Hainan Free Trade Port Law – New customs and taxes regimes, new business opportunities

 

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).

1. 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.

All you need to know about Hainan's offshore duty-free policy

 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.

Hainan charts plans to further attract businesses

 Ma Zhiping

Updated: Aug 25,2021 09:11    China Daily

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.

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China’s Hainan free trade port: Introducing an innovative tax regime to attract investment

 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.

Zero-tariff regime to build up a base for free trade

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

One of the highlights of the Hainan FTP plan is the low corporate income tax (CIT) and individual income tax (IIT) rates. Specifically, for the period to 2025, a reduced 15% CIT rate applies to enterprises registered in Hainan FTP, engaged in listed “encouraged industries” and conducting substantive business activities; for reference the standard China CIT rate is 25%.

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.

The simplified tax system is another key element of the Hainan FTP plan. The plan sets out that China’s various turnover taxes (e.g. VAT, consumption tax, vehicle purchase tax, etc) will be consolidated (solely for Hainan FTP) into a single ‘sales tax’ by 2035, to be levied at retail stage on goods/services. This means that, by 2035, there would be only seven taxes applied in Hainan (China has 18 taxes). These include CIT, IIT, property tax, stamp duty, resource tax, environmental tax and sales tax.

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.

Legal system improvements and substance requirements

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.

Read also:

• China: Master plan for Hainan free-trade port unveiled
• Webinar: The development of China's Hainan free-trade port

Is Hainan Island Possibly the Best Place for a China Foreign Investor & CEO to be Based?

 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.

About Hainan Resort Software Community (RSC)

 

 Standing on the River Meilun in the west of Hainan Island, Hainan Resort Software Community on the Yinbin Peninsula is thriving. 

As one of the 11 major parks established to pursue initial policies of Hainan Free Trade Port, the community serves as a pilot and exemplary zone for relevant constructions. It has been recognized as a state-level technology business incubator and one of the first national bases for the export of digital services.

The community aspires to build itself into a source for digital trade and a base for financial innovation while gathering outstanding talents. It opts to establish a national blockchain zone and achieve digitalization in culture and sports industries, healthcare, and finance. Based on the integrated application of blockchain technologies, it is expected to become a free and digitalized port with thousands of enterprise functioning to support and millions of citizens better served, hence the fulfillment of “a linked and accessible Hainan”.

During the 13th Five-Year Plan, the revenue of RSC delivered an average annual growth of 50.86%. Intakes of enterprise, profits earned and the tax revenue in 2020 all doubled. 

With giants like Tencent and Baidu settled in the park, RSC now boasts 9206 registered companies in total. In a favorable and steady manner, the community is making its contribution to the early achievement of Hainan’s goal of a 1-trillion-worth digital economy.  

Oriented toward targeted markets and senior talents, the community leaves no stone unturned when it comes to creating an enabling environment where systematic and professional services will be offered for registered companies and special efforts will be made to facilitate cooperation among those leading ones. While building a national pilot blockchain zone, the community is expected to bring in high-quality innovation platforms and exceptional scientists and engineers home and abroad, thereby providing strong support for the development of digital economy in Hainan Free Trade Port.

“We work at a park and innovate in daily life”. The community comes with beautiful surroundings and complete “micro-city” facilities for working, living, education, business, and entertainment. iSchool (micro-city future school), micro-city theater, library, stadium, and healthcare are all in operation now. Invested in CNY 2 billion and working in strategic collaboration with Beijing National Day School, iSchool values students and educates them to be “confident, disciplined and free” in future society. Such facilities will draw mid-to-high-end talents and constitute a reason to stay.  

The first phase of Hainan Resort Software Community has been concluded, and the second one is now under construction by high standards, following the “people-oriented” philosophy. New lifestyles on a technology-driven basis will be formed in meeting talents’ needs for happy life including those for personal career, kids education, and parents care. 

New FTZ area set up for Hainan

Aerial photo of the Haikou Jiangdong New District of China (Hainan) Pilot Free Trade Zone taken on June 3, 2018. [Photo/VCG]

Benchmark development zone established in provincial capital

Hainan, China's southernmost province, has established a new benchmark area to promote development of the China (Hainan) Pilot Free Trade Zone, it was announced on Sunday.

The new area－the Haikou Jiangdong New District of China (Hainan) Pilot Free Trade Zone－covers 298 square kilometers on the east coast of Haikou, the provincial capital. It will have two parts: a 106-sq-km ecological region boasting a key national wetland natural reserve, and 192 sq km that will serve both industrial and urban purposes.

On April 13, while celebrating the 30th anniversary of Hainan being made a province and a special economic zone, President Xi Jinping unveiled grand plans to build it into a pilot free trade zone and gradually explore the building of a free trade port with Chinese characteristics.

"We will make sincere efforts to turn the new district into a concentrated area to showcase the construction of the China (Hainan) Pilot Free Trade Zone, and make it an innovative zone for comprehensively deepening reform and opening-up, a display of the country's ecological civilization pilot zone, an experience area for international tourism and consumption and a demonstration of Hainan as a zone offering services and support for the country's major strategies," Fu Xuanchao, a member of the new district planning and leadership group and director of the Hainan Provincial Development and Reform Commission, told a news conference in Haikou on Sunday.

Aerial photo of the Haikou Jiangdong New District of China (Hainan) Pilot Free Trade Zone taken on June 3, 2018. [Photo/VCG]

Located in the core of the northern Hainan comprehensive economic integration circle that links the cities of Haikou, Chengmai and Wenchang－which has China's only tropical and coastal space launch center－the Jiangdong New District has a robust ecology with rivers, lakes and wetlands. It also enjoys the convenience of Meilan International Airport and sufficient land resources to support integrated, high-level planning and development.

"The new district will be an international trading venue for energy, shipping, bulk commodities, property rights, stock equities and carbon credits," Fu said.

He said the new district will host the regional headquarters of international and domestic industrial conglomerates and groups, scientific research institutions and service organizations, and also be built into an international financial trade center and international education base.

According to the provincial plan, the new district will become functional in three years and basically formed in seven years. It will be an open, inclusive, world-class new city built in line with world vision, international standards and featuring Hainan characteristics.

"We will build it into a new area where the ecological systems enjoy the highest level of protection," Fu said. "It will be a world leading, ecological central business district, where Chinese traditional culture and Hainan local culture will be highlighted."

Aerial photo of the Haikou Jiangdong New District of China (Hainan) Pilot Free Trade Zone taken on June 3, 2018. [Photo/VCG]

He added that Jiangdong will be an important window to showcase China and create an urban development solution for the world.

Haikou Mayor Ding Hui said Hainan was officially launching the conceptual planning for the new district by calling for expressions of interest. He said outstanding planning and designing institutions could hand in applications by June 22, after which their qualifications would be examined.

Hainan has recently issued a large number of measures, such as investment promotion and talent invitation campaigns, aimed at building the China (Hainan) Pilot Free Trade Zone and free trade port with Chinese characteristics and exploring a new, open economic system.

By MA ZHIPING | China Daily 

Haikou Integrated FTZ to open B2C e-commerce services

The Haikou Jiangdong New District of China (Hainan) Pilot Free Trade Zone covers 298 square kilometers on the east coast of the city. [Photo by Ma Zhiping/chinadaily.com.cn]

The Haikou Integrated Free Trade Zone (FTZ) completed clearance procedures for its first cross-border e-commerce Business to Customer (B2C) direct purchase business on Aug 31 and will energetically develop the services in September.

The mode of cross-border direct purchase enables domestic consumers to buy overseas products directly from e-commerce transaction platforms networking with customs. Parcels posted from abroad are delivered to consumers after customs supervision and inspection. Its advantages include cheaper prices, up-to-date brand styles and convenient and safe customs clearance.

The first batch cleared on Aug 31 encompassed nearly 1,000 parcels of cosmetics, skin care products, clothes, shoes and hats from Canada and Australia. They were sent to Beijing, Shandong, Guangdong, Shanxi, Shanghai and other places in Hainan province through EMS. This month, more products from North America, East Asia, Australia and Southeast Asia will arrive at the Haikou Integrated FTZ and be distributed nationwide.

The Haikou Integrated FTZ has also taken some innovative measures to promote the building of the China (Hainan) Pilot Free Trade Zone and a free trade port with Chinese characteristics. The 20,000-sq-m warehouse and the 7,000-sq-m international business center of the cross-border e-commerce industrial park have begun serving more than 20 e-commerce enterprises in business. The innovative model integrating cross-border e-commerce with new retail is being promoted to help build Hainan into an international tourist consumption center. Moreover, the FTZ sent staff to famous domestic e-commerce enterprises to promote cooperation with good results

Four reasons to invest in the China (Hainan) Pilot Free Trade Zone

The China (Hainan) Pilot Free Trade Zone [Photo/VCG]

【The biggest pilot free trade zone in China】

The China (Hainan) Pilot Free Trade Zone (HNFTZ) will be developed into an international free trade port that covers the whole island, with an area around 35,000 square kilometers. The total area of China' other 11 free trade zones is only about 1,300 square kilometers. Once Hainan is completely opened up, it will be the first free trade zone at the provincial level and the biggest pilot free trade port in the world, 49 times bigger than Singapore, 32 times larger than Hong Kong, and nine times the size of Dubai -- three of today's world-leading free trade ports.

【The artery of transportation by sea】

Mandated to take control of a 2-million-square-kilometer area on the South China Sea, Hainan connects the Pacific Ocean and the Indian Ocean and is a hub for marine international shipping. The island has a number of ports constructed for international trade, including Haikou Port, Qinglan Port and Mulan Port in the north; Sanya Port and an International Cruise Terminal in the south; Longwan Port in the east; as well as Yangpu Port, Baimajing Port and Basuo Port in the west. It offers key sea lanes between Northeast and Southeast Asia, by which an average of 79.1 percent of global goods are transported every year between the Association of Southeast Asian Nations (ASEAN), Asia, Europe and the Americas. Apart from convenient international transportation of cargo, rich options are also provided for the citizens -- two international airports, as well as railways and highways reaching out from the island.

Since 2001, the annual Boao Forum for Asia (BFA), which boosts international communications and deepens opening-up, has been held in Hainan. With the aim of promoting the development of the HNFTZ, Hainan will set up a platform for ship marketing services, shipping, financing and talent cultivation for importers and transporters, and a bulk commodity exchange for trade in crude oil, palm oil and rubber.

【Prioritizing full convertibility of renminbi & tax free policies】

A tryout to develop renminbi into an international freely tradable and usable currency will be launched in Hainan with a view to an onshore capital market with full convertibility of the currency. In contrast to the China (Shanghai) Pilot Free Trade Zone where corporations reign supreme in economic contributions, Hainan is more diverse and balanced, and has more flexibility on capital flows and more opportunities for international exchanges. To attract foreign capital and ease restrictions on foreign investors, the interest and exchange rates of the renminbi in Hainan will remain the same as the domestic market rates; meanwhile a means of multilateral settlement for trade in the global scope will be provided. Once implemented on the whole island, it will make free exchange of renminbi available, bridging the domestic market and its global counterparts.

As the most open economic zones in the world, free trade ports are inside national territories but outside national customs boundaries; thus most commodities have low or no tariffs. Vessels from all countries can dock on Hainan Island and all commodities can be transported without taxes or customs declarations. From 2012 to 2017, the total revenue of Hainan’s duty-free industry surged from 2.38 billion yuan ($349.4 million) to 30.59 billion yuan, an increase of 26.98 percent in Compound Average Growth Rate (CAGR). Hainan enjoys promising potential as an international shopping center due to its tax-free policies and large consumer groups -- a population of 9.2 million and a large number of tourists worldwide (67.5 million in 2017).

【Mainstay tourism industry & booming service industry】

Due to its warm weather in all seasons and rich tourism resources such as tropical forests, beaches, and ethnic group villages, Hainan is a famous resort for tourists all over the world. To stimulate consumption and promote tourism, the Hainan government plans to grant 32 more countries airport tourist visas and prolong the duration of visits to 30 days.

Recreational facilities for legal lottery and sports-betting such as horse-racing will be built on the island to compete with Hong Kong and Singapore. In the first half of 2018, a total of 147.3 million people visited two tax-free shopping centers in Haikou and Sanya, recording sales of 5.29 billion yuan, up 24.6 percent year-on-year. Another two international shopping centers will be built in Haikou and Qionghai. Inspired by the vision of building Hainan into an international tourist destination, the HNFTZ will offer a new world of opportunity to service and cultural industries.