Transforming traffic flows into sustainable economic growth

In April, the grasslands of Inner Mongolia autonomous region were yet to fully turn green, but a profound transformation that could shape the future of this vast 1.18-million-square-kilometer region was already underway.

On April 9, 2026, in a key move at the start of the 15th Five-Year Plan (2026-30) period, China officially released the overall plan about China (Inner Mongolia) Pilot Free Trade Zone, making Inner Mongolia the youngest member of China's FTZ family — the country's 23rd pilot FTZ.

Two days later, on April 11, the plaque was unveiled in Hohhot, capital of Inner Mongolia. The moment signaled a new mission for this border and ethnic region: to build a high-level opening-up hub connecting China with the outside world and reaching neighboring countries, while strengthening the ecological security barrier in northern China and consolidating stability along the border.

Unlike coastal FTZs, which have developed by embracing the sea, and inland FTZs, which serve as gateways linking eastern and western China, the distinctive strength of Inner Mongolia's FTZ lies not only in its border location, but also in its ability to connect.

Covering 119.74 sq km, the FTZ spans three cities — Hohhot, Manzhouli and Ereenhot. Together, they reflect Inner Mongolia's strategic position: connected with provinces and close to Beijing, while reaching Russia and Mongolia and providing access to Europe and the wider Eurasian continent.

However, evolving from a corridor to a hub and ensuring the traffic translates into economic value retained locally will not happen overnight. Besides, there is also a fundamental spatial mismatch.

Breaking corridor economy: From passing through to taking root
In 2025, the cargo throughput of Inner Mongolia's land ports reached 132 million metric tons, exceeding 100 million tons for the third consecutive year. A total of 9,557 China-Europe freight trains entered or left the region, up 16.9 percent year-on-year and accounting for nearly half of the national total.

However, while freight volumes continue to rise, large quantities of commodities just pass rapidly through the border ports, generating limited local added value.

Take Manzhouli Port, China's largest land port, as an example. It handles more than 65 percent of China's land transportation of goods traded with Russia. Yet large volumes of imported rapeseed, timber and coal still have to cross long distances inland before reaching Hohhot where they can be processed further.

Ereenhot faces a similar challenge. As China's largest land port for trade with Mongolia, it handled 27,200 tons of goods worth 823 million yuan ($123.96 million) in border trade in 2025. Yet overall, imported resources are still transported largely in their primary form.

At its core, the ports enjoy advantages in customs clearance and geographic location, but have limited capacity to host industries. Inland areas have processing, manufacturing and research and development capabilities, but are separated from border resources by long physical distance.

Bridging this gap is therefore becoming a key area for institutional innovation in the Inner Mongolia pilot FTZ.

An institutional framework built on differentiation

Coordination between ports and inland areas does not simply mean shifting functions from one place to another. It requires a more refined division of labor based on comparative advantages.

Border ports should focus on core functions such as inspection and customs clearance, finance and logistics, while processing and manufacturing, comprehensive bonded operations and other extended functions of the port economy can be located farther inland. This would create a coordinated cycle linking research and development in inland areas, processing at border ports, and cross-border sales.

The spatial structure of the Inner Mongolia pilot FTZ fits closely with this logic. Its three areas will develop different strengths and functions, forming a structure with coordinated development across the region.

The Hohhot area serves as the core engine. Covering 76.28 sq km, it is the largest of the three areas and has the strongest industrial foundation. It will focus on strategic emerging industries such as new energy, new materials, biomedicine and next-generation information technology, while strengthening distinctive industrial chains in dairy products and green agricultural and livestock products.

Leveraging its international air and land ports as well as national-level opening-up platforms, the area aims to become a core hub for Inner Mongolia's role as an important gateway for China's opening-up to the north and an innovation cluster for the high-quality development of distinctive industries.

The Manzhouli area, covering 25.11 sq km, will capitalize on China's largest land port and focus on opening-up toward Russia. It will develop distinctive industries including processing of imported resources, cross-border tourism, cross-border finance and port-related services.

By applying technologies such as 5G and the internet of things, it will seek to build a model smart border port and turn the logistics corridor connecting China with Eurasia into a golden corridor for trade and economic cooperation.

The Ereenhot area, covering 18.35 sq km, will focus on economic and trade cooperation with Mongolia. It will develop international trade, international logistics, cross-border tourism and international medical services; accelerate construction of a second highway channel at the port; and strengthen connections with Tianjin Port and Tangshan Port to promote integrated land-sea transport. Its goal is to become a key hub along the China-Mongolia-Russia Economic Corridor.

Hohhot provides the "innovation brain" and industrial support, while Manzhouli and Ereenhot provide "customs clearance windows" and cross-border channels. The three areas complement one another, providing an institutional framework for customs clearance at the ports, inland processing and coordinated value creation.

This marks a fundamental shift from the fragmented, short and narrow model that has long characterized border-area opening-up.

Shift from traffic to value retained locally

In the first half of 2026, the volume of imported resources processed within Inner Mongolia reached 30.30 million tons, up 8.9 percent year-on-year, an increase of 2.4 million tons. Port trade reached 74.49 billion yuan, up 63.3 percent year-on-year — 20 percentage points faster than the growth in cargo throughput at the ports. Port trade contributed 28.4 percentage points to the growth of Inner Mongolia's foreign trade.

The fact that the growth in port trade value has outpaced the growth in cargo volume is a key signal that the flow of goods through the corridors is increasingly being converted into actual economic gains.

Ereenhot, in particular, has made progress in combining border trade with local processing. In 2025, two categories — washed and combed cashmere and frozen horse meat — accounted for more than 95 percent of imports under its border trade program.

After the approval of the pilot FTZ, the Ereenhot area took the lead in introducing a package of measures to facilitate customs clearance. The three measures — entrusted declaration, direct transportation and inspection without requiring goods to be brought to the inspection site — are combined with two others, namely transfer inspections and machine inspections.

Institutional innovation is also being reflected in the way ports are evaluated. The autonomous region's government issued a three-year action plan for the intensive and efficient development of foreign trade ports across the region for 2026-28.

For the first time, the volume of resources processed locally and the value of port trade were incorporated into the comprehensive evaluation system for ports. A coordination mechanism for the integrated development of ports and inland areas was also established, with 48 annual tasks and 25 key projects.

Customs facilitation has delivered further gains. A joint supervision mechanism for imported copper concentrate, combining port supervision with supervision at the unloading destination, has shortened the delivery cycle from 15-20 days to just three to five days.

Ereenhot has promoted the completion of projects involving 5.8 million tons of iron ore and 700,000 tons of fluorite. Meanwhile, a 51 percent discount has been offered on freight rates for dedicated coal trains running from Ganqimaodu Port to Xizhuozishan Station in Wuhai.

Bridge last mile between ports and inland areas

The shift is underway, but turning the movement of goods into sustained local economic value will require deeper breakthroughs in three areas.

First, institutional innovation must reduce the cost of distance.

At present, goods entering through border ports may have to go through multiple rounds of inspection, transfer and declaration before reaching inland processing facilities. Logistics and time costs therefore accumulate along the way.

Inner Mongolia could explore a model in which customs supervision is moved forward, and inspection results are mutually recognized between ports and inland destinations. Under such a system, declarations and inspections could be completed inland, allowing goods to proceed directly to the port for release and significantly reducing unnecessary transportation.

Second, industrial coordination must strengthen the supply chains.

Hohhot has a national-level dairy technology innovation center as well as established industries in new energy and biomedicine. These capabilities can provide technological support and factor inputs for processing activities at the border.

Manzhouli and Ereenhot, meanwhile, can leverage their access to imported resources to develop local processing industries.

For the "hinterland R&D-port processing-cross-border sales" loop to genuinely work, it is necessary to create clear guidelines on how industries are divided and a mechanism that ensures shared benefits.

Third, benefit-sharing mechanisms must overcome institutional barriers.

Ports and inland areas often fall under different administrative jurisdictions and have different arrangements for tax and fiscal revenue. This can make cooperation difficult when each locality focuses primarily on its own interests.

Mechanisms such as the "enclave economy", under which ports and inland areas share the tax revenue and employment benefits generated by local processing, could provide stronger incentives for cooperation.

Inner Mongolia has already identified reform tasks to support the development of storage bases for imported resources such as copper, potash and fluorite, as well as deep-processing bases for nonferrous metals and liquefied petroleum gas. These initiatives provide policy support for building more effective benefit-sharing mechanisms.

For Inner Mongolia, opening-up has never been merely about the movement of goods and capital. It is also about bringing the border and the hinterland, China and the wider world, into closer and deeper interaction.

Historically, Inner Mongolia has long been an important passage along the Steppe Silk Road and the Tea Road, through which horses, cattle, sheep and camels once moved alongside silk and tea.

Today, as the only provincial-level region in China with both the eastern and central corridors of China-Europe freight trains, Inner Mongolia is once again taking on a strategic role in connecting China with Eurasia.

From the perspective of national strategy, the establishment of the Inner Mongolia pilot FTZ fills a gap in the network of pilot free trade zones in China's northern border regions. It also helps create a more connected chain of border-area opening-up across Northeast, North and Northwest China and strengthens the backbone of the China-Mongolia-Russia Economic Corridor.

The Central Government has assigned Inner Mongolia a strategic role: a northern ecological security barrier and a barrier for security and stability along the northern border; a national base for important energy and strategic resources and an important production base for agricultural and livestock products; and an important gateway for China's opening-up to the north.

The pilot FTZ is a key vehicle for putting these strategic responsibilities into practice.

Its significance, therefore, goes far beyond the creation of another opening-up platform. By connecting ports with the hinterland, logistics corridors with industrial chains, and border trade with local value creation, Inner Mongolia is seeking to transform its geographic position from a passage into an advantage — and its traffic flows into sustainable economic growth.

The author is a lecturer at Inner Mongolia University of Finance and Economics.

The views don't necessarily reflect those of China Daily.

If you have a specific expertise, or would like to share your thought about our stories, then send us your writings at opinion@chinadaily.com.cn, and comment@chinadaily.com.cn.