Hainan FTP: Free Flow, New Opportunities | SFC Markets and Finance

By Yang Yulai, Gao Jianghong, SFC, 21st Century Business Herald

Hainan's FTP Core Advantages

On December 18, China launched island-wide special customs operations in the Hainan Free Trade Port (FTP), implementing the mechanism of "opening the first line and managing the second line", allowing free flow of goods, capital and people within the island. At present, there are over 130 free trade ports worldwide. Compared with other free trade ports globally, what unique advantages does Hainan's Free Trade Port possess?

John Milligan-Whyte, Chairman of the America-China Partnership Foundation

What China is doing digitally with AI, I'm sure, is creating a system that allows them to track everything that comes in, providing extraordinary advantages for the logistics and processing of goods in Hainan. They go on to other parts of the world. The entry process is simplified and is rules based rather than being case-by-case based by human beings. I would call it a streamlined, digital, efficient state of the art logistical and import and transport system. There are two ways to look at it. China looks at it as a way to be more open, yet to control its internal commerce. And the other way to look at it, foreign companies can look at Hainan and say, well, this is a better place for me to enter the Asian market than my other options. And if I want to enter the Chinese market, I can't use this as an exception to the normal rules, but it also will encourage high tech and tourism, medical tourism in Hainan itself.

Gu Qingyang, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore

Hainan's FTP differs significantly from other free trade ports worldwide. It is primarily a province-wide and full-area free trade port, boasting an exceptionally large scale—its land area and population both carry considerable weight. Meanwhile, in terms of institutions, Hainan's FTP has received substantial institutional support from the central government, along with significant autonomy to "pioneer in trials and innovations." I believe it is more than just a conventional free trade port concept; it serves as an institutional pilot zone for China's future reforms and a testbed for high-level opening up. It will connect and integrate international resources with those of China, exploring a new path for the country's reform drive ahead. Once it is started and implemented, then we can be more concrete to see and move some of their facilities to Hainan. Companies who are located here in South China, in Shenzhen or in Guangzhou or any other city, they could have part of this moved to Hainan because those spare parts are not only recycled within China, it is recycled globally. So they can use a certain area for the Asia Pacific. They could use Hainan as the hub. And then from there, these companies who are located in the GBA could benefit from some functionalities in Hainan.

Hainan FTP’s Enterprise-Oriented Dividends

Hainan’s Free Trade Port is rolling out dividends like zero-tariff policies covering 74% of tax items, which is expected to save import equipment enterprises about 20% of their tax costs. Noteworthy, there is also a 15% corporate income tax for eligible companies, which is significantly lower than the 25% in the Chinese mainland. Hainan’s Free Trade Port has designed all these targeted incentives for enterprises to come and settle. Now, how are international enterprises responding to the Hainan’s Free Trade Port's new policies?

Klaus Zenkel, Vice President of the European Chamber of Commerce in China, Member of the Hainan Free Trade Port Expert Advisory Committee

At the moment, I think this is open to all the industries they have focused on. I mean, traditionally, Hainan is a tourism and naturally beautiful area, known for ecological agriculture and tropical fruits. But it also already has some focus on, let's say, healthcare—several pharmaceutical companies are already there. So that is quite attractive; probably medical device manufacturers could consider conducting spare parts recycling business here. Because the spare parts for medical devices are very expensive, they will be replaced but not disposed of. Instead, they will be recycled, refurbished, tested, and then reused as new spare parts. The advantage of Hainan FTP's model is that enterprises don't need to import these spare parts to Chinese mainland in advance—they can import them to Hainan only when there's a need. So maybe some companies will consider this direction. I also think clinical trials are another attractive highlight for the healthcare industry. From what I know, Hainan also offers a fast track for clinical trials.

Will there be any new collaboration and synergistic effects for enterprises in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) with Hainan’s FTP?

Klaus Zenkel, Vice President of the European Chamber of Commerce in China, Member of the Hainan Free Trade Port Expert Advisory Committee

We talked to companies in South China to see if they have any demand or plans to enter Hainan. Many of them said it’s a well-designed system with favorable policies, and once it is fully launched and implemented, they can make more concrete assessments and consider relocating some of their facilities to Hainan. For companies already based in South China—such as in Shenzhen, Guangzhou, or other cities—they could move part of their business to Hainan because these spare parts are not only recycled within China but also globally. They can designate a specific area, say, as a recycling hub for Asia-Pacific operations, using Hainan as a regional hub. And from there, these GBA-based companies could benefit from Hainan’s special policies and functional advantages.

Global Role of Hainan's FTP

Against the backdrop of lingering de-globalization tendencies, Hainan's FTP is expected to invigorate regional trade flows and global supply chain links. What role Hainan's FTP will play in the Asia-Pacific trade network? Will Hainan's FTP contribute to the restructuring of global supply chains?

Gu Qingyang, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore

Against the backdrop of severe disruptions to global industrial and supply chains, Hainan is well-positioned to build a global industrial chain—one characterized by interconnected global industries to stabilize both regional and global economies. As a key hub, Hainan can reconnect global industrial chains, enabling all parties to leverage their respective advantages and contribute to global multilateral cooperation as well as collaboration in industrial chains. Strategically located between Chinese mainland and ASEAN, two of the world's most dynamic economic regions, Hainan can start with these areas to pave a new path for stabilizing global industrial chains and innovating interconnected cooperation models.

John Milligan-Whyte, Chairman of the America-China Partnership Foundation

I think you're creating a state-of-the-art experiment with the special customs operations system on how countries can facilitate trade and investment by foreigners. With the 12th, 13th and 14th Five-Year Plans and now the 15th, these initiatives not only supercharge China's economic and social development, but to bring along all of the developing world with it in the AIIB, the Belt and Road Initiative. And I think it is redesigning the global trading system. And I think what's happening in Hainan in the special customs operations system is just another step in that process.

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