China recently opened up a free-trade zone in Shanghai, which allows businesses who were originally restricted to trade freely to now trade with lowered barriers to entry. This is a good opportunities for start-up businesses because it provides them with leverage entering the market. Businesses who weren’t able to compete in the market due to tough competitions are now able to join the market with the lowered barriers of entry. In the free-trade zone, these companies will not have to pay high percentage of tax, which allows them to lower their average cost of production. This is beneficial for the economy in Shanghai because with more businesses entering the market, there will be more competitions, which stimulates innovation and productive efficiency. This will also help generate economic growth in Shanghai, which is already one of the fastest growing cities in China.

Foreign businesses will also be able to join the free-trade zone as they originally were restricted from doing this. The introduction of more foreign businesses in the Chinese market will create room for diversity. Businesses will adopt cost leadership strategy, which means lowering the prices to the average price in the market or even lower to compete with the other firms in the market. This is beneficial to the consumers because they have a wider consumer choice and lower prices for goods and services.

Citations: http://articles.latimes.com/2013/sep/30/world/la-fg-china-free-trade-20130930