Hainan: The place for deepening the reforms

Free Trade Zones are an elaborated form of special economic zones established under the reform and opening-up, and their number is increasing within China. Besides winning this special position, Hainan Island has also been allowed to establish a Free Trade Port. China’s President Xi Jinping is now working on the deepening of the reforms, and thanks to these measures, Hainan Province can become one of the main pilot areas to test the new reform measures.

Introduction

Also called the Chinese Hawaii, this island was one of the first to receive the special economic zone qualification during the period of reform and opening in 1988. On its 30^th anniversary the Communist Party of China and the State Council announced that a Free Trade Zone would have been established in Hainan Province by 2020 and a Free Trade Port by 2025. Accordingly, the free trade system will have been finished on Hainan by 2035. China’s first free trade zone was announced in Shanghai in 2013, and then Fujian, Guangdong and Tianjin were also involved in 2015, followed by seven more cities in 2016. These territories benefit from the investments, reduced tax rates, accelerated administrative procedures and diluted investment restrictions to a large extent. These regions are pilot areas for the rules to be introduced later throughout the country. Hainan Province is significant because it covers a whole island; therefore, the Government of China has a broader area to test the reforms that the other free trade zones.[i]

Source: http://www.china-briefing.com/news/2017/09/21/investing-in-chinas-free-trade-zones.html (last download: 31 May 2018)

The main line is the development of healthcare, tourism and trade. Thanks to these, the province can build healthcare facilities, import medical appliances, and produces and can receive licences to employ foreign doctors, which is a good cooperation opportunity for Hong Kong. According to certain opinions, some forms of gambling such as horse-race and football pools – which are only legal in Macau within China today – will be permitted in this territory. In his speech delivered at the Boao Forum for Asia, Xi Jinping also highlighted that Hainan lies in a place of strategic importance near the ASEAN countries, which makes it an important centre in the trade with Southeast Asian countries.[ii]

Free Trade Zones (FTZ)

A free trade zone (FTZ)[iii] is a specific form of special economic zones (SEZ)[iv], allowing for the importing, handling, production and exporting of commodities without customs proceedings. All these play an important role in the development of the Chinese business environment and can serve as fields where authorities can experiment with corporate regulations. The key incentives these Free Trade Zones can offer: special tax and customs proceedings, international commercial advantages and sector-specific liberalization.[v]

• Tax: each FTZ endeavours to reduce corporate taxation or offer allowances to corporations that observe certain requirements. Most FTZs can import any machines or equipment of individual benefit of the corporation.
• Customs clearance: it is more up-to-date and transparent within the Free Trade Zones, especially with respect to customs declaration and payment This reduces the costs of customs clearances and increases the flexibility of corporate customs declarations.
• International trading centre: due to the companies settled in the Free Trade Zones and the well-established infrastructure, FTZs are at the head of the supply chain. For instance, goods can be transported and stored duty-free in the Free Trade Zone in Shanghai. Taxes have to be paid only if the goods are delivered within China; however, in the case of transportation abroad, goods are exempted from the tax and customs clearance.
• Sector-specific liberalization: free trade zones have liberalized rules against foreign corporations and can provide opportunities that are rather rare within China. For instance, logistics corporations established within these free trade zones are allowed to have a foreign proprietorship over 51 %.

Hainan

Based on the discussions of the 19^th Party Congress, China has to transform its rapid growth realised already to a superior development, which is well illustrated by Hainan.[vi] Officially, Hainan became part of the Chinese Administration under the  Han Dynasty[vii]; at present approx. 8.7 million citizens live on the island.[viii] The tropical island of 35,000 square kilometres is located on the northeastern part of the South China Sea, bordered on the west by Vietnam and on the east by the Philippines. The island is significant because of its domestic tourism these days. This region has been chosen because it is often neglected with respect to the inflow of foreign capital and tourism and in this way this role can be enhanced.[ix] Since 1988 Hainan Province has been the largest Special Economic Zone within China, still, it lagged behind the others. According to the 2017 data, the province attracted foreign capital to the amount of 10 billion dollars, which is only 1.5 % of all FDI inflows into China.[x]

Based on the decision passed in 2018, the Chinese leadership designates a great role to the southernmost province of the country: the tropical island was designated as the initial place for deepening the reform and the opening up. Hainan Province will be a pilot site for several reasons: it will become a national ecological zone, an international tourism and consumption centre, and a significant national strategic logistics zone. These grandiose plans were announced on the 30^th anniversary of the foundation of the province and its becoming a Special Economic Zone. According to the plans, Hainan will be an excellent example of Chinese type socialism in the new era and an example to follow for the nation. China’s largest special economic zone keeps developing and working on its integration into the global economy. Based on the decisions, Xi Jinping has announced that the Chinese Communist Party promotes the further development of the island so that it can become a Free Trade Zone, and for this purpose a Free Trade Port will be established with Chinese features. The Free Trade Port is one of the most open forms of economic zones, boosting up both Singapore and Hong Kong.

Therefore, China announced its support so that Hainan can improve itself in the international sectors such as international energy, shipping, raw materials, proprietary rights and shares.[xi] According to the plans, the island should rather focus on tourism, the modern service industry and the high-tech sector than intermediate trade and production, while they also lay emphasis on the establishment of a more lenient regulation in order to develop an advantageous environment for trading.[xii]

Therefore, the above suggest that the province should develop in the field of new generation information technology and digital economy so that deep integration can be created between real economy and the internet, the internet of things, ’big data’, satellite navigation and artificial intelligence. According to the hopes, the province plans significant development projects both in space research and deep-sea science and technology.[xiii]

Modern services such as medical care and finance must be the main pillars of Hainan economy, primarily as an international tourism destination. The island can only become a centre for international tourism and consumption if China develops a rule for offshore duty-free purchasing that is valid for all visitors. At present the island has only two duty-free shops. According to the Beijing Leadership, Hainan should exploit its unique resources in order to develop a tropical agriculture and water economy. Xi Jinping highlighted that the planned improvements should be performed in harmony with nature preservation so that the island can become the “garden” of the country.[xiv]

Furthermore, the province should aim at the multilevel and multipurpose cooperation with countries and regions along the New Silk Road, and in the meantime, it would promote the cultural, educational, agricultural and tourism exchange.[xv] Governor of Hainan Liu Cigui is entirely committed to the One Belt One Road Project and makes every effort to enhance economic cooperation in the South China Sea Region. The island will be a traffic connection point among the countries and regions in the New Silk Road; 100 international air and water routes are planned to be opened in a period of three years.[xvi]  The Boao Forum for Asia was organized in Hainan again between 8 and 11 April, 2018. This forum has been held every year since 2001 and is often called the Chinese Davos because this Asian economic forum aims to promote regional economic integration and the economic development of certain countries in Asia.[xvii] In this way China proves to be open to the investors from all over the world so that they make investments and business in Hainan, take part in the establishment of the Free Trade Port, and get the opportunities and reforms in China’s development.[xviii]

Hong Kong and Macau

The implementation of the Free Trade Zone and the Port in Hainan, and the partial lifting of gambling restrictions will be great challenges for Hong Kong. As for the deepening of the reforms, the province will need well-qualified labour force in various sectors such as catering, business life and tourism, and Hong Kong takes pride in such specialists. Therefore, it would be the interest of Hong Kong to support the development of Hainan because the island has a huge potential, let us take medical tourism for example. Hong Kong could play a considerable role in this process, thanks to its great traditions of private hospitals and high-quality healthcare. Consequently,  they could facilitate the realisation of international norms and high-standard training courses in the Chinese province.[xix]

Another key stakeholder of Opening Up Hainan will be Macau because according to some information online gambling, lottery and sports betting will be permitted on the island. These initial steps may offer new opportunities to the casinos, too. This plan would probably have an adverse impact on Macau’s economy as in China casinos are only legal in Macau today, and gambling is permitted only here and in Hong Kong.[xx] In Macau the casino stocks started to drop right after the plan of the Beijing Leadership had been announced, according to which gambling would be permitted on Hainan Island, too. Galaxy Entertainment, the operator of Macau Casino registered in Hong Kong, fell the most significantly, by 7.7 %, while Sands China and MGM by about 6 percentage points.[xxi] The casino revenues has been increasing for four years, reaching 36.4 % in January 2018.[xxii] Today Macau is the largest gambling centre in the world, producing five times more revenues than Las Vegas, and 70 % of the visiting tourists are Chinese.[xxiii]

Tourism

Since a national strategy was set up on the development of tourism on the island in 2009, tourism has increased significantly. Statistics show that the province had revenues from tourism to the amount of 26 billion yuan? in 2010, and over 67 billion yuans in 2016. At present considerable efforts are made to deepen tourism in the rural areas so that not only big cities can receive the profits[xxiv]

As a consequence of the strategy aiming to deepen the reforms, it has been announced that citizens of 59 countries are granted visa-free access on Hainan Island, which is a special step to enhance international economic growth and tourism. The countries receiving the beneficial measure include 11 Asian countries, such as South Korea an Japan, 40 European ones like Hungary, Russia and Great Britain, 6 American ones such as the United States of America and Canada, and Australia and New Zealand are also granted visa-free access. Vice President of the State Immigration Office Qu Yunhai said that the visa-free policy that is becoming effective is about expansion, extension and simplification.[xxv] After the establishment of Hainan Province in 1988, the Chinese Government immediately simplified the visa administration of the visiting tourists. This most recent announcement is the expansion of a measure of the 2000s, which granted two weeks of visa-free stay to the tourist groups of 21 countries. This will increase the incoming international tourism, which will facilitate the development of the island so that the Asian Hawaii name can be worthier. However, more time has yet to pass before it can become an international destination. In 2017 the island was visited by 1 million foreign tourists, which is only 1.6 % of the 60 million domestic tourists who had chosen this place as a destination. Bali, which is only one sixth of Hainan Island, got 5 million foreign tourists in the same year.[xxvi] However, the new list does not include the African countries, the Indian subcontinent or three important ASEAN Member States: Vietnam, Cambodia or Laos.

Forrás: http://www.scmp.com/business/china-business/article/2142259/us-among-59-countries-granted-visa-free-access-chinas-resort (last download: 31 May 2018)

Conclusion

The opening of the Free Trade Zone and the Free Trade Port on the island of Hainan is one of China’s actual measures to promote global trade and investments. Experts believe that the internationalisation of Hainan will not only imply the development of South China but also launch economic growth in the whole Asia-Pacific Region, and even in all parts of the world.[xxvii] At the same time, it is a great challenge for Macau and Hong Kong to define the right attitude to this new situation.

Besides being China’s paradise resort, the island is the starting point of the Chinese Navy and Air Force to reach the South China Sea. [xxviii] Therefore, it is a significant area in both economic and geopolitical terms. Consequently, it can be understood why the Beijing Leadership starts to deepen the reforms here.

Author: Alexandra Zoltai

References

• ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018, http://www.xinhuanet.com/english/2018-04/14/c_137109463.htm (last download: 25 May 2018)
• ’China plans to allow gambling on Hainan island.’ In: The Straitstimes, 3 February 2018, https://www.straitstimes.com/asia/east-asia/china-plans-to-allow-gambling-on-hainan-island (last download: 28 May 2018)
• Chipman Koty, Alexander: China to Establish Hainan Free Trade Zone. In: China Briefing, 16 April 2018. http://www.china-briefing.com/news/2018/04/16/china-establish-hainan-free-trade-zone.html (last download: 28 May 2018)
• Chu, Ken: Amid the strategic rise of China’s Hainan island, Hong Kong must collaborate to grow together. In: South China Morning Post, 12 May 2018. http://www.scmp.com/comment/insight-opinion/article/2145872/amid-strategic-rise-chinas-hainan-island-hong-kong-must (last download: 31 May 2018)
• Erdenebileg, Zolzaya: Investing in China’s Free Trade Zones. In: China Briefing, 21 September 2017. http://www.china-briefing.com/news/2017/09/21/investing-in-chinas-free-trade-zones.html (last download: 31 May 2018)
• Goldkorn, Jeremy: A New Type of Chinese Free Trade Port For Hainan? In: Supchina, 3 April 2018. https://supchina.com/2018/04/03/new-type-chinese-free-trade-port-hainan/ (last download: 29 May 2018)
• ’Hainan aims to open further.’ In: Xinhua, 10 April 2018. http://www.chinadaily.com.cn/a/201804/10/WS5acc6f35a3105cdcf65174c8.html (last download: 29 May 2018)
• Jing Shuiyu: Hainan plans good news for free trade. In: China Daily, 17 April 2018. http://www.chinadaily.com.cn/a/201804/17/WS5ad55a98a3105cdcf6518bd5.html (last download: 29 May 2018)
• Li, Jane: US among 59 countries granted visa-free access to China’s resort island Hainan… but who’s missing? In: South China Morning Post, 19 April 2018. http://www.scmp.com/business/china-business/article/2142259/us-among-59-countries-granted-visa-free-access-chinas-resort (last download: 31 May 2018)
• Wee Kek Koon: How Hainan could become a golden egg at China’s feet. In: Post Magazine, 26 April 2018. http://www.scmp.com/magazines/post-magazine/short-reads/article/2143495/how-hainan-could-become-golden-egg-chinas-feet (last download: 29 May 2018)
• Woodhouse, Alice: Macau casinos fal las China reported to mull Hainan gambling. In: Financial Times, 2 February 2018. https://www.ft.com/content/16804aa8-07e9-11e8-9650-9c0ad2d7c5b5 (last download: 29 May 2018)
• Woodhouse, Alice: Macau gambling revenue rockets 36,4 % in January. In: Financial Times, 1 February 2018. https://www.ft.com/content/a1992e2e-070e-11e8-9650-9c0ad2d7c5b5 (last download: 29 May 2018)
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[i] Chipman Koty, Alexander: China to Establish Hainan Free Trade Zone. In: China Briefing, 16 April 2018.

[ii] Chipman Koty, Alexander: China to Establish Hainan Free Trade Zone. In: China Briefing, 16 April 2018.

[iii] Free Trade Zone

[iv] Special Economin Zone

[v] Erdenebileg, Zolzaya: Investing in China’s Free Trade Zones. In: China Briefing, 21 September 2017.

[vi] ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018.

[vii] i. e. 206 – i. sz. 220

[viii] Wee Kek Koon,: How Hainan cpuld become a golden egg at China’s feet. In: Post Magazine, 26 April 2018.

[ix] Li, Jane: US amon 59 countries granted visa-free access to China’s resort island Hainan… but who’s missing? In: South China Morning Post, 19 April 2018.

[x] Li, Jane: US amon 59 countries granted visa-free access to China’s resort island Hainan… but who’s missing? In: South China Morning Post, 19 April 2018.

[xi] Zhang Yunbi – Ma Zhiping – Zhou Jin: Hainan to be key pilot trade zone. In: China Daily, 14 April 2018.

[xii] ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018.

[xiii] Zhang Yunbi – Ma Zhiping – Zhou Jin: Hainan to be key pilot trade zone. In: China Daily, 14 April 2018.

[xiv] ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018.

[xv] ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018.

[xvi] ’Hainan aims to open further.’ In: Xinhua, 10 April 2018.

[xvii] Goldkorn, Jeremy: A New Type of Chinese Free Trade Port For Hainan? In: Supchina, 3 April 2018.

[xviii] ’China Focus: Hainan to take on bigger roles in reform, opening-up.’ In: Xinhua, 14 April 2018.

[xix] Chu, Ken: Amid the strategic rise of China’s Hainan island, Hong Kong must collaborate to grow together. In: South China Morning Post, 12 May 2018.

[xx] ’China plans to allow gambling on Hainan island.’ In: The Straitstimes, 3 February 2018.

[xxi] Woodhouse, Alice: Macau casinos fal las China reported to mull Hainan gambling. In: Financial Times, 2 February 2018.

[xxii] Woodhouse, Alice: Macau gambling revenue rockets 36,4 % in January.  In: Financial Times, 1 February 2018.

[xxiii] ’China plans to allow gambling on Hainan island.’ In: The Straitstimes, 3 February 2018.

[xxiv] ’Hainan aims to open further.’ In: Xinhua, 10 April 2018.

[xxv] Li, Jane: US amon 59 countries granted visa-free access to China’s resort island Hainan… but who’s missing? In: South China Morning Post, 19 April 2018.

[xxvi] Li, Jane: US amon 59 countries granted visa-free access to China’s resort island Hainan… but who’s missing? In: South China Morning Post, 19 April 2018.

[xxvii] Jing Shuiyu: Hainan plans good news for free trade. In: China Daily, 17 April 2018.

[xxviii] ’China plans to allow gambling on Hainan island.’ In: The Straitstimes, 3 February 2018.