Building domestic free trade zones so as to promote the reform and development by opening-up, boost the development of bilateral and multilateral free trade areas, and actively take part in economic globalization, is an important way to achieve a sustained economic development in China. In spite of the different focuses in opening-up, both the Silk Road Economic Belt and the 21st-Century Maritime Silk Road help to advance the development and upgrade of free trade zones and establish an overall opening-up pattern and a win-win mode in international cooperation. And the 21st-Century Maritime Silk Road will play an even more important role in the development and upgrade of the free trade zones.

China’s Free Trade Zone Strategy Gradually Becoming Mature

China’s active implementation of free trade zone strategy dates back to the end of the 20th Century. In November, 2000, China proposed the idea of building China–ASEAN Free Trade Area, and signed the Framework Agreement on Comprehensive Economic Co-operation between the People’s Republic of China and the Association South East Asian Nation two years later. After that, China further put forward ideas of establishing free trade areas based on neighboring countries. In October 2007, it was proposed in the report to the 17th CPC National Congress to implement the free trade zone strategy. In November 2012, the report to the 18th CPC National Congress further proposed that we should speed up the implementation of free trade zone strategy and strengthen the connectivity with neighboring countries. In September 2013, China established the first domestic free trade zone ― China (Shanghai) Pilot Free Trade Zone. In November 2013, the Third Plenary Session of the 18th CPC Central Committee officially decided that we should accelerate the implementation of free trade zone strategy on the basis of neighboring countries and set up a high-level globally oriented free trade zone network. This marked the gradual maturity of the free trade zone strategy in China. Under the guidance of this strategy, China continuously speeds up the development of free trade zones, with more and more free trade zones being established. By June 2015, besides the four domestic free trade zones, China had signed 14 bilateral or multilateral free trade agreements, involving 22 countries or areas. Moreover, the free trade negotiation between China and countries such as Columbia, Pakistan, Sri Lanka, Norway, etc. are being pushed forward rapidly. Despite the great achievement that has been made, the free trade zone strategy of China, the second largest economy in the world, is still in its infancy. There is still no network for the domestic free trade zones, and only a few agreements have been signed with other countries, so it still has much room and potential for development.

Domestic Free trade Zones Harmoniously Connecting the 21st-Century Maritime Silk Road

Different from the Silk Road Economic Belt, which is based on the opening-up of the central and west regions in China to the West, the 21st-Century Maritime Silk Road is aimed at the eastern coastal areas further opening up to the Asia-Pacific region. The development of “One Belt, One Road” involves large areas at home and abroad, demanding some core areas and key nodes as strategic support. The eastern coastal areas in China have the advantage of being at the forefront of opening-up and being a forerunner of reform, so building the first pilot free trade zone here and connecting it to the 21st-Century Maritime Silk Road are beneficial to exploring a new way or a new mode of deepening the reform in an all-way-round way, further opening to the outside world, and innovating an open economic system.

The present economic globalization is propelling the development and reconstruction of global trade and investment rules. Its developing trend is a high-level fulfillment of an overall trade liberalization, including service trade liberalization as in financial fields. This has introduced many new problems to the reform and opening-up and the development of “One Belt, One Road” in China. The development of the domestic free trade zones is the most effective way to explore solutions to these problems. The key to the development of free trade zones is institutional innovation; accumulating applicable experience through reform and trial of the investment management system, trade supervision system, financial innovation system and supervision system during and after the process, etc. helps to further develop the Chinese economy and improve the ability to cope with the change of global rules.

Now we have successively set up four free trade zones in Shanghai, Tianjin, Guangdong, and Fujian, and made them the core areas and starting points for the 21st-Century Maritime Silk Road. The experience accumulated through the unprecedented experiments in various aspects, such as investment liberalization, trade facilitation, financial globalization, administrative simplification, etc. in the domestic free trade zones, especially China (Shanghai) Pilot Free Trade Zone, can definitely be applied to the other free trade zones established later. Various areas actively trying to get connected with “One Belt, One Road” and the development of the free trade zones can serve as a breakthrough to accelerating the reform of economic system. We can gradually fulfill “policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds” at the national level with countries and areas along the Belt and Road, so as to promote an overall sustainable development of the economy and society.

Building “One Belt, One Road” Free Trade Zones Based on Connectivity

From the perspective of the future development trend, through advancing the development of bilateral and multilateral free trade zones and promoting bilateral investment agreement negotiation based on connectivity so as to integrate the free trade zones in mainland China and those based on neighboring areas and to build a free trade zone network facing Asia and Europe, we can, based on the “One Belt, One Road” strategy, form the third world trade center based on Eurasian Continent apart from the previous two world trade centers: the Atlantic trade center and the Pacific trade center.

To be specific, the Silk Road Economic Belt begins from Northwest China before stretching west to Central Asia and East Europe, involving the China-Mongolia-Russia Economic Corridor and the economic belt of the New Eurasian Continental Bridge, and extending to South Asia and West Asia so as to connect Indian Ocean. The 21st-Century Maritime Silk Road begins in eastern coastal areas in China, stretching north to Russia and connecting the Eurasian Economic Union officially launched in January 1st, 2015, extending east and south to the Pacific Ocean, South Asia, East Africa until it reaches South Europe. Based on connectivity, “One Belt, One Road” forms a new economic circle starting from mainland China and the eastern coastal areas, running through Central Asia, Southeast Asia, South Asia, West Asia, Europe and Asia-Pacific region, involving 65 countries and 4.4 billion people. Most of these countries are emerging economies and developing countries, which have a large potential for economic development and an increasing dependence on cross-border trade. The World Bank calculated that from 1990 to 2013 the trade and the cross-border direct investment of the 65 countries involved in “One Belt, One Road” increased at an average annual rate of 13.1% and 16.5% respectively, higher than the annual global growth rate of 7.8% and 9.7% respectively. From 2010 to 2013, the international trade and the net inflow of foreign funds in these countries grew at an average annual rate of 13.9% and 6.2% respectively, 4.6% and 3.4% respectively higher than the annual global growth rate. Experts estimated that these countries are expected to raise their export ratio to 1/3 in the next 10 years and become China’s major trade and investment partners.

In history, Eurasian Continent was once the economic center of the world, with the ancient Silk Road connecting Asia, Africa and Europe. The Great Geographical Discoveries in late 15th Century and early 16th Century ushered in an age of globalization with the West being the center and soon the Western countries developed to be the economic center of the world. From the 1960s to the 1980s, Japan, the Four Asian Tigers, ASEAN and some countries and areas in East Asia had a rapid economic growth through developing export-oriented economy. However, along with the changes in labor cost and in the advantages of natural resources in various countries, some labor-intensive and capital-intensive industries began to shift from the East to the West, pushing forward the industrial transformation and upgrade of the countries in the central Eurasian Continent so as to establish a new system of industrial chain, supply chain and value chain. Now, “One Belt, One Road” strategy is expected to serve as the new engine for the global economic growth. In addition, “One Belt, One Road” doesn’t set any barrier or standard so that every country can independently choose appropriate modes of cooperation with others according to its own development and need. On the basis of connectivity and the former domestic free trade zones, building free trade areas based on “One Belt, One Road” not only is highly practical, but also will exert great influence on promoting the economic development and transformation in Eurasian regions and countries along the Belt and Road.

Note: This article is based on the temporary results of “Studies on Building Silk Road Economic Belt” (14AGJ006), a key project supported by the National Social Science Foundation of China. The author is from Tongji SEM and the article first appeared in Chinese Social Sciences on the following website: https://www.cssn.cn/sjs/sjs_rdjj/201604/t20160415_2968128.shtml