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Upgrading Strategy of Xiamen Free Trade Zone

The Xiamen Free Trade Zone was opened in 2014. After more than a year of pioneering practice, it has achieved reform breakthroughs in many fields, promoted institutional reform, government transformation, and accelerated economic innovation and development; Increase openness and facilitate trade and factor flow; Substantive progress has been made in the coordinated regional development of the West Coast and the Silk Road. In particular, Xiamen Free Trade Zone started in the Free Trade Zone. Through more than a year of reform practice, it has essentially upgraded to a free trade zone. Through the pilot test of the Free Trade Zone, it has driven the innovation of the system and mechanism of promoting reform through opening up in Xiamen's administrative region. It has introduced a series of measures, such as one license, one code, multi compliance, one-stop customs inspection platform, promoting the construction of the main credit system, legislative construction, and greater convenience and openness to Taiwan, Actively promote the economic transformation of Xiamen.

From the perspective of the upgrading strategy of the Free Trade Zone, after evaluating the reform breakthrough of Xiamen Free Trade Zone, explore how to carry out new strategic upgrading during the "13th Five Year Plan" period, so as to promote the development of cross regional deep integration and drive Xiamen to become a cross regional hub node city.

From the perspective of the positioning of the national free trade zone, the free trade zone should have a dual strategic positioning: Strategy 1, upgrade from the free trade zone park to the free trade zone; Strategy 2: The free trade zone drives the transformation of the city into a transnational and regional resource reallocation hub node. Xiamen (Special Zone, Free Trade Zone, Haixi District and Haisi District), as a superposition of four districts, is transformed into a transnational (regional) resource exchange and reallocation hub node city, which must have the characteristics of an international node city.

（1） One of the upgrading strategies: upgrading from Free Trade Zone (FTZ) to Free Trade Zone (FTA)

Free trade zones actually include two levels of free trade zones. First, free trade zones (FTZs) refer to specific areas where a country or region establishes preferential tax and special regulatory policies in designated areas, It is defined as the Kyoto Convention signed by the Customs Council in 1973 (the full name is the Convention on the Simplified and Harmonized Customs System), which stipulates that "Free Zone refers to a part of the territory of the contracting parties. Any goods entering this part are generally recognized as outside the customs territory in terms of import taxes and duties, and are exempt from the usual customs control measures in fact". Many countries have set up free ports. The Kyoto Convention further stipulates the "Free Trade Zone Park", the core of which is to expand the processing operation right and the use of customs supervision procedures for imported (imported and domestic) goods, and put forward national legislation to specify tax rates, goods volume, etc., expanding the processing, certain consumption and extensive trade exchanges in the free zone. Many cities have formed free ports and free trade zones.

According to the international definition, the current two port areas of Xiamen Free Trade Zone, Haicang and Xiangyu, are mainly based on the concept of "free trade zone park" for port development. Similar to the characteristics of Shanghai Waigaoqiao Phase I as a pilot free trade zone, Shanghai is gradually upgrading towards a free trade zone, turning the free zone with a single tariff into a composite area of "ports, innovation, manufacturing and financial services". The upgrading direction of Shanghai is inevitable for the upgrading of the existing free trade zone.  The Xiamen Free Trade Zone has made great progress since its establishment more than a year ago, which is characterized by directly driving the system reform and transformation of the entire Xiamen Special Economic Zone. The Free Trade Zone has been upgraded to a free trade zone.

According to the definition of WTO, a free trade area (FTA) is a specific region where two or more countries (regions) have signed agreements to further open their markets to each other on the basis of the most preferential treatment, improve the mutual access conditions for services and investment, and thus realize the liberalization of trade and investment. According to this definition, the relatively mature framework of the Free Trade Area is the North American Free Trade Area and the East Asian Free Trade Area. The Closer Economic and Trade Relationship Arrangement (CEPA) signed by the Mainland, Hong Kong and Macao is a standard FTA agreement.

The current Sino US BIT negotiations and the just passed TPP negotiations are all part of the FTZ negotiations. The Cross Strait Economic Cooperation framework Agreement (ECFA) is also a type of free trade area negotiation. The FTA negotiation has been upgraded from the general tariff negotiation to a new negotiation framework for the comprehensive flow of factors, including trade, services and investment, especially the access of the most important natural person in the service industry access agreement, which is a new manifestation of factor flow.

In short, the establishment of the Free Trade Area (FTA) is no longer for tariffs and general trade, but for the development of cross regional deep integration. The key of the Free Trade Zone is to promote the deep integration of transnational (regional). Its function is to set up a center for the allocation of economic resources and elements. Therefore, its function is not single, but has the overall functional characteristics of allocating elements and serving the upgrading and development of the economy. It is even more inseparable from the economy of the city or region where it is located.

Xiamen Free Trade Zone is set as a free trade park, but its development goal is to be implemented according to the function of the free trade zone. At the beginning of the establishment of the Free Trade Zone, the Xiamen Municipal Government first promoted the reform of the business environment, the design of trade facilitation in the Free Trade Zone, and the promotion of cross-strait trade. At the same time, it also actively promoted the legislative construction to meet the new development requirements, and basically completed the goal of upgrading strategy I.

（2） Upgrading strategy II: as a transnational (regional) production factor flow and resource allocation hub node city

In more than a year of practice, Xiamen Free Trade Zone has launched the key step of upgrading strategy 1. During the "13th Five Year Plan" period, Xiamen Free Trade Zone will inevitably implement upgrading strategy 2, that is, accelerate the pace of opening up and reform, promote the deep integration of transnational (regional) development, and take the Free Trade Zone as the leader to build Xiamen into a hub node city for transnational (regional) production factor flow and resource allocation. With the development of economic globalization and liberalization, the convertibility of RMB under capital account, multilateral trade negotiations, and the unprecedented expansion of transnational logistics and production factor flows, the Free Trade Zone should continue to upgrade to the hub node in the global factor flow network, play the role of configuration and service, and reflect the characteristics of global (cross regional) service, free flow of factor flow and logistics, production innovation and global synchronization, With the help of the free trade zone, the city's configuration function will be reconstructed to form an element reallocation center.

The upgraded Free Trade Zone has the following basic characteristics:

1. Service trade has become a leading industry. The original free trade zones are mostly free trade zones dominated by processing zones, and the core is the gathering of commodity trade and export processing. However, today's free trade zones are more concentrated on the emerging service system formed by the gathering of high human capital, and service trade and professional services and innovation activities are dominated.

2. The free trade zone is coupled with the city to form a composite function. The original free trade zone pays more attention to a single function, such as free port area, export processing zone, etc. The functions are mostly single economic functions. With the flow of global factors, especially the service trade and professional services driven by the flow of high human capital, the free trade zone must be coupled with the city where it is located to form a composite function with urban functionality. A large number of talents can be retained because of the city, professional services, innovation and creative activities can be carried out, and large-scale benefits can be obtained through local regional markets.

3. The city improves its energy level and strengthens the function of transnational (regional) node city. The Free Trade Zone is developed in response to the trend of deep regional integration. It is bound to promote the cities where it is located to improve their energy levels and strengthen the function of their node cities as the centers of factor flow and resource allocation. As the carrier of global commodity, capital, manpower and other flow networks, cities have constructed node cities with different energy levels, including global master node cities, such as New York, London, etc; The node cities with regional sub master control, such as Shanghai and Hong Kong, are divided into node cities according to their logistics and factor flow throughput and allocation capabilities.

World node cities not only meet the economic function, but also have the characteristics of urban consumption scale, sound legal system, and cultural diversity. only in this way can they have the competitiveness of world node cities and assume their functions as world node cities. As the core city of Haixi and Haisi, Xiamen, in coordination with the construction of the Free Trade Zone, must become a transnational (regional) hub node city through the upgrading strategy of the Free Trade Zone during the "13th Five Year Plan", and make positive contributions to promoting the Maritime Silk Road and the deep integration of China and Southeast Asia.

（3） Support the construction of the five pillar systems of the upgrading strategy

These five pillars include: good governance or good governance by the government, flow of natural persons, investment facilitation, logistics facilitation, interaction and efficiency improvement between consumption and industry, leading the development of service trade, and building a new urban new economic system in Xiamen.

1. Government governance "good governance". Including: government efficiency, mainly the reform of commercial system and facilitation system; Government power, transparent planning and legislation, independent financing and moderate tax power; Regulatory consistency, a regulatory consistency system based on credit subject and behavior process, emphasizes the process management of supervision; The fair competition mechanism shall be established by referring to the fair and negative list in TPP, BIT and other regional agreements; Social participation will drive the management transformation of the whole city by completing the management transformation of the free trade zone.

2. Trade facilitation (commodities). We will build a logistics facilitation system, use cross-strait logistics trade facilitation as an experimental field to promote trade facilitation, and expand it to the ASEAN region.

3. Financial system reform and investment facilitation (capital element). Following the pace of national financial opening up, the convertibility of RMB under capital account in 2016 and the acceleration of capital element flow, especially the elimination of obstacles to capital exchanges across the Taiwan Strait and southward expansion, will greatly promote the construction of regional financial centers, lay a foundation for investment facilitation, and optimize the allocation efficiency of capital elements (capital element flow). The core of investment facilitation is to launch a negative list of the service industry, so that international investment can enter the modern service field in a wider range, including the "science, education, culture, health and sports" that are still under the control of most public institutions, urban infrastructure (construction of sewage, water supply, power supply, gas supply, parking lot, etc.), as well as financial, telecommunications services and other regulatory fields, These fields constitute the most demanding and efficient industries in modern service industry.

4. Movement of natural persons (human element). It is mainly through the flow of professional natural persons and human development to promote the expansion of service trade. Expanding service trade is the most significant task for the breakthrough development of the Free Trade Zone. Xiamen Special Economic Zone and the Free Trade Zone are quite prominent in the employment of non local professionals in the country. They have fully liberalized the flow of natural persons in Taiwan, and have achieved the pioneering characteristics. During the "13th Five Year Plan" period, a series of work will be carried out for the flow of a large number of Taiwan professionals and global high-end talents.

5. Consumption aggregation and service industry development construct new leading industries and improve service trade. China's service industry accounted for 51% of GDP in the first three quarters of 2015, but the efficiency level of the service industry has been slowly improved. The reason is that China's service industry system needs to be reformed. Most of the "science, education, culture and health" modern service industries with high income demand elasticity are public institutions, which basically do not respond to the market. only through reform can we improve the supply and efficiency of modern service industries. As a city cluster, Xiamen's population and consumption scale rise is the most important engine for its future urban development, and its leading industry will also inevitably transform to the service industry. Therefore, it is necessary to promote the reform of the modern service industry system, promote the double upgrading of consumption and production structure, and construct a new urban economic system through a pilot model.

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Reform breakthrough and strategic evaluation of Xiamen Free Trade Zone

Xiamen Free Trade Zone is the first to try, and has carried out systematic system reform in line with the strategic upgrading. It is reflected in the following aspects: First, the government governance is changing rapidly, and the reform is based on the global benchmarking of the business environment. It has taken the lead in breaking through the "one license, one number, one code" in the country. In one year, the business environment in Xiamen has reached the international advanced level. Now, through the construction of credit subject, it is actively exploring the transformation of the government supervision mode, and engaging in the process supervision of the subject and behavior from pre supervision to post supervision.  Second, the "multi compliance" and legislation in urban management have directly promoted the improvement of the government's management level. The government is breaking through the "line" division of vertical department approval management and turning to the "horizontal" service platform, laying a solid operational foundation for economic operation and management. Third, through the customs "one-stop" inspection, we will speed up the convenience of customs clearance and accelerate the flow of logistics. Fourth, try to develop service trade and service industry through the movement of natural persons across the Straits and internationally. In particular, Xiamen was the first to relax the restrictions on the services of medical institutions, and promoted a series of measures such as international cruise ports, opening Taiwan schools and international schools, and increasing international talent exchanges among universities and research institutions, which accelerated the flow of natural persons, promoted the formation of human capital, and encouraged the opening and development of the service industry. Fifth, take financial reform as a breakthrough, promote investment facilitation, and reallocate capital element resources through multi-point financial innovation activities. Sixth, the government has actively promoted mass entrepreneurship and innovation, especially the cross-strait mass entrepreneurship and innovation activities, and actively promoted innovation activities based on "Internet+", laying a solid foundation for Xiamen's industrial transformation and innovation.

It can be seen that since its listing in April 2015, Xiamen Free Trade Zone has made a series of reform breakthroughs, organically combining the policies of the Free Trade Zone and the Special Economic Zone, forming a strategy for the Free Trade Zone to directly step into the Free Trade Zone, and expanding the Special Economic Zone and the Free Trade Zone directly towards the direction of integration, basically completing the stage level of upgrading strategy I. According to the goals set by the Central Government and Fujian Province, there are a lot of innovative breakthroughs, especially in the reform of the commercial system, the multi compliance of urban governance, the one-stop inspection platform for customs and national inspection, the more simple customs clearance facilities across the Taiwan Straits and other aspects of the pilot project, which has achieved the set goals of all free trade zones.

According to the strategy of the Free Trade Zone and the existing work of the Free Trade Zone, the project team has set up an evaluation form of upgrading strategy to analyze the work process of Xiamen Free Trade Zone and the development tasks of Xiamen Free Trade Zone during the "13th Five Year Plan" period, based on the five level scoring (one level and one *).

From the perspective of evaluation, the upgrading strategy I represents the upgrading of Xiamen from a free trade zone to a free trade zone, that is, the linkage between the construction of the free trade zone and the construction of Xiamen Special Economic Zone. From the perspective of Xiamen's self-assessment and the indicators we set up on the basis of, the goal has been basically achieved, because there are many things that the country cannot completely break through. For example, in the flow of factors, the current convertibility under the RMB capital account has not been completed, and Xiamen's financial maturity cannot be very high, For another example, in the process of global development, the free trade zone is endowed with moderate independent financing and tax rights, but China's economy is still difficult to break through. Of course, with the entry of RMB into SDR, the capital account convertibility is expected to be completed in 2016, while in 2015, local governments have been allowed to issue local bonds. It is expected that Xiamen can obtain moderate independent financing to issue domestic and foreign bonds.

From the assessment, we can also see that there is still a lot of work to be done in the face of the "13th Five Year Plan" upgrading strategy II. According to the operation of Xiamen's economy in the first 10 months of 2015, it is accompanied by the domestic slowdown. The growth basically depends on investment, and the industry depends on industry. The cross regional hub node cities proposed in the future "13th Five Year Plan" upgrading strategy will focus on knowledge production