The Final Countdown Begins! Hainan FTZ the biggest Free Trade Port of China

 

The Final Countdown Begins!
Hainan Pilot FTZ the biggest Free Trade Port of China

Dr. Phoommiphat Pongpruttikul and Warawut Ruankham
10 July 2020 

 

               Hainan Free Trade Zone (FTZ) is one of the six pilot free trade zones out of eight provinces and autonomous
regions. Namely, East China’s Shandong, Jiangsu and Anhui provinces; North China's Hebei province; Northeast China's
Heilongjiang province; Northwest China's Xinjiang Uygur autonomous region; South China's Guangxi Zhuang autonomous
region; and Central China's Hunan province. (Yang Yang, 2019)[1] It is considered as the country's 12th largest
free trade zone and expected to be country’s biggest free trade port under the “Maritime Silk Road” master plan.
Hainan FTZ was positioned to be a pilot zone for comprehensively deepening reform and opening up;
a display of the country's ecological civilization; an international tourism and consumption center; a zone offering
services and support for the country's major strategies; and a key gateway to the Pacific and Indian Oceans. [2]
 

Source: Xinhua Silk Road

            Hainan Free Trade Zone (FTZ) located on 35,400 sq km land while the other 11 FTZs are 120 sq km each.
The proximity between Hainan and Southeast Asian countries is close as the distance between Hainan
FTZ and Bangkok is approximately 6 hours and only 2 hours from Vietnam’s commercial ports. It was assigned to
be a high-quality FTZ that promotes trade and investment facilitation, provides an excellent legal environment,
thorough financial services, efficient regulation, a favorable ecological environment, and boosts the development
of surrounding areas by 2020. The goal of Hainan FTZ is to lower the investment restrictions, to adopt the
negative list approach, and to make the proximity between China, Hong Kong, Singapore and Southeast Asian
countries more connectable. The initiation of Hainan FTZ would create new opportunites along the China's Belt
and Road, especially the Maritime Silk Road.

The master plan of Hainan Free Trade Zone

           Hainan Free Trade Zone covers the entire areas of the island province with the 35,000 km2 in size and populated
by 9.5 million citizens. The principal theme of the blueprint is to liberalize the cross border movements of trade,
investment, capital, personnel, transport, and data. The master plan consists of the 4-stages development as shown
in the following figures

                                                                   Figure 1: Master Plan of Hainan FTZ

Source: Dorcas Wong, 2020

What investors will benefit?

           The Asian and foreign investors will benefit various privileges provided by government. Firstly, the tax privileges-
the products coming from overseas countries into Hainan will be subjected to the “fist-line” control system and some
specifying goods outside the restricted list into China will be exempt from the tariff and be able to enter and exit
freely into the province. The list has yet established. However, various categories such as equipment for
enterprise own use, operational vehicles, raw materials for production, and products imported by island residents
will be exempt from import duties, import VAT, and consumption tax.  Furthermore, investment of the targeted
industries such as tourism, modern services, and high-tech industry will be exempt from corporate income tax (CIT).  

Source: Xinhua Silk Road

            Secondly, the non-tax privileges - investment in Hainan FTZ will be benefit from government facilitations
such as minimum approval system, efficient single-window system, special custom supervision service, more
conventional electronic silencing, and pre-entry national treatment plus Negative List management for foreign investment.

Source: Chinadaily.com.cn

                Lastly, the free exchange of people, capital, and data - under the trade and investment liberalization
masterplan, investor will benefit from the cross-border flow of funds and logistics. The support covers the setup
of the trading venture for financial products related to energy, shipping, property rights, equities, and clearing
centers. Also, the flow of logistics will be eased in various forms such as the trial policy of tax rebates,
flight and ship refuel with bounded aviation, more accommodating traveling regulations, and exported tax
rebates (Dorcas Wong, 2020).  [3]

Plans after the Covid-19 crisis

                Xinhua’s Belt and Road Weekly report revealed on July 2020 that the implementation of administrative
regulations in pilot Free Trade Zone (FTZ) of the southernmost province of Hainan will be further adjusted to
support all-round reform, widen up its openness to global market, and to keep the market function during and
post the covid-19 crisis. It is said the countdown begins as master plan of Hainan FTZ will make the biggest
Free Trade Port fully function by 2035 and to become the world-leading business environment, free and
convenient exchange of people, transportation and data, and to be the forefront of “Socialism Modernization”

Source: Belt and Road Weekly Report, July 2 2020, Xinhua Silk road

            According to a circular issued by the State Council reported in Xinhua’s Belt and Road Weekly, the
adjustments are effective from June 28, 2020 to December 31, 2024. It covers regulations on customs guarantees,
tariffs, international maritime transport, inspection of ships and offshore facilities, as well as domestic waterway
transport. Also, China pronounced plans in April 2018 to form a pilot FTZ including the whole island and explore
the establishment of a free trade port with Chinese characteristics (Zheng Jinxia and Wang Yauang, 2020). [4]

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