Shanghai Waigaoqiao's New Bonded Logistics Zone: Keeping up with a Changing Trade Environment

By Danian Zhang, Baker & McKenzie

To foreign investors, the Waigaoqiao Bonded Zone (the WBZ) in Pudong, Shanghai, is perhaps the best known of the 15 bonded zones in China. Bonded zones were first established in China in the 1990s at a period when the country was heavily geared towards the export market. Consequently, the functions of bonded zones have traditionally been international trade, warehousing and export processing trade. Foreign investors were attracted to zones such as the WBZ by preferential tax policies and various exemptions from customs duty and VAT. Bonded zones are technically considered to be outside the PRC for customs purposes, allowing for deferral of payments of customs duty and import VAT until goods are shipped into the country as a whole.

Foreign investors have had a strong incentive for setting up wholly foreign-owned operations in the WBZ since the establishment of such trading and distribution companies in the WBZ allowed them to engage in international trade and certain trading activities in China. While technically such companies should have only traded within the zones or carried on international trade, in practice authorities facilitated their ability to trade outside the zones with entities in China.