Explainer: Why is China building the Hainan Free Trade Port?

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Sinopec Yangpu oil depot at the port of Yangpu, Hainan province in south China. / CFP

Sinopec Yangpu oil depot at the port of Yangpu, Hainan province in south China. / CFP

The Hainan Free Trade Port (FTP) master plan released by China last year, which aims to make the southern island province a globally influential free trade port by mid-century, has been implemented in full swing.

According to the plan, a CTF system focused on trade and investment liberalization and facilitation will be “essentially established” in Hainan by 2025. Six months after the new duty-free policy launched last July to support the plan to Hainan, sales of duty-free goods controlled by Hainan Customs increased 192 percent year-on-year.

China released a plan outlining financial support to Hainan last week to serve the construction of the free trade port, including allowing the establishment of joint venture banks and qualified non-residents to buy property in Hainan.

Its Commerce Ministry will also roll out 28 measures later to further liberalize and facilitate trade in Hainan, for example, allowing some regions to relax their controls on import and export qualifications and quantities of commodities such as crude oil, refined oil and sugar.

Why did the world’s largest developing country choose its southern island as the front line to integrate the global economy? Here are some expert opinions.

Why choose Hainan?

“Hainan is a relatively independent peripheral island. The possible impact of exploring the opening here on the Chinese mainland is therefore relatively small compared to other mainland cities, such as Shanghai,” said Li Shijie, dean. from the Hainan School of Economics. University, told CGTN.

“Meanwhile, China has always been a land power in the past, but will value its maritime development more and more in the future,” Li said, noting that the islands are very important for sea power, but Hainan , as the second largest island in China, has never taken advantage of its location.

Li Shijie, Dean of the School of Economics at Hainan University, talks to CGTN, in Haikou, Hainan province, January 26, 2021. / CGTN

Li Shijie, Dean of the School of Economics at Hainan University, speaks with CGTN, in Haikou, Hainan province, January 26, 2021. / CGTN

The Association of Southeast Asian Nations (ASEAN) became China’s largest trading partner in 2020, and China has been ASEAN’s largest trading partner for 12 consecutive years. In addition, Hainan’s industrial structure is similar to that of Southeast Asia, Li said. “However, trade between the two regions is now limited only to imports and exports of coconuts.”

Thus, Hainan is expected to combine the industries of Southeast Asia with the large Chinese market, strengthening the economic relations between China and ASEAN, he added.

Difference between FTP and FTZ

Li said the intention of creating pilot free trade zones (FTZs), such as the Shanghai Free Zone, which was established in 2013, is that China hopes Shanghai could become a pioneer in market reform. to test innovative systems in certain areas.

“More specifically, the free zone should improve the business environment, for example by providing a one-stop-shop for companies in the zone. It should also support the Belt and Road Initiative (BRI) with the help of ‘bilateral free trade agreements between China. and other countries,’ Li said, adding that promoting the opening of trade in services is another goal of free zones, such as leasing in the Tianjin Free Zone.

Instead of having a universally recognized legal definition, FTP generally refers to a port area outside customs control points but within the borders of countries and regions, allowing free entry and exit of foreign goods, funds and transportation, Li said, but free zones in China are located not only on the mainland, but also at customs checkpoints.

“FTPs are generally viewed as an economic stimulus for national development strategy by countries. According to a 2018 World Customs Organization survey, there are over 2,000 FTP in the world, Hong Kong, Singapore and Dubai. in China being typical, ”He Bin, director of the Haikou Customs Free Trade Zone and Special Control Zone Department, told CGTN.

What is the special feature of Hainan FTP?

Hainan FTP is built under a socialist system with Chinese characteristics, which sets it apart from other FTP in the world, Li said, further explaining that Singapore and Dubai FTP are fully regulated by companies while FTP of Hainan is governed by the government.

In addition, with an area of ​​34,000 square kilometers, Hainan FTP will be the largest of its kind in the world after its full establishment by 2025, according to He, compared to the 1,107 square kilometers of Hong Kong, 724 square kilometers of Singapore and 4,114 of Dubai. square kilometers.

“Then, whether in Singapore, Dubai or Hong Kong in China, the goods entering and leaving the local FTP, in principle, have to go through customs procedures as import and export goods,” he said. he declared.

He Bin, director of the Haikou Customs Free Trade Zone and Special Control Zone Department, told CGTN that Hainan FTP will be the largest of its kind in the world by 2025, in Haikou, Hainan, January 26, 2021. / CGTN

He Bin, director of the Haikou Customs Free Trade Zone and Special Control Zone Department, told CGTN that Hainan FTP will be the largest of its kind in the world by 2025, in Haikou, Hainan, January 26, 2021. / CGTN

“While the specialty of Hainan FTP is exempt goods prohibited for import and export, other foreign goods are allowed to enter and leave Hainan after 2025. Goods exported overseas from Hainan FTP are subject to export regulations, but the goods are not on the import tax list. can be imported duty free, “he said.

Meanwhile, goods entering Hainan from mainland China are handled in accordance with national traffic regulations, according to He. Goods manufactured by enterprises belonging to industries encouraged to invest in Hainan by the local government and not containing imported materials, or goods containing imported materials with an added value of at least 30%, are exempt from duty. import when they come from Hainan to the Chinese mainland.

“In this way, Hainan, like Hong Kong and Macao, can take full advantage of the huge continental market that Singapore and Dubai do not have while maintaining a high degree of openness and freedom,” he said. .

In addition, the upper limit of Hainan FTP’s corporate income tax and personal income tax is reduced to 15%, even lower than that of Singapore’s and Hong Kong’s FTP in China, according to Li.

“Hainan FTP, in a nutshell, is a window for China to fully interact with the world, through which global factors will be attracted here and then lead to a market-based distribution of factors of production in the domestic market. , including land, labor and capital, ”said the professor.

And in this case, Hainan will become a sample of the market economy and some of the practices here may be replicated in the continent in the future, he noted.

What type of business is welcome in Hainan?

“Unlike traditional FTP which initially relies on re-export trade, gradually improve the industrial system and then develop integrated services, Hainan FTP will mainly focus on the development of tourism, modern services and high-tech industries, giving a equal attention to trade in both goods and services, ”he said.

Haikou National Offshore Innovation and Entrepreneurship Base, Haikou, Hainan Province. / CFP

Haikou National Offshore Innovation and Entrepreneurship Base, Haikou, Hainan Province. / CFP

“Research projects on the strength of the climate and the location of Hainan and not requiring a huge amount of personnel and capital investment are encouraged in Hainan,” said Li. For example, the scientific selection base and Nanfan Research Center, which serves as a platform for agricultural experts in the country to conduct research and engage in seed selection during the colder seasons of September to May taking advantage of the tropical climate of Sanya City.

Companies whose research sector can be decoupled from production and companies which can expand the petrochemical industry chain based on the Yangpu Economic Development Zone in the northwest of the province, such as deep processing petroleum products, are also welcome, Li added.

According to Li, the Chinese Academy of Sciences launched the Institute of Deep Seabed Science and Engineering in Sanya in 2011, and Alibaba has already established its regional headquarters at Haikou National Offshore Innovation and Entrepreneurship Base.


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