China’s ambitious plans for Hainan

Long famed for its sandy beaches and luxurious resorts, could the southern tropical island of Hainan, sometimes called China’s Hawaii, be set for a transformation into China’s largest Free Trade Zone (FTZ)? It is certainly an interesting potential development, and one that seems to have the strong backing of the Central Authorities. Hainan was actually part of Guangdong province until 1988 when it became one of China’s first Special Economic Zones (SEZs). Still, growth has tended to lag behind the rest of the country and Hainan ranked 22nd out of 31 provinces and cities in terms of GDP for 2017. Disposable income on the island province is also lower than the national average while its share of China’s overall Foreign Direct Investment (FDI) has also been negligible. That may be about to change however.

At the end of May, China’s cabinet approved measures that set out to open up Hainan to foreign investment. The Central government plans to have established a Free Trade Zone by 2020 and has the very ambitious aim of making Hainan a free trade port by 2025. Given its strategic location it would not seem wholly unrealistic for Hainan ultimately to challenge Kong and Singapore as the major shipping hubs in the region.

As we have seen from the slew of FTZs popping up in China over recent years, specific benefits may include:

  • Tax Incentives
  • Streamlined administrative procedures, including faster approval processes
  • Potential incentives geared towards specific industries
  • Loosening of restrictions for foreign players in certain industries

The government has identified a number of industries that they hope to develop on the island. Healthcare is one such industry and Hainan has been somewhat of a pioneer in this area already. Certain imported cancer drugs were previously only available in Hainan. Further rumoured loosening of restrictions include allowing foreign doctors to practice on the island as well as increased access to imported medical equipment. Medical-related activities will be clustered around HAINAN BOAO LECHENG INTERNATIONAL MEDICAL TOURISM PILOT ZONE.

Foreign investors may also be tempted by the government’s aims to make Hainan a centre for aerospace and agricultural activities while attempts to attract more foreign tourists are evidenced by the recent move to grant visa-free travel to visitors from 59 countries.

There remains some skepticism over the recent announcement and concerns do exist over a shortage of talent and inadequate infrastructure on the island. Nevertheless, given its close proximity to HK and ASEAN countries the potential for Hainan to reinvent itself is certainly an enticing prospect.

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