Why were free trade zones created in China?

Why were free trade zones created in China?

A. to avoid governmental rules and conditions

B. to attract investments by foreign countries

C. to import technology more easily

D. to control imports and exports​

Answer: B. to attract investments by foreign countries

In many ways, the free trade zones which exist in China were mainly established to encourage the inflow of foreign capital. These special economic areas launched in the late 1970s as a result of China’s economic reforming and opening-door policy provide various preferences and privileges to foreign investors. Thus, through establishing these zones, China wanted to enhance economic and industrial growth and gain access to superior technologies and management know-how from other countries.

In these zones foreign investors are given certain incentives such as tax especially, simplified customs measures and eased regulations that are easily adopted in the rest of the country. For example, Shenzhen Special Economic Zone which was one of the first and most successful FTA zones allowed foreign investors to pay only 15% of their gross profits as corporate tax as opposed to the 33% that other regions of China dictated. This was due to the attraction of many multinational companies which boosted economic growth and modernization of the area. Another example is the Shanghai Free Trade Zone that was launched in 2013 introducing such policies as opening branches of foreign banks in the territory of China and allowing foreign companies to engage in internet sales.

These zones have played countless roles in China’s economic growth; they have acted as laboratories for the new economic reforms and ‘technology parks,’ where foreign technology could be bought and incorporated into China’s development plan. They have also provided China with an opportunity to become an integrated part of the global economy, besides providing capital they have brought with them know-how and the concept of international business. These zones have proved very successful and are gradually spread all over the country adding value to China for the foreign investor.