In the process of the high-quality transformation and development of China’s economy, one of the issues that needs to be resolved is how to strengthen the ability of finance to serve the real economy and improve the efficiency of financial operations. Pilot Free Trade Zones (PFTZs), highlands of institutional innovation, have played the role of a natural testing ground for China to deepen its financial supply-side reform and improve the efficiency of financial services in the real economy. On that premise, this paper discusses the policy effects and transmission channels for the financial reform of PFTZs to improve the efficiency of financial services in the real economy within China. The findings of the papar are the followings, (1) The reform of PFTZs has significantly improved the efficiency of finance in the real economy, having even achieved a sustainable effect. That is to say, with the extension of the duration of free trade zone construction and the gradual implementation of financial reform measures, the regional impact of financial services in the real economy has shown a year-on-year upward trend. (2) The effects of financial agglomeration, financial transparency, and optimization of financial infrastructure produced by the reform of PFTZs have played a significant regulatory role in the process of improving the efficiency of financial services in the free trade zones. (3) The effect of China’s financial reform on PFTZs has fostered noticeable regional diversity; an important reason for the diversity of policy effect rests with the difference in transmission mechanisms. The conclusions of this paper expand the research dimension of the literature evaluating the effect of policy on PFTZs, and provide policy references from the perspective of financial reform in the free trade zones for China to further deepen financial supply-side reform and improve the efficiency of financial services in the real economy.

According to the unified arrangement of Document No. 12 of 2018 issued by the Central Committee of Communist Party of China (CPC) and the State Council, the first free trade port (FTP) with Chinese characteristics was to be built in Hainan. Certain difficulties and challenges will inevitably arise during the building of the port, including lack of a unified foreign trade structure, low added value for the tourism industry, low utilization rate of foreign investment, and lack of innovation and openness within the financial industry. However, Hainan also enjoys certain advantages that are conducive to the building of a FTP, such as the existence of its natural outlying islands, a sound ecological environment, experience in reform and innovation of special economic zones, and policy support from the central government, as well as other basic conditions beneficial to the construction of such a port. Hainan must learn from the successful experience of other international FTPs in areas such as trade regulation, business environment, port clearance, financial openness, and fiscal and tax policies. It will be necessary for China to benchmark not only against the highest international standards but also to focus on positioning by differentiated functions, lay a solid foundation for development and transcend policy incentives, make up for financial shortcomings, encourage financial openness and innovation, and carry out differentiated fiscal and tax policies. At the same time, the division of powers and functions between the central and local governments must be properly handled, and an integrated administrative organization that promotes collaboration between the central and local governments must be established.

Against the backdrop of China’s development reality for the time being and upholding the basic logic of boosting the high-quality development of China’s economy, the authors give the historical background, realistic logic, theoretical connotation, and strategic significance of the new development paradigm of dual circulation a thorough interpretation. On this basis, the authors conduct a detailed analysis of the development path between China’s Free Trade Zones (FTZs) and the new development paradigm of dual circulation, as well as the new orientation of FTZs under this paradigm. Focusing on systems thinking, the new development paradigm of dual circulation not only opens up a new realm of open economic theory with Chinese characteristics but also enriches the socialist political economy with Chinese characteristics. From the perspective of the new development paradigm of dual circulation, China’s FTZs serve as a reform test field and a powerful starting point for driving the high-quality circulation of China’s economy. From another perspective, it is also an open bridgehead and a significant window for China to participate in international economic circulation. In this sense, China’s FTZs remain the key hub linking domestic and international circulations. China’s FTZs should be given greater reform autonomy. While focusing on the differentiated exploration and development models, the dividends of the first trial system should be fully utilized to integrate China’s FTZs into the national open development strategy. Thus, high-level open practice can be anticipated to boost the virtuous circle of domestic and foreign economies, with concerted efforts and drive China’s economy toward a high-quality future.

As a new window of opening up to the outside world in the new era, the establishment of Free Trade Zones (FTZs) in China is an important national strategy for promoting high-quality economic development wherein the prevention and control of pollution is an important hurdle to be surmounted throughout the process. Based on data taken from model cities for environmental protection in China from 2008 to 2017, given the effect of policy spillover, this study considers the establishment of FTZs to be a “quasinatural experiment.” It uses the general analysis paradigm of spatial difference-indifference (DID) to systematically examine the impact of FTZs on air pollution as well as to conduct an in-depth analysis of their spatial heterogeneity and mechanism of action. The study shows that the establishment of FTZs significantly reduces the concentration of air pollutants in cities. If the spatial DID method is adopted to measure the policy spillover effect of the establishment of free trade zones, urban air pollutants declines by 12% to 17%, while the estimated result using the traditional DID method is only 7%. The establishment of FTZs significantly alleviates air pollution in neighboring non-pilot cities as well. Based on the range of the spillover effect from the center of the FTZ, it is found that the average spatial spillover effect presents as an inverted “U” curve as the research radius increases, with an optimal policy spillover effect radius of about 200km, while the policy spillover effect between pilot cities remains poor. The establishment of an FTZ not only improves the local atmospheric environment by promoting industrial structure optimization and green technology innovation in pilot cities but also generates a spillover effect on neighboring non-pilot cities through the same mechanism, thus contributing to improving the atmospheric environment in those non-pilot cities. These findings remain valid following a series of robustness tests such as the spatial parallel trend test and the placebo test. This study offers an answer to the key question of whether free trade zone policy can truly promote high-quality economic development in the new era. It provides useful policy insights for further expanding opening up, winning the battle for the prevention and control of pollution, and promoting the high-quality development of China’s economy.

The construction of the Hainan Free Trade Port (FTP) should not only exploit the advantages of the socialist system with Chinese characteristics but also research and draw on the advanced institutions and successful experience of typical international free trade ports. The emergence of typical international free trade ports in Singapore, Dubai, and Chinese Hong Kong depends on an embedded international economic and trade order and institutional innovation practices. Both conditions are interactively embedded through a series of institutional designs with similar characteristics. The paper sorts out the necessary factors of the successful practice of typical international free trade ports, and proposes that the Hainan FTP should continue to exert its advantages by building on existing institutional innovation. At the same time, it should actively embed the regional multilateral international and economic and trade landscape represented by the Belt and Road Initiative and expedite institutional innovation and reform, and development in different fields, to create a socialist free trade port with Chinese characteristics.

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