Xiamen is one of three areas that makes up the China (Fujian) Pilot Free-Trade Zone (“Fujian FTZ”); the other two being Fuzhou and Pingtan. The role of the Fujian FTZ is to foster greater cross straits economic activities with Taiwan with each of the three designated areas focusing on slightly different industries. Fuzhou aims to target industries involved in advanced manufacturing, aviation and professional services. Pingtan will focus on tourism, trade and investment while Xiamen will concentrate on cross straits financial services, emerging industries, shipping and logistics. The Fujian FTZ in Xiamen covers an area of about 43.8 sq km and is primarily concentrated in two sub-areas: Southeast International Shipping Centre (24.4 sq km) and Cross-strait Trading Centre (19.4 sq km).

Source: JLL

Foreign companies are allowed to establish operations in the FTZ by setting up single ownership companies or joint-venture companies. The broad range of industries allowed in the FTZ reminds me of the failed Cross-Strait Service Trade Agreement (“CSSTA”), which was signed in 2013 with the intention to open more service markets in both mainland China and Taiwan. Despite strong interest from Taiwanese companies, the CSSTA was never ratified. In this regard, the new FTZ re-opens a window of opportunity for Taiwanese companies and investors to build and expand business operations in more service markets in mainland China.

As the most internationalised city in Fujian, Xiamen’s office market is expected to benefit the most from the new FTZ. The office market is expected to not only see an influx of Taiwanese companies setting up operations in the city but also domestic companies looking to enter into joint-ventures or provide services to Taiwanese companies within the Xiamen FTZ. Banks from Taiwan, for example, are allowed to provide Renminbi loans in the FTZ. This creates another channel of financing for domestic companies, which is highly welcomed by small and medium sized companies with limited financing options. But the issuance of loans cannot be done by the Taiwanese banks alone. It requires co-operation from a local financial institution for fund settlement. Additionally, to be eligible for cross-border loans, domestic companies have to first be registered in Xiamen. Such requirements will only further support office demand in the city.

There are already signs that the FTZ is starting to draw more foreign and domestic companies to Xiamen. In the first half of 2015, the total number of new companies registering in the Xiamen FTZ was already three times greater than the number of new companies registering in 2014. Moreover, these companies were mainly involved in the finance, trading, and other modern service sectors; industries that typically have higher demands on real estate and are more willing to pay higher rents. Given that office space within the FTZ is currently limited, this new wave of demand should be felt across the all parts of the Xiamen office market.

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