China To Establish Heilongjiang Free Trade Zone Near Border With Russia

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Harbin To Benefit As China Seeks Russian Manufacturing & Trade Investment

Op/Ed by Chris Devonshire-Ellis

China’s State Council announced on Monday that they would be establishing six new border free trade zones to further develop trade with neighboring countries. One of these is planned for Heilongjiang Province, in China’s North-East, bordering Russia, and is aimed at making the Provincial capital, Harbin, a Russia trade logistics centre and specifically to develop and increase trade ties with Russia. The new Chinese Ambassador to Russia, Zhang Hanhui, stated just a few days ago that he expected Russian-Chinese trade volumes to double within four years to US$200 billion. The creation of a Harbin FTZ servicing the Russian market will absolutely facilitate this.

Benefits Of A Harbin Free Trade Zone To Russian Manufacturers
Free Trade Zones allow goods to be imported duty free into the area, where typically they can be worked on to produce a finished product. This means that machinery parts from Russia will be allowed to enter China duty free, be added to Chinese components, on which VAT can be reclaimed, and a completed product can then be either re-exported or sold onto the Chinese markets at which normal dutiable rates are then added. The beneficial impact is on cash flow where duty and VAT need not be added at the production stage. China also typically incentivizes the investment of foreign capital into such zones, and often provides profits tax free breaks for up to five years to allow foreign manufacturers to get settled in the zones and work out their eventual business model without the initial burden of paying taxes. Dezan Shira & Associates have 27 years of experience of handling foreign, including Russian investments into such zones across China and can assist. Our Russian Desk in China is headed up by Maria Kotova

Russian History In Harbin
What had been a small village in 1898 has grown into what is now China’s eighth largest city, and is owes its development to Sino-Russian trade.
Polish engineer Adam Szydłowski drew plans for the city following the construction of the Chinese Eastern Railway, which Russia had financed. The Russians selected Harbin as the base of their administration over this railway and the Chinese Eastern Railway Zone. The railways were largely constructed by Russian engineers and indentured workers, and extended the Trans-Siberian Railway into Northern China and linking the then Russian port city of Dalian and the Russian Naval Base Port Arthur (Lushan). Harbin quickly turned into a “boomtown” displaying the same characteristics shown by San Francisco during the California gold rush and Johannesburg during the Witwatersrand Gold Rush, growing into a city within just five years as a result of Russian trade. Russians also settled in Harbin, mainly from southern European Russia, and the dialect of Russian spoken in Harbin was derivative of the dialect of Russian spoken in Odessa.

The city was intended as a showcase for Russian imperialism in Asia. The American scholar Simon Karlinsky, wrote in 1924, that in Harbin: “the buildings, boulevards, and parks were planned—well before the October Revolution—by distinguished Russian architects and also by Swiss and Italian town planners”, giving the city a very European appearance. ] Starting in the late 19th century, a mass influx of Han Chinese arrived in Manchuria, and taking advantage of the rich soils, founded farms which soon turned Manchuria into the “breadbasket of China” while others went to work in the mines and factories of Manchuria, which become one of the first regions of China to industrialize. Harbin became one of the main points through which food and industrial products were shipped out of Manchuria. A sign of Harbin’s wealth was that a theater had established during its first decade and in 1907 the play K Zvezdam (‘To The Stars’, later made into a successful film) by Leonid Andreyev had its premiere there.

During the Russo-Japanese War (1904–05), Russia used Harbin as its base for military operations in Manchuria. Following Russia’s defeat, several thousand nationals from 33 countries, including the United States, Germany, and France, moved to Harbin. Sixteen countries established consulates to serve their nationals, who established several hundred industrial, commercial and banking companies. Churches were rebuilt for
Russian Orthodox, German Protestant and Polish Catholics, while Chinese capitalists also established businesses, especially in brewing, food and textiles. Harbin became the economic hub of northeastern China and an international metropolis. By 1917, Harbin’s population exceeded 100,000, with over 40,000 of them were ethnic Russians. During the Russian revolution, these were augmented by a further 100,000 White Russians and refugees, which became a major center of Russian emigres and the largest Russian enclave outside the Soviet Union. The writer Simon Karlinsky noted that a major difference with the Russian émigrés who arrived in Harbin was: “Unlike the Russian émigrés who went to Paris or Prague or even to Shanghai, the new residents of Harbin were not a minority surrounded by a foreign population. They found themselves instead in an almost totally Russian city, populated mainly by people with roots in the south of European Russia.”

Todays Harbin still maintains a Russian ambience and is still a Russian trading center, albeit of low-end goods such as chocolates and tourist items. The development of the Harbin Free Trade Zone however will change this and present Russian manufacturers and traders with an excellent opportunity to develop a foothold into the Chinese market. Such businesses should also be aware that China has a free trade agreement with ASEAN, and assuming ASEAN Rules of Origin can be maintained it is possible to export China produced products to the ASEAN nations, duty free.

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