Doing Business In Hainan China, One Stop Foreign Investment Services In Hainan, Establishing China Operations In Hainan, Set Up Business, Company Registration, Accounting, Tax Planning, Tax Advisory, Legal, Product sourcing, Packages Tour, Chinese English Translation Services In Hainan
On June 10, 2021, China passed a law on the Hainan Free Trade Port (FTP), making institutional arrangements for the construction of the Hainan FTP at the national legislative level. This came just one year after China released the roadmap that laid out a series of policies for Hainan to be transformed into a world-leading free trade hub like Hong Kong and Singapore.
The Hainan FPT comprises three chapters covering all the areas involved in the port’s construction, including the liberalization and facilitation of trade (1), investment (2) and taxation system (3).
Liberalization and facilitation of trade
The Law guarantees to establish a special customs supervision zone system of Hainan FTP for independent customs operations throughout Hainan Island.
For cross-border trade in goods, Hainan FTP draws a distinction between a “first line” to overseas countries and a “second line” to the Chinese mainland:
the first line will be open – goods (except those on Hainan’s prohibitive or restrictive lists) can be freely imported and exported between overseas regions and Hainan FTP under customs’ special supervision.
the second line will be more tightly controlled – goods entering the Chinese mainland from Hainan will go through procedures in accordance with relevant import regulations, customs duties, and taxes.
2. Liberalization and facilitation of investment
Investment-wise, Hainan launches a simplified negative list for foreign investment and special measures for relaxing market access.
The negative list, implemented from February 1, 2021, expanded market access to foreign investment in various sectors, such as telecommunications, education, business services, manufacturing, and mining, in Hainan FTP.
3. Own tax system
The Law also supports Hainan FTP to establish its own taxation system based on the principles of “zero tariffs”, “low tax rates”, and “simplified tax regime”:
Zero tariffs – After 2025, all goods imported from overseas will be exempt from import duties (except for those listed in the to-be-formulated Negative List). Before that time, some goods imported from overseas subject to one zero-tariffs negative list and three positive lists can be exempt from import duties, value-added tax (VAT), and consumption tax. For goods entering into Hainan FTP from the mainland, VAT and consumption tax that were levied can be refunded pursuant to the relevant provisions.
Low tax rates – The Hainan FTP Law reiterates favourable corporate income tax (CIT) policies in Hainan, although it does not make specific provisions for tax rates. According to the masterplan, enterprises registered in Hainan and engaged in substantive business activities in encouraged industry sectors will be taxed at a reduced CIT rate of 15 % by 2025, compared with the normal rate of 25%. After 2025, this policy will be expanded to all industry sectors (except those on Hainan’s investment negative list).
Simplified tax regime – The Law stipulates that indirect taxes and fees on Hainan Island, such as VAT, consumption tax, vehicle purchase tax as well as construction tax should be streamlined into one sales tax to be levied at the retail point of goods and services.
Domestic and foreign investors who are interested in setting up in Hainan can take full advantage of Hainan FTP’s preferential policies by evaluating how these can align with their own business development strategies.
The implementation of the Hainan FTP Law undoubtedly demonstrates China’s determination to open wider to the outside world, promote economic globalization and enhance the confidence of investors, especially foreign investors.
To boost the high-quality construction of the Hainan free trade port, an announcement on Hainan's offshore duty-free shopping policy was issued and came into effect on July 1, 2020.
The Hainan Free Trade Port will grant market access to firms based on a prior commitment, according to the local provincial authorities. The move is set to reduce business barriers and further boost market vitality.
A newly drafted regulation on the administration of the Hainan FTP market access based on commitment said that, apart from areas relating to national security, social stability, ecological and environmental security and major public interests where the State implements access management, licenses and approvals will be canceled for business areas related to health, life and property safety and meet the basic needs of economic and social management — fields that practice mandatory standard management.
Commercial entities can begin investing and launching business activities after promising to meet relevant requirements and submitting relevant materials for filing, according to the regulation, which is currently soliciting public opinions. A supervisory system will be established to supervise and prevent possible risks from businesses that base their market entry on commitments.
Market access of foreign investment can also be referred to the new rule.
Local officials said granting market access based on commitment was an important measure to facilitate free investment put forward by the overall plan for the construction of the Hainan Free Trade Port, released by the central authorities on June 1, 2020. According to the master plan, China will build the entire Hainan Island — about 32 times the size of Hong Kong — into a globally influential and high-level free trade port by the middle of the century.
"The market economy is a kind of trust economy. The goodwill assumption that commitment means access will greatly stimulate market vitality," said Kuang Xianming, director of the economic research center at the Haikou-based China Institute for Reform and Development, a leading think tank on the nation's reform and opening-up.
Kuang said the new regulation is an important institutional innovation to improve the business environment, but effectively supervising market entities to avoid relevant risks will be a new issue of concern and a test of the government's abilities.
China has rolled out a slew of measures to facilitate the free flow of key production factors and further relax market access in the past three years in the Hainan FTP, showing the country's drive to further open up to the outside world.
Fueled by preferential government policies, the actual use of foreign investment in Hainan totaled about $3 billion last year, doubling from $1.5 billion in 2019. From January to June, 979 foreign funded companies were established in Hainan, an increase of about 385 percent over a year earlier. The actual use of foreign investment during the period surged by 623.6 percent year-on-year to reach $950 million, according to the provincial department of commerce.
Nicole Zhang, Eric Zhou and Bin Yang of KPMG China take a deeper look at Hainan’s attractive tax programme to entice investors.
China’s central government released a master plan on June 1 2020, setting out policies to support the construction of the Hainan Free Trade Port (Hainan FTP). This has the aim of building Hainan island, on the southern coast of China, into a globally-significant free trade port by 2050.
The policies will be rolled out in several stages and is supported by a series of tax and legal system changes. The tax policy element is summarised in the master plan as consisting of “zero-tariffs, low tax rates, a simplified tax system, and an enhanced legal system”.
In this article, the authors look at the building blocks of Hainan’s innovative tax regime and the attractions for investing businesses.
The zero-tariff regime will be established by 2025 across two stages. In the first stage (pre-2025), certain categories of imports are entitled to zero-tariff treatment to support the development of the tourism, e-commerce and logistics industries in Hainan FTP. Zero-tariff treatment covers equipment imports made by Hainan enterprises for their own use (subject to a negative list), and imports of vehicles, vessels and aircraft used for transportation and tourism in Hainan (with reference to a positive list). A duty-free shopping regime will also be in place.
In the second stage (from 2025), a separate tariff regime will be developed for Hainan FTP, meaning that zero-tariffs will apply to a wide range of imports based on a catalogue system. Import VAT and consumption tax (CT) exclusions may also apply.
Integration of Hainan FTP into global value chains
One notable difference between the Hainan FTP and other customs special supervision zones in China is its special import processing policy. Under this, goods can be imported zero-tariff to Hainan, processed in Hainan, and then sold to elsewhere in China at zero-tariff. This provides significant access to the Chinese market and opportunities for supply chain optimisation.
A key requirement is that the processing conducted in Hainan needs to meet a 30% value-added threshold and that a ‘Hainan Origin Certificate’ is obtained for goods. The government intent with this policy is to support the establishment of high-end industries in Hainan, fully integrated into global value chains.
Low tax, simplified tax system to attract investment and highly skilled people
Moreover, the foreign dividend income received by in-scope Hainan FTP enterprises, and their foreign branch income, will be exempt from CIT – a significant attraction for setting up hubs for global and regional operations in the Hainan FTP. Alongside this, the IIT exemption is designed to produce a maximum 15% IIT rate for income of personnel with high-end and urgently-needed skills, working in the Hainan FTP; for reference China’s marginal IIT rate is 45%.
The tax reform will be widened from 2035 so that the 15% reduced CIT rate will cover all Hainan FTP enterprises which are not in a ‘negative list’ sector, i.e. the incentive will move beyond encouraged industries. The IIT regime will also be expanded to all individuals residing in Hainan for more than 183 days in a tax year levied at 3%, 10% or 15% rates. That is, the IIT incentive scope will go beyond those with particular skillsets.
International benchmarking
Compared with the existing mature free trade ports around the world (see Table 1), it can be seen that the 15% income tax rate makes the Hainan FTP internationally competitive.
It is expected that this will attract foreign investors and highly skilled foreign individuals. Furthermore, as the Hainan FTP tax policies are innovative and go well beyond those on offer in China’s existing pilot free trade zones (FTZs), a large number of Chinese enterprises and high-end staff will likely flock to Hainan as well.
Table 1: Tax policies in the Hainan FTP and other international FTZs
Hainan FTP (Overall plan)
China Mainland (non-FTZs)
Hong Kong SAR
Singapore
Dubai
Corporate income tax (CIT)
(1) Before 2025: 15% for encouraged industries; CIT exemption for foreign-sourced income received by enterprises in the tourism, modern services and high-tech industries (2) Before 2035: 15%
0-25%
0-16.5%
0-17%
(1) Within FTZ: CIT exemption for 50 years (2) Outside FTZ: 20% for foreign-invested banks, 55% for oil and petrochemical companies, and exemption for others
Individual income tax (IIT)
(1) Before 2025: 15% for personnel with high-end and urgently-needed skills (2) Before 2035: 3%, 10% and 15% excess progressive tax rates for individuals who resident in Hainan FTP for more than 183 days in a tax year
0-45%
0-17% (progressive tax rates)
0-22% (progressive tax rates)
(1) No IIT; (2) 5% social security tax for Dubai residents who have UAE citizenship
Tariff
(1) Zero-tariffs for certain equipment, vessels, and duty-free shopping (first stage to 2025); (2) At the second stage (after 2025) the new Hainan FTP customs system will provide for wide zero-tariff treatment and turnover taxes will also be simplified
Majority of imports are subject to tariff at different rates
Tariff exemption for goods except for alcohol, tobacco, hydrocarbon oil and methanol
(1) Within FTZ: tariff exemption for all goods (2) Outside FTZ: tariff exemption for goods except for alcohol, tobacco products, motor vehicles and petroleum products
(1) Within FTZ: tariff exemption for all goods (2) Outside FTZ: 50% for alcohol, 100% for tobacco products, and 5% for others
Consumption tax (CT) and excise taxes
Tobacco, alcohol, cosmetics, jewellery, petrol and auto products subject to CT
N/A
(1) Within FTZ: CT exemption for all goods (2) Outside FTZ: CT exemption for goods except for alcohol, tobacco products, motor vehicles and petroleum products
(1) Within FTZ: CT exemption for all goods (2) Outside FTZ: 1) 100% for cigarettes and tobacco, 2) 30% for alcohol
VAT
9% for some consumer goods; 13% for others
N/A
(1) Within FTZ: VAT exemption for all goods (2) Outside FTZ: 7%
(1) Within FTZ: VAT exemption for all goods (2) Outside FTZ: VAT exemption for crude oil and natural gas, transportation sector and certain segments in education, healthcare and real estate sectors; 5% for others
Source: Public information collated by KPMG
The ‘encouraged’ industries enjoying the 15% CIT rate have recently been clarified by the Chinese Ministry of Finance (MOF) and State Taxation Administration (STA). This refers to sectors listed in the ‘Guiding Catalogue for Industrial Structure Adjustment’ (2019 edition), the ‘Catalogue of Encouraged Industries for Foreign Investment’ (2019 edition) and a new Hainan-specific list.
At present, Hainan’s economy is dominated by traditional services industries. Sectors such as finance, insurance, logistics, legal service, tourism have further potential for expansion. To push these along the Hainan-specific list is expected to include various ‘modern service’ sectors, tourism, and healthcare, etc. The Hainan government recently clarified the scope of personnel with high-end and urgently needed skills. This covers a wide range of skills relevant to building up the encouraged industries in Hainan FTP, including high-tech, agriculture, medical, education, telecommunication sectors.
Although a simplified tax system is a common feature of international FTPs, the plan points out that the simplification is in line with the trend of general tax reform in China, i.e. reducing the proportion of indirect taxes. Therefore, it is safe to say that the simplified tax system may also be the direction for future tax reform in mainland China.
The roll out of the reduced tax rates does not imply that Hainan island is to be made into a tax haven. Access to the preferential tax treatments requires that substantive economic activities occur in Hainan and that significant value is created there.
A recent MOF and STA circular has set out detailed rules defining substantive operations. The enterprise’s management body must be established in the Hainan FTP and exercise real control over business operations, staff, accounting, assets, etc. These requirements prevent the use of shell companies to access preferential policies and will be accompanied by a tax administration risk monitoring system, and paralleled by Chinese authorities proactively participating in international tax cooperation and information exchange.
Looking ahead
China’s Hainan FTP construction has kicked off. The preferential tax policies introduced are in line with international FTP practice. The zero-tariff regime also marks a milestone in China’s tax reform and innovation, which is conducive to China’s participating in global trade and attracting foreign investment. The Hainan FTP is also a testing ground for tax policies that may be adopted in other China FTZs and more generally; precisely how this proceeds remains to be seen.
Cargo is being unloaded from a ship docked at a port in Haikou, capital of Hainan province, on Aug 25, 2020. (PHOTO FOR CHINA DAILY)
Foreign investors are flooding into the Hainan Free Trade Port as implementation of a master plan with attractive policy incentives have been unfolding step by step, generating huge opportunities and a wide range of benefits for high-end individuals and corporations at home and abroad.
China released a master plan for the development of Hainan Free Trade Port on June 1. It provided a long list of opening-up policies aiming to build Hainan Island, which is about 49 times the size of Singapore, into a globally influential free trade port by the middle of the century.
The master plan, together with a number of implementation plans issued in the past two months by ministries under the State Council and the Hainan provincial government, provide incentive policies and attractive options such as a low income tax rate for individuals and corporations.
The rate is set at a maximum of 15 percent compared to 17 percent in Hong Kong. The new moves will encourage facilitation of capital flows, expansion of duty-free coverage for goods purchased on the island, and the development of tourism, modern services and high tech industries.
Industry experts said the Hainan free trade port and reform plan is a new example of market-oriented reform policies implemented throughout China in recent years.
Data from the Hainan provincial department of commerce showed that from January to June, a total of 203 foreign enterprises were set up in Hainan, up 24.54 percent year-on-year, with 50 of them established in June.
Industry experts said the Hainan free trade port and reform plan is a new example of market-oriented reform policies implemented throughout China in recent years
The investors came from 30 countries and regions including leading multinational companies such as the Rio Tinto Group from the United Kingdom, energy giant EDF from France and the Charoen Pokphand Group from Thailand.
Newly registered companies hit a record of 75,000 from January to August, a year-on-year increase of 75.26 percent, the highest growth rate in the country, according to the provincial market supervision administration.
"We have keenly felt the 'heat' of interest from overseas business people toward Hainan FTP in the past two months," said Frederick Mang, Hainan Office Lead Partner with PricewaterhouseCoopers Zhong Tian LLP, the first international service company to settle in Hainan in May, 2018.
Mang said a large number of foreign companies have contacted his Haikou PwC office, showing a strong intention to start operations in Hainan Island, which covers 35,400 square kilometers.
Xiang Weiming, global vice president of GE in the United States and president and CEO of GE China, told Shen Xiaoming, the governor of Hainan during a recent working meeting in Haikou, the provincial capital, that GE will push forward in-depth cooperation with Hainan in such fields as aviation, medical service, clean energy and remanufacturing.
Genting Cruise Lines, a division of Genting Hong Kong, announced last week it is working to forge a strategic partnership with Sanya to launch domestic cruise itineraries out of the central cruise hub of Hainan. It will also support the development of a free trade pilot cruise tourism zone on Hainan Island.
"We are keen on supporting the Chinese government's efforts in rebuilding its travel and tourism sector by providing a safe and carefree vacation option for consumers," said Kent Zhu, president of Genting Cruise Lines.
More than 70 international innovative medicine and medical equipment manufacturers have entered their names for an everlasting exhibition that displays the latest and advanced drugs and devices that have not entered the Chinese market, said Gu Gang, administration head of the Boao Lecheng International Medical Tourism Pilot Zone.
The zone was the only one of its kind in China that enjoys special preferential policies such as special permission to import medical technology, medical equipment and medicines that are not yet allowed in other parts of the country.
Gu said that the implementation of the Hainan free trade port preferential policies such as zero tariff, low tax rates and a simplified tax system will draw more big international pharmaceutical companies and professionals to the pilot zone.
The boom of foreign investment is expected to continue as more specified implementation plans roll out one by one and an increasing number of promotions are made at home and abroad, online and offline, said local government officials.
"As it presses ahead with the construction of a free trade port, Hainan will become a new high in China's opening up, " said Bernard Dewit, chairman of the Belgian-Chinese Chamber of Commerce, at an online business promotion conference last week.
Patrick Nijs, former Belgian Ambassador to China and co-founder of the EU-China Joint Innovation Center, expressed his optimism in Hainan-Belgium cooperation in the future. He said Belgium is willing to develop together with Hainan and share the development opportunities of the free trade port construction.
Centrally administrated State-owned enterprises from the transportation, tourism, energy and infrastructure sectors have also enlarged their presence in the Hainan FTP.
The State-Owned Assets Supervision and Administration Commission, the nation's top asset regulator, said that more than 40 central SOEs and their subsidiaries have launched regional headquarters and business units across the province with 47 billion yuan ($6.72 billion) of registered capital.
More than 100 SOEs are expected to enter Hainan FTP in about three years, according to the provincial government.
On the government front, the island province, which connects the world through 103 international air routes and has a population of 9.4 million, will continue to build a fair business environment for global investors that is hailed for system integration and innovation to ensure efficient and high-quality collaboration.
Building a first-class business environment is a key measure to transform government functions, upgrade service, improve the way government officials perform their tasks, and enhance people's sense of gain, satisfaction and happiness, Liu Cigui, secretary of the CPC Hainan provincial committee, said at the mobilization conference on creating a first-class business environment for Hainan Free Trade Port held in Haikou last week.
He added that "we must see to it that high-quality and high standard requirements are implemented throughout each project and reflected in each link of the process".
"Hainan's institutional building and progress will cultivate a more open and fairer business environment, further boosting market vitality and internal growth momentum of the economy," said Xia Feng, executive director of the Institute for Advanced Studies of Humanities and Social Sciences at Hainan University.
He said in the long term, the Hainan FTP will become a comprehensive demonstration zone for economic circulation in terms of cross-border trade and those between Hainan Island and other parts of the Chinese mainland.
"Hainan will play a key role in Southeast Asia if all key factors needed for boosting Hainan to its new leading position shall be implemented," said Yuval Golan, CEO of Unique 1 Asia Ltd, a consulting and investment firm operating in Hainan.
He believes reform of government services will help remove all hurdles and red tape for both domestic and international companies and citizens. "The master plan will make Hainan a hub for innovation, sustainability and true high-quality level of living."
Foreign investors should develop a Hainan investment strategy to take advantage of tax cuts, access to ASEAN, and RCEP.
Op/Ed by Chris Devonshire-Ellis
Tax incentives kick in for foreign investors from January 2021
Entire island is to become a Free Trade Port
Being positioned as an alternative Singapore
Huge opportunities in medical tourism
Free trade agreements with ASEAN & RCEP
Horse racing, golf clubs, and attractive climate
Branch offices of Hainan WFOEs can operate throughout China
Slightly flying under the radar in terms of its attractiveness to foreign investors has been Hainan Island, off the southern China coast of Guangdong province and near the eastern coast of Vietnam. However, as costs in primary cities like Beijing and Shanghai increase, the need for a less expensive destination, with warmer weather, outdoors sub-tropical climate and with little heavy industry pollution begins to appear more attractive. However, Hainan has an inherent problem – its perception as a low-end Chinese tourist destination, sometimes touted as ‘China’s Hawaii’. (It is not).
Although beach resorts, such as Sanya, do attract Chinese tourists in their millions – Hainan Airlines has China’s longest internal flight, servicing tourists in search of winter sun from Harbin – the regional government has been looking at ways to diversify from this staple and into other business and trade areas. These will be of interest to any CEO of a foreign-invested enterprise in China, and to China investors themselves.
Hainan Free Trade Zone
We first reported back in April 2018 that the entire Island was to become a free trade zone(FTZ).
According to guidance issued by the State Council, China announced plans to establish the Hainan FTZ by 2020 and build Hainan Free Trade Port by 2025. By 2035, Hainan’s free trade system should be fully developed. Well, we are in 2020 now and what has happened?
At the beginning of June this year, the Central Committee and the State Council jointly released the Hainan Masterplan, which laid out a series of special policies for Hainan – scrapping import duties, lowering income tax rates for high-level talent, capping company tax at 15 percent for encouraged enterprises, and relaxing visa requirements for tourist and business travelers. These will take effect in six weeks – from January 1, 2021.
Collectively, the policies are designed to diversify Hainan’s reliance on traditional industries and to function as a strategic trade and investment destination in China. For foreign firms, Hainan will provide broader market access – particularly for industries like telecommunications, tourism, and education – in addition to a phased plan for capital account opening and free flow of money between Hainan and overseas markets.
Hainan Free Trade Port
In addition to the free trade status of the Island, China is also positioning the entire island as a strategic free trade port, meaning developments in several port locations are being ramped up, including the Hainan’s capital, Haikou. That will position Hainan as a major duty-free shopping hub and offer facilities for consolidation of component products being brought in for additional work and assembly from ASEAN and beyond. China already has a free trade agreement with ASEAN, meaning duty free movement of most goods. Vietnam, for example, offers lower production costs than China and its main Ho Chi Minh City Port is just 725 nautical miles, or three-days shipping away. Vietnam, in turn, is connected to landlocked Cambodia and Laos where basic manufacturing costs are lower still. Myanmar, with its low-cost workforce of about 25 million is also nearby. As many readers will know, China last week signed off the RCEP free trade agreement, which also includes Australia, Japan, New Zealand, and South Korea. Companies from these countries will be setting up factories in Hainan to take advantage.
Medical tourism
China has been eying the medical tourism industry for some time, and Hainan is perfectly positioned to become a wellness centre with detox, spa resorts, therapy as well as plastic, cosmetic, and reconstructive surgery. We discussed Hainan’s Medical Tourism Zone plans here. However, it is also positioning itself to cater for serious diseases, such as cancer with treatments not available elsewhere in China. The Boao Lecheng International Medical Tourism Pilot Zone in Hainan has launched a special drug insurance that covers 70 anti-cancer drugs, including 49 medicines not yet approved for sale anywhere else in China. We discussed this here. Qualified foreign doctors and nursing professionals will also be encouraged to live and work in Hainan while the Island’s duty free status and medical tourism zone plan combine to allow importation of medical equipment, and drugs that may not otherwise be easily available. With mainland China’s massive population on the doorstep, the opportunities are huge.
Hainan’s local economy
Hainan’s economy has a small industrial sector and leans heavily towards resource extraction and services. In 2019, its primary industry constituted 20.3 percent of GDP – the highest among any Chinese province – while its secondary industry accounted for only 20.7 percent, which is less than half that of most other provinces. Resources that contribute to its sizable primary industry include the extraction of products, such as seafood, tropical fruit, tea, and rubber, while its tertiary sector is strongly linked to the tourism industry.
Much of Hainan’s secondary industry, meanwhile, is associated with the processing of petroleum and other natural resources like rubber, as well as transport equipment and pharmaceuticals, among others.
Expat attractions
Golf
Please see a map of the current locations of golf courses in Hainan.
Horse racing
China will permit horse racing on mainland China for the first time, while limited forms of gambling – namely betting and sports lotteries – will be permitted in Hainan. Hong Kong and Macao are currently the only jurisdictions in China that allow horse racing and Macao is the only one to permit casinos and gambling. The latter are not yet on the agenda for Hainan, but it cannot be far behind.
Hainan as China HQ for expat CEOs
In addition to the increasingly attractive lifestyle, foreign investors, especially those in the services industries, may establish wholly foreign owned enterprises in Hainan to take advantage of the 15 percent corporate income tax rate. Although duty will be payable on various goods from Hainan exported to mainland China, services are a different matter and especially when combined with sound tax planning.
WFOEs may establish branch offices in China, meaning a Hainan-based business can take advantage of the lower tax rate and lifestyle while still developing a network across China.
Additionally, a WFOE owned by a nearby Hong Kong or Singapore holding company will find it easy, via that entity, to establish subsidiaries elsewhere, such as in Vietnam or other ASEAN countries.
What is the Hainan Free Trade Zone, overview, opportunities and challenges.
April 2018, President Xi Jinping announced the establishment of the Hainan Free Trade Zone to mark the 30th anniversary the establishment of Hainan as a province.
According to the plan, the entire island of Hainan is to be transformed into a free trade zone (FTZ) – the country’s 12th and the first to cover a whole province.
The Hainan government aims for the Hainan FTZ to open in 2020 with a longer-term view for the development of the Free Trade Port by 2035.
Economic profile:
As the only tropical island off China’s southern coast, Hainan is often referred to as “China’s Hawaii”. The province is a popular destination for mainland Chinese tourists, who flock to its many beaches, tropical rainforests and year round and warm climate.
In 1988, Hainan was designated as one of China’s first special economic zones (SEZs), putting it at the forefront of the opening-up campaign spearheaded by the architect of China’s economic reforms, Deng Xiaoping.
Forty years ago, Deng Xiaoping adopted the philosophy of “crossing the river by feeling the stones” in his approach to opening up China’s economy. That idea—which refers to cautiously testing out new methods before expanding them—shaped the reforms that turned China into an economic giant and has been directing China’s development since.
If Shenzhen was one of the earliest pilots for attracting foreign investment, now it’s the turn (again) of Hainan which president Xi Jinping aims to turn into a more liberal economy than any other part of China.
Despite these previous advantages however, Hainan is still relatively underdeveloped compared to other regions in China.
Its GDP per capita of RMB 51,955 (US$7,851) in 2018 for example, ranked 17th out of mainland China’s 31 regions.
Hainan’s economy has a small industrial sector and relies heavily on resource extraction and services.
Resources that contribute to its sizeable primary industry include products such as seafood, tropical fruit, tea, and rubber, while its tertiary sector is strongly linked to the tourism industry.
Much of Hainan’s secondary industry, meanwhile, is associated with the processing of petroleum and other natural resources like rubber, as well as transport equipment and pharmaceuticals.
2018 Major industries:
Agriculture, Internet industry, Medical care, Financial industry, Exhibition industry, Crude oil, Modern logistics, Manufacturing, Real estate and High and new technologies.
Major export commodities:
Machinery equipment, Biotechnology, Computer and communications Technology, Agricultural products, Refined oil, Minerals, Chinese patent medicine and Steel.
RMB 29.767 billion, an increase of 0.7% over 2017.
Total value of imported goods and services:
55.129 billion, decrease by 15.3%
Data sources:
People’s Government of Hainan Province：http://www.hainan.gov.cn
Department of Commerce of Hainan Province：http://dofcom.hainan.gov.cn
Hainan Provincial Bureau of Statistics: http://stats.hainan.gov.cn
The Hainan FTZ blueprint:
In need of new drivers of growth that go beyond natural resources and tourism, China’s economic planners aim to give Hainan’s economy a boost by leveraging its clean, service-driven tropical environment to showcase a China that is proficient in renewable energy and value-added services as opposed to the labor-intensive and export-driven manufacturing that characterise other free trade zones and previous periods of economic development.
Hainan is far from China’s first FTZ, it is however the first that covers a whole province and it will have its own unique policies to attract foreign investment not found elsewhere.
Due to its nature as a self-contained island, Hainan also provides a unique testing ground for planners to trial new pilot policies.
With these goals in mind, China’s central government and the Hainan provincial government have released a slew of documents outlining their plans to build the Hainan FTZ since the original announcement.
The Plan, together with other documents, set forward a timeline for the development of the Hainan FTZ.
Key goals in the blueprint include:
2020
Become an operational FTZ;
Significantly improve international openness;
Build investment and trade facilitation; legal environment regulation; financial services improvements; a first-class ecological environment; and
Lay a foundation for the construction of the Hainan Free Trade Port.
2025
Have the Hainan Free Trade Port basically in place;
Establish a leading business environment in China; and
Ensure that quality and efficiency of economic growth has significantly improved.
2035
Have mature operation of the Hainan Free Trade Port;
Establish a world-leading business environment; and
Be at the forefront of socialist modernisation.
China’s economic planners envision the Hainan Free Trade Port, which will become operational in 2025, to be an economic area with trade and investment incentives akin to Hong Kong and Singapore – two regions known for their business-friendly policies.
In this vein, Hainan will cut the time needed to set up a business to three working days, reduce administrative approval items, and fully implement China’s national negative list.
Planners hope that Hainan’s geographic position in the south of China near the Pearl River Delta mega-region and Vietnam will make it an important port to connect China with South and Southeast Asia.
This also ties in with China’s Belt and Road Initiative, where Hainan will be an important hub on the “Maritime Silk Road”.
Target industries:
Beyond establishing a free trade port and streamlined business environment, Hainan aims to develop and internationalise leading industries from where it already has strengths.
The Opinions state that rather than focusing on transit trade and processing and manufacturing, the FTZ will focus on developing tourism, modern service industries, and high-tech industries.
Tourism:
Hainan already has a large tourism industry, but are looking to make it more international and tailored to specific services and markets.
Authorities had set a target of two million foreign visitors by 2020 – almost double 2018 levels, before the global coronavirus pandemic brought worldwide tourism to a standstill.
Policies aimed at boosting tourism include expanding duty-free shopping, promoting medical tourism, and potentially allowing sports lotteries.
One way that Hainan has already done so is through the introduction of visa-free travel to the island for up to 30 days for tourists from 59 countries.
The visa free policy has had its share of criticism for being over complicated and confusing and is due further reforms and simplification.
In a further effort to boost tourism, Hainan will ease market access requirements for foreign investors to host temporary exhibitions and festivals, as well as to invest directly in cultural and art institutions.
To jump-start the initiative, the Hainan International Film Festival was one of 12 major pilot projects created in the Hainan FTZ in 2018.
Modern services:
Besides traditional tourism, Hainan will seek to promote “modern services” in the FTZ, including healthcare and elder care. These industries interrelate with tourism plans, as Hainan seeks to establish itself as China’s leading medical tourism hub.
Provincial authorities hope that Hainan’s warm climate and clean environment will help it attain this goal, becoming somewhat like Florida is in the US for elder care.
Medical tourism plans go beyond elder care, however, with cosmetic surgery, rehabilitation, and beauty care among the other medical tourism sub-sectors being developed.
Besides treating patients directly, planners hope to develop an associated ecosystem proficient in medical, pharmaceutical, and biotech R&D.
For example, the Boao Lecheng International Medical Tourism Pilot Zone will provide expanded incentives like tariff cuts on medical devices to spur R&D.
In December 2018, the State Council granted the Hainan Provincial Government the right to approve imported drugs for use in the medical pilot zone. This special preferential policy allows patients to use drugs from developed countries and regions such as Europe and the United States, which had been marketed but not yet approved in China.
To attract top talent to the zone, May 5th, 2020 the Boao Lecheng International Medical Tourism Administration announced interim measures to attract doctors and talents in the innovation of medicine and medical equipment.
Doctors, experts and teams practicing in the pilot area can be awarded a total bonus of 25 million yuan.
Other services highlighted in the plan include telecommunications and internet services, finance, and cross-border trade. To stimulate modern services, Hainan authorities have pledged to offer greater market access for foreign investors and lower tax rates for qualified sectors.
High-tech:
As opposed to the more conventional high-tech industries found in China’s most economically advanced regions, such as Guangdong, Hainan will focus its high-tech investments in sectors where it holds unique advantages.
Accordingly, the province’s tech plans will largely tie in with its geography, focusing on agritech, biotech, deep-sea technology and industries such as aerospace.
Qualified tech startups may also enjoy free rent and access to government venture capital funding. Hainan has already set up a modest RMB 500 million (US$63.7 million) fund for startups.
Challenges:
The development of both modern services and high-tech in Hainan is seen as being impeded by the lack of reputed universities.
As seen with the Boao Lecheng International Medical Tourism zone, Hainan is currently prioritising attracting talent from overseas and other provinces to make up for its lack of local expertise.
In April 2020, the Hainan provincial government announced that it would provide more than 30,000 job vacancies for talented individuals from home and abroad this year in a step to gather greater manpower.
Hainan introduced a plan in May 2018, to attract a million talented individuals from home and abroad by 2025, offering them preferential policies including loans, free housing and other welfare arrangements.
The plan provides a large number of high-level talent posts from government bureaus, public institutions, State-owned enterprises, industrial parks, legal institutions and private companies.
In 2018, foreign investment in Hainan grew by an enormous 112.7 percent and trade revenue grew by a sizeable 20.8 percent.
Besides stimulating the economy, Hainan still has its work cut out to improve its business environment.
The Hainan FTZ calls for streamlining bureaucracy and administrative costs, as has been done in the Shanghai FTZ and elsewhere.
In a March 2019 interview with SCMP, Mao Chaofeng, the deputy governor of Hainan province and one of the top 13 provincial committee members, acknowledged that the province still has a lot of work to do to transform Hainan into a modernised economy comparable with Shanghai or Shenzhen.
Setting Up A Business in Hainan Free Trade Zone
Hainan Free Trade Zone company registration is also referred to as Hainan corporate formation, Hainan business setup, Hainan company incorporation. Hainan is the smallest and southernmost province of the People's Republic of China, consisting of various islands in the South China Sea. Being China’s largest Special Economic Zone, nominal GDP of Hainan province has been increasing steadily. In simple words, Hainan provides many opportunities for foreign businesses.
To facilitate people who want to invest and set up business in Hainan Free Trade Zone , here is an introduction of Types of business presence in China:
Before starting up a business in China, you have to know what are the options. Foreign Investors generally establish a business presence in China in one of five modes: Wholly Foreign Owned Enterprise (WFOE); Representative Office; Foreign Invested Partnership Enterprises (FIPE); Joint Venture and Hong Kong HoldingCompany.
WhollyForeign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor. WFOE requires no registered capital and it's liability of equity , can generate income, pay tax in China and it's profit could be repatriate back to investor's home country. Any enterprise in China which is 100 percent owned by a foreign company or companies can be called as WFOE.
RepresentativeOffice (RO) is a Liaison Office of it's parent company. It requires no registered capital. It's activities would be: product or service promotion, market research of it's parent company's business, Quality Control liaison office etc in China. RO generally is prohibited to generate any revenue nor generating contracts with local businesses in China.
SinceMarch 1, 2010: Measures of Establishment of Foreign Invested PartnershipEnterprises (FIPE) in China is taking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Guangzhou, Shenzhen, Hangzhou and rest cities of China
HongKong Company usually been used as a Special Purpose vehicle (SPV) to investMainland China. Hong Kong is one of the quickest locations to Incorporate a business. Although a HK company is not a legal entity in Mainland China (MainlandChina and Hong Kong, See Wiki 1 country, 2 systems), lots foreign investors, especially investors from Europe and North America still chose to setting up a Hong Kong company as SPV to invest China.
After China's entry to WTO, most industries in China welcome foreign investment, WFOEsetting up in China becomes the first option of foreign investment's entitystructures instead of Rep. Office setting up in China. At the mean time, for tax purpose, effective licensing system etc more and more investors use Hong Kong as the holding company to invest China mainland, using this offshore company to hold their operations in China.
Business set-up in Hainan is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls . Tommy China Business Consulting has direct connections in the local government
Since 2006, TCBC has been focusing on consulting services for our clients to invest in Haikou, Sanya Hainan China. We are specialized in establishment of wholly foreign owned enterprises (WFOEs), setting up of offshore companies, trading services,tax minimization, Assist in obtaining government approvals and certificates for running business, negotiate and draft various legal documents provide legal advice, negotiate government officer for Land acquisition. Advising on formation of WOFE and business structures, managing and controlling WOFE in Hainan China, drafting privacy policies and structuring commercial transactions
