Hainan’s New Free Trade Port: What We Know So Far

During this year’s Two Sessions in Beijing the State Council and Central Committee jointly published a masterplan for the Hainan Free Trade Zone (FTZ). The masterplan’s primary goal is to develop the FTZ, China’s largest, in order to make the island province a hub for Foreign Direct Investment (FDI) and global trade by 2050. Covering all of Hainan’s 9.5 million inhabitants and 35,000 square kilometers, an area thirty times that of Hong Kong, development of this “Free Trade Port” will be centered around the following eleven zones:

  • Sanya Central Trade Area
  • Sanya Yazhou Bay Technology City
  • Bo’ao Lecheng International Medical Tourism Pilot Area
  • Yanpu Economic Development Zone
  • Fuxing City Internet Information Industrial Park
  • Haikou National High-Tech Zone
  • Wenchang National Aerospace Zone
  • Lingshui Li’an International Education Innovation Zone
  • Hainan Resort Software Community
  • Haikou Jiangdong New District
  • Haikou Comprehensive Bonded Area

Instead of the usual transit trade and processing activities that are commonplace in cities like Shanghai and Shenzhen, this FTZ will focus on developing the tourism, modern services, and high-tech sectors of the Chinese economy.

The Hainan FTZ goes further than any other FTZ in promoting free trade and open investment for foreign investors. This article will discuss the policies that are general to the Hainan FTZ as well as some of the zone-specific incentives that will become available to foreign investors in the coming years.

General Policies:

The following pro-business policies will be available to investors by 2025 regardless of where their business is located within the Hainan FTZ:

  • Elimination of tariffs on all imports not explicitly outlined in a catalog of goods, this includes imports of manufacturing equipment, airplanes, vehicles, ships, raw materials, and consumer goods sold in Hainan
  • The lowering of the corporate income tax to 15% for all encouraged businesses, and a complete exemption for tourism, modern, and high-tech enterprises
  • Complete removal of the review process for foreign investment
  • Preferential visa policies for foreign investors
  • Expedited customs lines for goods from Hainan FTZ
  • Duty-free imports for encouraged goods originating from Hainan (with added value exceeding 30%)
  • Better access to the offshore Yuan market
  • A reduced negative list that allows wholly-owned foreign investments in the financial, telecommunications, and higher education sectors of the Chinese economy
  • Three-day expedited approval for business registration
  • Implementation of electronic business licenses

In addition to these incentives specifically targeting foreign investors, the Central Government has announced the following incentives for individual tourists and professionals visiting and working within the Hainan FTZ:

  • Income tax capped at 15%
  • Foreign nationals will be able to serve as legal representatives of Chinese State-Owned Enterprises
  • Chinese citizens will be able to spend up to 100,000 RMB (US$ 14,000) in duty-free shops
  • 14-day visa-free access for foreign tourists to Hainan
  • 40 additional international flight routes departing from Haikou City and Sanya

These consumer-oriented incentives are an essential component to government plans to develop the island into a prosperous region that is capable of independently attracting and supporting investments in the high-technology, services, and consumption sectors. Ultimately the creation of a strong duty-free environment with easy access to sought after foreign brands is designed to emulate the business environment found in Hong Kong in which huge numbers of mainland tourists cross the border to purchase large amounts of duty-free goods.

Zone-Specific Incentives:

Although the free trade policies that are being implemented in the Hainan FTZ go further than any other FTZ in China, additional industry specific incentives are offered depending on which of the 11 designated development zone a foreign investor chooses to locate their business. Some of the zone-specific incentives that have been publicized by the government so far include:

  • The Bo’ao Lecheng International Medical Tourism pilot area will provide expanded incentives including tariff cuts on medical devices, cash payments for doctors and experts who practice in the area, and fast channel clearance for imported drugs
  • Free rent for qualified tech startups and public venture capital funding in Hainan’s technology focused zones
  • The ability for foreign investors to wholly own educational institutions in the Lingshui Li’an International Education Innovation Zone
  • Ships engaged in foreign trade can use bonded fuel at Yangpu Port of China
  • A 1 billion RMB investment in blockchain development centered around Hainan resort software community

This is by no means an exhaustive list of the zone-specific incentives that are available for foreign investors in Hainan’s eleven designated development zones. Most local incentives are the result of direct negations between an investor the local government. However, these points should give some indications of the kind of industrial clusters that the Chinese government hopes to cultivate on the Island.

Although this year’s Two Sessions went a great deal further in outlining how the Hainan FTZ will be organized in the coming years, expect additional guidance on specific rules and incentives to be put in place as the regional organizations responsible for developing them are staffed. This article should act as a guide for investors on the kind of industries that the government hopes to attract to the Hainan “Free Trade Port” and the sorts of incentives that will be available to investors that choose to locate there.

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