Industrial Zones in China:

Overview & Incentives

April 20, 2006 • Chicago

Andrew M. Pan

North American Representative Office of Shenzhen, China (NAROS)

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General Picture

• Special Economic Zone (SEZ)

• Economic & Technological Development Zone (ETDZ)

• Free Trade Zone (FTZ)

• High-Tech Park

• Export Processing Zone (EPZ)

• Bonded Logistics Zone (BLZ)

• http://www.cadz.org.cn for more information

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Special Economic Zone (SEZ)

• Initiative by Mr. Deng Xiaoping in 1979

• The first window of China open to the outside world

• Experimental arena for China’s economic reform and open-door policy

• 5+1: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan Island, and Shanghai Pudong, all in the coastal area

• Special policies and incentives (duty free, tax break etc.) granted at early stage, not many at present

• 15% corporate income tax rate for all enterprises, compared to the rate of 33% in most parts of China

• Shanghai Pudong and Shenzhen emerged as China’s international cities

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Economic & Technological

Development Zone (ETDZ)

• 54 in total, national certified, located in major industrial and

commercial cities across the country

• Pioneering zones in the region with good infrastructure to

observe foreign investment

• Focus on manufacturing of labor-intensive consumer

products

• Foreign investors aiming at China market entry or lowering

cost for export

• Many other local ETDZs, not national certified, less

regulated, not recommended

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Economic & Technological

Development Zone (Cont’d)

• Incentives:

– 15% corporate income tax rate for manufacturing FIEs

– 2 years free and 3 more years half reduction (7.5%) of corporateincome tax rate for manufacturing FIEs with operation term of 10+ years

– Another 3 more years 7.5% corporate income tax rate for manufacturing FIEs qualified as advanced technological company

– Life long 10% corporate income tax rate for manufacturing FIEs which export over 70% of their products

– Duty free for imported manufacturing equipments and components*

– Up to 100% refund of corporate income tax for re-investment in China

– After tax profits free to move out of China

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China-Singapore Suzhou Industrial Park

– A ETDZ jointly set up

and managed by China

and Singapore

governments

– Located in greater

Shanghai area

– One of China’s current

most popular foreign

investment

destinations

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Major Industries

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Tianjin Economic & Technological

Development Area (TEDA)

– Located in Beijing-Tianjin area of Northern China

– Where Motorola has its world largest manufacturing operation

with 10,000+ employees

– China’s next “hot

point” for foreign

investment

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Free Trade Zone (FTZ)

• Enclosed, bonded zones

• 15 in total, all along coastal area in cities with port facilities

• Function: transit trading, distribution, logistics service, and manufacturing

• Besides the same policies and incentives as ETDZs, FTZ also enjoys:– Import license free

– Duty free/bonded for all imported goods (manufacturing and office equipments, components etc.)

– No VAT in the zone

– Simplified customs clearance procedures

– No customs fee for storage and transit goods

– Less foreign exchange control

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Shanghai Waigaoqiao Free Trade Zone

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Shenzhen Free Trade Zone

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High-Tech Park

• 53 in total, focus on new and advanced technologies

• Function: technology products manufacturing, R&D, start-up, and education

• Park in park: Incubator Campus, Software Park, IC Design Park, Overseas Returnees Park etc.

• Home for the China high-tech big companies like Huawei, Lenovo, SMIC, ZTE etc.

• Pool of international and local venture capitals

• Besides the same policies and incentives as ETDZs, High-Tech Park also enjoys:

– Local governments subsidized land price and property rental

– Central and local government funding support

– VAT subsidies

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Shenzhen High-Tech Industrial Park

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Shanghai Zhangjiang High-Tech Park

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Export Processing Zone (EPZ)

• 56 in total, most located in ETDZs

• Enclosed, bonded zones

• Function: manufacturing for export only

• Besides the same policies and incentives as ETDZs, EPZ also enjoys:– Import license free

– Duty free/bonded for all imported goods (manufacturing and office equipments, components etc.)

– No VAT in the zone

– Goods (including public utilities) export to EPZ from China qualified for VAT rebate

– Simplified customs clearance procedures, 24/7 schedule

– Less foreign exchange control

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Bonded Logistics Zone (BLZ)

• BLZ: Shanghai, Shenzhen, Dalian, Tianjin, Qingdao, Zhangjiagang, Ningbo, and Xiamen. All connect to ports, so called “Zone-Port Connection”

• Bonded Logistics Center (Type B): Suzhou

• Function: bonded warehousing, international distribution/delivery, simple processing & value-added service, transit trading, and virtual port

• Incentive:– Goods from overseas are bonded, no customs duty or VAT

required

– Goods from China are regarded as exports and enjoy VAT rebate when entering BLZ

– Goods in BLZ are allowed to consolidate, transfer and store without time limit

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Objective

– VMI based just-in-time

distribution

– Lowering logistics cost by

taking advantage of VAT

rebate for export policy

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Conclusion/Suggestion

• Choose industrial zone -- always put industrial zones on

the top of site selection list

• Pick the right one -- different zone caters to different

business model and/or industry

• Get the best deal – besides central government preferential

policies and incentives, local government likely to offer

more incentives

Thank You!

Please contact NAROS for more information.

Tel: 213-628-9888 Fax: 213-628-8383

E-mail: andrewpan@shenzhenoffice.org

Web: www.shenzhenoffice.org