China cuts taxes in Shanghai FTZ to lure investment, undo trade war damage

China said it would cut taxes and ease restrictions on cross-border money flows in the new free trade area in Shanghai, a move that will likely attract more foreign investment and help counteract some of the effects of the trade war. 

The Lingang Special Area, part of the existing Shanghai free trade zone, will lower the tax some companies have to pay on revenue to 15% from 25% for 5 years and offer some income tax subsidies to workers that are in high demand, the Shanghai government said in a statement on Friday. The 50 measures announced also include easing restrictions on property purchases, cross-border capital flows and currency exchange.

The new preferential policies come as rising labour and land costs, along with higher US tariffs on Chinese goods, prompt some foreign firms to move their production facilities overseas. The Shanghai FTZ was launched in 2013 as part of the government’s efforts to deepen market-oriented reforms and China has said its goal is to eventually replicate the successful policies of the free trade zones across the country.

In addition to the Lingang initiative, China released FTZ plans for six other provinces earlier this month -- taking the total number of FTZs in the world’s second-largest economy to 18. 
 

The 119.5-square-kilometer Lingang free trade area will be modeled after Hong Kong, Singapore and Dubai, Shanghai government officials have said. China also wants to turn Lingang into a hub for high-end manufacturing industries such as artificial intelligence, semiconductors, aviation and aerospace.

By 2035, Lingang’s GDP is expected to reach one trillion yuan ($140 billion), the area’s deputy head Zhu Zhisong told reporters on August 20. That would match the GDP of Shanghai’s Pudong New Area, which has evolved into the city’s main financial district from rice paddies after nearly three decades of development.