1

The government of China has tried to promote exports by various means including the establishment of Special Economic Zones, tax and financial benefits,  export insurances, and exchange rate management.

Three important policies adopted by china to promote it's export are:-

a. Export credit insurance policy: By means of export credit insurance against non-payment risks for China's foreign trade and investment cooperation, SINOSURE promotes Chinese exports of goods, technologies and services, especially the exporting of high-tech and high-value-added capital products such as mechanical and electrical products.This  policy help the chine to promote export.

b. Structural policies: The fact that the State had traditionally formulated strategic development policies and been a major presence in all aspects of the country's economic and social life made it possible to implement the reforms in a disciplined manner. The first great reform took place at the end of the 1970s with the "quasi-privatization" of communal farming, which introduced private incentives aimed at boosting productivity and GDP. This was followed by a policy which allowed rural households to invest their savings in local businesses, manufacturing and transport, which gave rise to the so-called "town and village enterprises". The ensuing trade liberalization reforms included opening up an export-oriented processing segment, implementing a unilateral trade liberalization process and joining the World Trade Organization (WTO). In the initial stages, foreign direct investment was limited to the special export zones, but restrictions on this kind of investment were subsequently gradually lifted. State-owned enterprises were only slightly affected by the reform process at first, but increasingly as of 1988. The aim was to introduce incentive schemes and use financial consolidation and privatization as means of improving efficiency and competitiveness. Other notable features of the reform process include the removal of red tape, the opening of the financial markets, and fiscal reform.

c. Implementation strategy: The Chinese authorities have drawn up their policy proposals within a long-term vision, according to which, sustained high growth rates must be attained so that both labor and jobs can be redirected towards market-oriented activities. Ambitious central and local-level objectives aimed at promoting the continuous improvement of the country's position in the international economy have also been established. China's strategy is thus based on maintaining macroeconomic stability, as well as vigorous investment growth, a proactive industry and technology policy, and access to domestic credit, and, notably, ensuring a tangible improvement in education. The Chinese authorities pragmatically chose to implement this reform process gradually in several progressive stages. This has been referred to as the practice of the "art of dualism" inasmuch as market reforms are being implemented in step with the "old regime". Compensation programs have also been set up to soften the impact of the reforms on the so-called "losers" in the process

Free trade increases access to higher-quality, lower-priced goods. Cheaper imports, particularly from countries such as China and Mexico.

Benefits from free trade

1. Welcoming foreign participation

one of the most fundamental factors for ensuring the vibrancy and prosperity of the FTZs is to have a sound business environment. Foreign businesses can expect to benefit from measures designed to offer equal treatment and to create a more level playing field for them and their Chinese counterparts. These measures include relaxing the restrictions on foreign investment, enabling the free flow of capital, making trade and transportation more convenient, and creating a fair competition mechanism.

Restrictions on foreign investment are being loosened in various ways. First, FTZs are relaxing restrictions on registered capital and investment approaches for foreign companies in a number of key sectors, such as telecommunications, insurance, science and technology, education, and healthcare. Second, reputed overseas arbitral and dispute-resolution institutions are allowed to establish offices and conduct business in FTZs. Third, the limits on foreign capital shareholding for financial institutions have been relaxed, in turn expanding the scope of business operations for financial institutions with foreign capital. Finally, eligible foreign investors will be able to establish financial institutions in FTZs.

the limits on foreign capital shareholding for financial institutions have been relaxed, in turn expanding the scope of business operations for financial institutions with foreign capital. Finally, eligible foreign investors will be able to establish financial institutions in FTZs.

2. Free flow of capital and goods

The free flow of capital is another fundamental factor in unlocking business dynamism. It involves three key aspects: a facilitated cross-border renminbi settlement process, free capital inflows and exchange, and supporting cross-border financial activities. Take Lingang FTZ as an example. This expansion of China’s first FTZ in Shanghai fully supports cross-border financial activities by enabling eligible institutions to provide cross-border bonds and conduct cross-border securities investment and insurance business, demonstrating China’s clear intent to expand the financial openness of its markets in the new era

3. Building a strong talent pool

Talent is a vital driving force behind FTZs. To attract competitive talent with different industry backgrounds, the government has eased restrictions on introducing talent from foreign countries and launched incentives to encourage more talent from overseas countries to work in FTZs. Other measures include fully utilizing local university resources and working hand in hand with universities to nurture talent. Various FTZs are also introducing special benefits for talent. These incentives include tax reductions, allowances, housing, and transportation subsidies, among others.

Shanghai’s Lingang FTZ, among others, has launched tax-reduction plans under which talent from foreign countries can enjoy tax relief from their individual income tax to offset the tax differential between China and their native country.

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