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De-Isolation of an Island: How Hainan has Developed as the World’s Biggest Free Trade Port

Updated: May 23, 2023

Haikou Xiuying Port, Haikou, Hainan Province © Anna Frodesiak / Public Domain / Wikimedia Commons

The conclusion of the 20th National Congress has unveiled China’s priorities for the next five years, and though no new policies were announced, a great deal of attention was dedicated to topics that will have a significant impact on the future development of the country and its foreign relations (Xinhua, 2022). This includes confirmation on the will to continue to create a development pattern where domestic and international economic flows will support one another and promote fiscal and financial reforms to create a better business environment for foreign investors. To quote Xi Jinping, “China cannot develop in isolation from the world. The world’s development also needs China” (Kang, 2022). With the current goals of the country, it is clear that SEZ will continue to play a vital role during the third term of Xi’s leadership (Huld, 2022), which suggests that due attention should be given to what is happening in Hainan right now. Among the many economic and development initiatives, the project to transform the province into what will become one of the most important Free Trade Port globally will likely be one of the most identifying of Xi’s leadership.

An Analysis of the Project of Hainan

The intention to turn Hainan into a Free Trade Port was announced in 2018, and since then the province has been under continuous mutation. The plan presents three main stages during which the island will undergo a gradual process to implement policies that will build the conditions for trade liberalisation thanks to zero-tariff policies (due 2025), reduced restrictions on cross-border service trade, a simplified tax system (due 2035), and have a fully operating Free Trade Port by 2050 (Chin, 2021). The Law for the Hainan Free Trade Port has entered into force officially in 2021, and after one year of implementation the province has already registered growth in different sectors, and the GDP of the province grew up to 11.2% (FDI China, 2022). The transformation plan, pushed by Xi Jinping himself, is a multidimensional one, that will turn the island province into a hub that can attract investors (domestic and foreign), tourists, and businesses alike, thanks to relaxed tax policies and an innovative concept of sustainable development (Wong, 2021). Following the course of the new high-quality development that, after decades of economic expansion will define China’s future, Hainan is in the process of being transformed into what effectively seems a pilot region for the most ambitious development policies. One of the most interesting things about the project is that the Chinese Government is taking full advantage of Hainan being an island, with different projects taking place in different parts of the region. Haikou, the biggest and most populous city, is currently being developed as the core business centre of the province (Poon, 2022). The most ambitious project so far is the Jiandong New Economic Area, which is being developed on a territory of approximately 300 square km, with a dual scope: an eastern ecological function region and a western industry-city integration area, able to host all the business wanting to open offices as well as with cluster areas for international cultural communication, innovation and entrepreneurship, and higher education and research (Hainan Government Website, 2020). The area is also being strategically linked with the development of the Haikou Meilan International Airport, which is one of the key initiatives taking place in Haikou and which has undergone a vast expansion project to enlarge its capacity (Poon, 2022). Sanya, the second largest city on the island, has always traditionally been a popular tourist destination for Chinese people, with the development of the FTP. However, the Chinese Government is attempting to transform it into a global tourist hotspot (Sanya Tourism Promotion Board through CISION, 2022). In 2020, the city saw the establishment of the Sanya Tourism Promotion Board, which in the past two years has supported tourism companies to develop efficient marketing and promoting strategies through market research and development consultancy (Sanya Tourism Promotion Board through CISION, 2021). Yet STPB’s most interesting goal to rebrand Sanya remains, turning the city into the next international transit destination of China, to encourage more international tourists to add Hainan to their travel destinations (Sanya Tourism Promotion Board through CISION, 2022). While the tourism industry constitutes an important aspect of the development planned for Sanya, and the industry has doubled its income in the past ten years, it is not the only attraction the city presents. To diversify Sanya’s economy and development, the Chinese Government has planned to develop new high-manufacturing industries as well (Poon, 2022). Traditional tourism is not the only one Hainan is aiming at strengthening.

The city of Qionghai is currently experiencing the implementation of policies that will turn the city into a medical tourism hub. Located in the Bo’ao district, the Hainan Medical Tourism Zone aims at building a medical environment appealing to both foreigners and nationals. The area is set to become a world-class medical tourism destination by 2030 (Zhang, 2019). New trade policies will allow the selling and consumption of foreign drugs not yet approved by the Chinese drug authority, as well as efforts to strengthen cooperation with top international institutions, hospitals, and research centres. According to China Briefing, the zone has so far set in motion 81 different investment projects and nine medical institutions (Zhang, 2019). While all of these cities are experiencing important changes when it comes to their business and cultural environment, it is the peninsula of Yangpu that has been on the spot since the very beginning. Yangpu is the location where the actual port zone is being established. Yangpu already possesses an international terminal port which will be expanded to efficiently support the FTP. The terminal is already linked with at least 36 shipping routes (Poon, 2021) and plans to have access to more than 80 by 2025 (Raza 2022). (which should become at least 100 by 2030). The goal is to turn the terminal, which until not so long ago was a small port in China, into a key connectivity asset for the FTP, and a driver of the further business development of the region.

Not just Economic Development

While economic and business development plays a vital role in the development of the FTP, these are not the only aspects that are being pushed. Another key aspect of the development of the Hainan FTP is the one regarding research and science. While the city of Qionghai, as mentioned above, is set to become a hotspot for medical research and international cooperation, other projects will be instrumental in transforming Hainan. This will not only be as a successful Free Trade Port but also in what appears will be a new hub for international scientific development, especially in the field of ocean science and tropical sustainable agriculture. Near Sanya, taking its name from the location where it is located, is currently being created in the Yazhou Bay Science and Technology City (Hainan Government Website, 2020). According to the official website of the Hainan province, the city will be divided into five parts: the Nanfan Science and Technology City, Sanya Deep Ocean Science and Technology City, the College Town, Nanshan Port, and the Global Animal and Plant Germplasm Resources Transfer Base. Right now, its core areas for technological development are deep-sea technology and marine industry, seed industry technology, and tropical agriculture (Hainan Government Website, 2020). Regarding the agriculture area, the Nanfan Science and Technology City, thanks to relaxed policies and investment strategies, has accumulated, a total of 56 billion yuan in investments and, by 2030 aims at creating the best ecological environment for agricultural scientific research, with a high degree of international competitiveness and openness for the seed industry, turning Hainan in the Silicon Valley of tropical agriculture strategy (Hainan FTP Business Forum, 2021).

The Intrinsic Value of the SEZ Province

Hainan has been strategically important for China well before starting its transformation into an FTP. The region is located in a geographically strategic area and in the past has played an important role in advancing its country’s claims in the South China Sea over disputed islands. The main actors in enhancing Chinese policy have been the local government, which made Hainan and its local governments the main administrators of all Chinese claims in the SCS (Yamaguchi, 2016). While in the past its role in China’s SCS claims has been the core of Hainan’s relevance, in the last decade, the province’s role in China’s agenda has experienced a shift, which can be made clear also by the result of the Chinese 20th National Congress. Hainan’s unique geographical position is no longer the only way for China to pursue its SCS claims but has become a vital location for the advancement of its internal and external development goals, especially with regard to BRI, the GDI, and the dual circulation strategy. The 20th National Congress highlighted the willingness of China to continue to pursue strategies to enhance its openness in a “mutually beneficial way”, suggesting that initiatives such as the Belt and Road (BRI) or the more recent Global Development (GDI), will continue to play a vital role in the next five years. Hainan development as an FTP has the chance to support both of them. Its relevance for the BRI is straightforward, trade wise Hainan benefits from its position. Its location in the South China Sea perfectly links Chinese regions with the ASEAN Free Trade Area, and the RCEP countries. As of February 2022, the Yangpu port had 36 routes, domestic and international (Poon, 2021), making the province a linking knot for the BRI routes is likely to be the next step, with Hong Kong as the sole possible competitor. Furthermore, the development goals listed above make Hainan also the perfect candidate to launch China's newly announced Global Development Initiative, which will focus on international cooperation to reach the UN SDGs Agenda for 2030 (Soto, 2022). Hainan’s focus on R&D and its constant search for international cooperation in fields such as healthcare, green development, and agriculture, make it the perfect candidate to become a hub to promote Chinese goals under GDI. Hainan’s agricultural development especially might play a vital role in the future of a new Chinese strategy for its relations with fellow Southeast Asian countries, as the successful development of a resilient and sustainable tropical agriculture strategy in a region where agriculture deeply suffers the consequences of climate change, might become a core aspect of Chinese soft power. The development of Hainan as an FTP is set to have an important role also concerning the Chinese dual circulation strategy. With the dual circulation strategy, China aims to create more balance between the domestic economic flow and the international economic flow (Yao, 2020). The contribution of Hainan can come in multiple ways. Internationally, the relaxed policies will create a business environment that is already attracting foreign investments and partners, while the port of Yangpu will play a vital role in linking Chinese provinces with foreign markets and investors, potentially playing a role not only for the eastern and rich cities and region of the Pearl river but also advancing the Chinese Go West strategy (Tang, 2020) and aiding the development of the Chinese western regions. Domestically, its duty-free markets and its development of services might boost domestic consumption and demand, while the development of high-tech industries can strengthen its local production chains. Hainan has the potential of becoming one of if not the most significant symbols of Xi’s policy, creating a new way to interpret the strategic role of Chinese special economic zones. Before becoming an FTP, Hainan was an SEZ, yet its main difference when comparing it to other economic zones is its role as a province, which is allowing a completely new approach to relaxed policies. The core aspect of its development lies in not limiting the development to bigger cities but by creating an environment that can embrace the province as a whole, with diversified strategies for different geographical areas. The success of Hainan will not only have an impact on the future FDI policies of China but will also determine the possibility of becoming a model for the development of other Chinese provinces.

Alessandra Tamponi holds a MA degree in International Relations and East Asian countries obtained at the University of Groningen. Her interest in China started as a teenager, thanks to an exchange opportunity that took her to Harbin when she was sixteen years old. Before becoming a member of the editorial team of European Guanxi, Alessandra worked as an intern for the European Institute of Asian Studies in Brussels, and the EuroChamber of Mongolia.

The opinions expressed here are those of the writers and do not represent the views of European Guanxi.

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