Hainan’s Customs Closure to Benefit Trade, Opening-up

The full customs closure means overseas goods can enter the island tariff free, although they will still undergo checks if they are transported from Hainan to other parts of the Chinese mainland. This strategy will make Hainan the first free trade port in the Chinese mainland, mirroring that of Hong Kong. 　

According to Wang Changlin, deputy director of the NDRC, there will be a significant increase in tariff-free imports to Hainan. Negative lists will replace the positive lists, with the number of tariff-free items rocketing from 1,900 now to about 6,600, 74 percent of total imports. Some restrictions on imports to other parts of the mainland will be lifted on Hainan. The tariff-free imports may be traded between entities on the island and tariff-free imported products that undergo at least 30 percent value-added processing in Hainan can enter the mainland tariff-free. 

Foreign visitors from 85 countries are allowed to enter the island visa free, and capital is allowed to flow between a free trade account on the island and an overseas account. 　

A 15-percent income tax cut will cover both enterprises and individuals and the tax exemption for VAT will be extended to the whole island. Meanwhile, each person’s duty-free shopping allowance in Hainan will be increased to 100,000 yuan (US$14,285) per year. 　

Hainan has been designated as a free trade port since 2020. The following year, the government issued a law on the construction of the Hainan Free Trade Port, providing legal support to further open the island. Preparation for the customs closure began in 2023, including working out new negative lists, designing policies for import tax exemptions, streamlining processes and building information intelligence platforms. 　

Different from Shanghai, China’s first free trade zone which often serves as a demonstration and pilot area of free trade strategies and focuses on finance, Hainan Island, which covers a land area of 35,400 square kilometers, is naturally a good place for a customs closure, given it is surrounded by sea. With its many ports, experts said Hainan is a transportation hub between China and Southeast Asia and directly faces ASEAN’s free trade zones. 　

At the press conference on July 23, Feng Fei, Hainan’s Party secretary, said that over the past five years, Hainan’s actual use of foreign capital has seen an annual growth of 14.6 percent, with foreign direct investment (FDI) rising by 97 percent year-on-year on average, reaching US$9.78 billion, and the number of new foreign enterprises growing by 43.7 percent per year on average, hitting 8,098. Meanwhile, the volume of the goods and services trade increased by 31.3 percent and 32.3 percent each year on average. A total of 176 countries and regions have invested in the island, bringing the rate of foreign trade volume in the province’s total GDP to 35 percent, Feng said. 　

According to Feng, tourism, modern services, high tech and tropical agricultural products are the island’s four pillar industries, which account for 67 percent of GDP. The local government will continue to promote industrial centralization, encourage digital trade and cultivate new industrial modes. 　

“The customs closure is not closing the island, but rather further opening up the island. After the customs closure, Hainan will be more closely connected to the world,” Wang Changlin said, adding that people from the mainland do not need to apply for permits to go to Hainan.