- China plans to turn Hainan into the world’s largest free-trade port by 2025, using lower taxes and looser visa rules to attract investors, businesses and individuals
- For the most part, Hainan’s development will be complementary to Hong Kong and Guangdong, and open up trade opportunities with Southeast Asia
According to The South China Morning Post article published on April 8, 2023, Hainan, an island roughly the size of Taiwan that has been dubbed China’s Hawaii for its tropical scenery and beaches, is being transformed into a world-class free-trade hub, with an independent customs regime set to be in place by the end of 2025.
The free-trade port is expected to be a game-changer for China’s economy. The island will have a simplified visa policy for nationals from 59 countries, making it easier for foreigners to visit and do business.
It will also be a centre for offshore financing and duty-free shopping, making it competitive against the likes of Hong Kong and Singapore. While it poses challenges for the Greater Bay Area, which aims to link nine cities in Guangdong province, Hong Kong and Macau, it also presents numerous opportunities for collaboration.
What opportunities does Hainan’s development offer for the Greater Bay Area?
The Greater Bay Area refers to the Chinese government’s scheme to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub.
Competition with Hainan free-trade port is inevitable to an extent, as both regions will cultivate strategic industries such as advanced manufacturing.
But for the most part, Hainan’s development will be complementary to Hong Kong and Guangdong, as it will focus on tourism, hospitality and other service industries, while the Greater Bay Area is more focused on financial services.
Guangdong, a manufacturing and export hub, will be able to provide resources and exchange knowledge on talent recruitment and retention, scientific research, as well as investment.
Hainan also has its advantages, including its proximity to Southeast Asia and its size, 35,000 sq km, which can host larger infrastructure projects compared to the Greater Bay Area.
The free-trade port is seen as an opportunity for Hong Kong and the Greater Bay Area to collaborate in creating a regional economic hub to rival other global financial centres.
John Lee Ka-chiu, Hong Kong chief executive, backs Beijing’s plans for the island.
Hong Kong is Hainan’s major investment partner, accounting for 75.3 per cent of the total used foreign direct investment in 2020 Some 53.1 per cent was used for leasing and commercial services, while the remaining 22.7 per cent was used for geological prospecting, technical services and scientific research.
How will Hainan free-trade port affect trade with Southeast Asia?
Seated at the southernmost tip of China, the free-trade port is well placed – in terms of aviation and sea routes – to strengthen ties with the Association of Southeast Asian Nations (Asean), China’s biggest trade partner.
The island will also be promoted as a tourist destination for Southeast Asian nationals.
“Asean, which became China’s biggest trade partner in 2020, has been taken by Hainan as a priority for China’s international circulation,” wrote Wei Wenfeng, director of International Cooperation at the China Institute for Reform and Development, in a report for the Korea Institute for International Economic Policy.
Hainan has been deepening ties with the Asean-led Regional Comprehensive Economic Partnership (RCEP) countries, too. In addition to expanding trade links, Hainan is making visa requirements easier for citizens of RCEP nations and courting investment.
For instance, Vietnam received US$698 million worth of exports in 2022 from the free-trade zone, up 171.1 per cent compared to the previous year.
Cambodia is also making moves to ensure it gets a slice of China’s plans to transform Hainan.
“We have planned many new projects for the next two years, and are building a new airport and establishing flight routes to Hainan,” said Sok Sopheak, secretary of state at Cambodia’s Ministry of Commerce during the Boao Forum, according to CGTN.
How is Hainan trying to boost foreign investment?
Hainan is wooing foreign investment by relaxing regulations and offering incentives.
The corporate tax rate in Hainan province has been lowered to 15 per cent, compared to mainland China’s 25 per cent and Hong Kong’s 16.5 per cent.
A total of 1,320 foreign companies from 127 countries and regions established a presence on the island in 2020, with a total investment of US$4.1 billion, the local government said.
After China lifted Covid restrictions on international travel, duty-free rules to encourage spending have given the island a reputation as a luxury shopping destination.
By lowering import tariffs on luxury goods, global luxury goods companies Moët Hennessy Louis Vuitton (LVMH), Hermes and Richemont are reportedly considering increasing their investment in China, with Hainan free-trade port as the fulcrum.
In 2021, Hainan accounted for 13 per cent of China’s domestic luxury spend, compared to 6 per cent pre-pandemic. Tax regulations are set to be loosened further. In the next few years, Hainan could overtake South Korea to become the world’s largest duty-free market, according to a Moodie Davitt Report.
