"The State Council has recently approved all seven applications to open pilot zone-port areas," said Dai Bin, an official with the Xiamen Xiangyu Bonded Zone.

The approval given to the seven bonded zones -- nearly half of the nation's 15 -- to establish pilot zone-port interactive areas (ZPIAs) means that China is moving steadily toward creating its first group of free trade zones.

The decision eliminated early worries that only two or three applications would be approved.

Xiamen Xiangyu Bonded Zone was one applicant. The others are located in Qingdao, Dalian, Zhangjiagang, Tianjin, Shenzhen and Ningbo.

Upon approval, the area of China's ZPIAs will reach 9.2 square kilometers.

The State's green light follows the successful establishment of the Shanghai Waigaoqiao ZPIA, selected as a pilot late last year and completed 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. According to Dai, the combination will benefit enterprises in the former bonded zone by offering better logistics services, helping to solve the bottlenecks currently affecting China's bonded zones.

"The ZPIA can be seen as an enlarged bonded zone that 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. 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 one of the zones' biggest attractions to many investors.

Goods circulated within the zone are exempted from value-added taxes and consumption duties, and companies will also benefit from more relaxed foreign exchange controls.

Customs procedures and clearance will be speeded up, helping to pare delivery delays and ultimately slashing costs.

Processing trade activities will remain in the former bonded areas.

The ZPIA will be conducive to the establishment of China's first free-trade areas, according to Zhang Xiaoji, a senior researcher with the State Council Development and Research Center. Zhang was one of the initiators of the ZPIA plan.

"We are committed to turning bonded zones into free-trade areas, although the process may be long and laborious," said Zhang. All seven of the ZPIAs-to-be concur.

China plans to have two or three world-class free trade zones on the mainland by 2015 if the transformation of the bonded zones is successful.

The bonded zones have been losing their luster as the nation 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 space shortages and shrinking tariff advantages.

(China Daily August 26, 2004)