A consumer browses products at Sanya International Duty Free Shopping Complex in Sanya, Hainan Province, on 10 January (XINHUA) 

As it provides a vital new model for China’s international trade and logistics, the Hainan Free Trade Port (FTP) stands out among similar opening-up initiatives. The Hainan FTP changes the structure of China’s trade with its innovative free trade policies, efficient customs procedures, and integration with Belt and Road Initiative (BRI) processes. Holistically, it signifies a milestone in China’s efforts to navigate the next phase of its global engagement. 

At a time when globalisation faces strong headwinds, the strategic significance of the Hainan FTP cannot be underestimated. The Hainan FTP functions as a special customs area, enabling deeper institutional reforms with its broad zero-tariff policies and a value-added processing policy that allows qualifying products to enter the Chinese mainland duty-free. 

These initiatives are combined with easier cross-border capital flows through blockchain application and certification, which improve the efficiency of cross-border trade and reduce risks in trade settlement. The strategic objective is for Hainan to engage in free trade with the international community, with tariff-free goods circulating freely within the island. The central message being sent to international investors and multinational corporations is that China is advancing deep, self-driven institutional reforms to build a rules-based and high-standard business environment. 

Broad scope  

China has 22 free trade zones, but Hainan represents a fundamentally different level of openness, with business engagement aimed at participation in the international investment economy. Most free trade zones are limited to specific urban areas and focus on upgrading local industries. However, the Hainan FTP model transforms the entire island into a unified free trade port. This makes Hainan unique as a reliable, safe harbour for global economic and trade activities. 

The model includes substantial zero-tariff expansion, with around 74 percent of goods eligible for zero tariff. Companies importing machinery and materials can reduce tax costs by around 20 percent. 

Products processed in Hainan with their value increased by at least 30 percent locally can enter the Chinese mainland duty-free. The Hainan FTP model therefore rewards companies for local assembly, manufacturing, processing and supply chain development. 

Capping corporate income tax for eligible businesses at 15 percent, compared with 25 percent on the Chinese mainland and 16.5 percent in Hong Kong, provides a competitive advantage. Personal income tax for eligible individuals is also capped at 15 percent, compared with a top rate of 45 percent on the mainland. 

Historically, China’s successful trade and development zone policies were primarily driven by land and tax incentives. Often referred to as factor-based opening up, they played an important role in China’s historical opening-up progress. The Hainan FTP model is instead structured around institutional opening up, where the administrative structure of trade and the investment environment play a more prominent role in development. Rules are better aligned with international standards, and tangible policy benefits are found in areas including negative list management, cross-border data flows and intellectual property protection. 

The Hainan FTP has the shortest negative list for foreign investment of any entry port in China. The shorter list gives greater certainty to importers and creates a more efficient trade and logistics environment. Meanwhile, the Hainan International Trade Single Window, an integrated service platform, enables efficient investment in the region, linking it with a modern trade management system. 

The Hainan FTP model is a testing ground for China’s alignment with international trade agreements, which is necessary in a world challenged by trade disruptions. The advanced application of blockchain digital customs clearance, coupled with integration with BRI standards for cross-border trade clearance and trade settlement, provides a roadmap for China’s deeper integration into the global economy. 

The launch of an island-wide special customs operation confirms China’s commitment to opening up. Under its two-tier customs framework, the Hainan FTP model allows China to test reforms in sensitive areas, including offshore finance, cross-border data flows and internationalised medical services. 

The Hainan FTP implements measures of financial opening up through cross-border financing and foreign exchange facilitation. More importantly, they also reduce counterparty risk because blockchain settlements are virtually instantaneous, eliminating currency risk. These measures therefore reduce the overall risk of doing business in Hainan. 

Shared benefits  

As global supply chains undergo restructuring, the Hainan FTP will influence their alignment, particularly in the Asia-Pacific region. The port has long-term potential to become a new logistics hub and centre for high-end manufacturing that thrive within the customs and tariff environment. 

Over the long term, Hainan has the potential to become a strategic logistics hub, serving south-western and central-western regions, saving an average of almost 10 days compared with eastern coastal ports. 

For multinational corporations, Hainan offers a consistent and transparent environment for evaluating long-term engagement with the Chinese market. Policies promoting cross-border capital flows, offshore finance and simplified foreign exchange management are intended to encourage foreign banks, insurance companies and other financial institutions to provide financial services in the Hainan FTP. These financial measures will enhance the international use of the Chinese currency and strengthen China’s integration into global financial systems. 

International companies and investors can seize the Hainan opportunity by quickly integrating it into their global development strategies. For China, it creates a strategic junction for domestic and international economic circulation, boosting high-level openness to drive domestic reform and providing a pivotal platform for China’s deeper participation in Asia-Pacific economic integration. 

It offers multinationals a new option to optimise Asia-Pacific and global production footprints by expanding supply chain diversity and resilience.