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China economy

Go Hainan? China tries to woo the world to its Hawaii

Beijing plans to open up tropical island paradise to outside investment, and that includes access to the internet

PUBLISHED : Tuesday, 16 October, 2018, 8:30pm
UPDATED : Tuesday, 16 October, 2018, 8:42pm

Beijing is opening the tropical island of Hainan – China’s answer to Hawaii and its southernmost destination – to foreign investors, including the granting of overseas control of some internet services, in its boldest gesture yet that it is prepared to open its arms to the outside world, despite the ongoing trade war with the US.

According to a long policy guideline released by the Chinese government for Hainan, now labelled as another “free-trade zone”, the Hainan government will have the authority to license value-added telecom services, which normally require approval from the central government in Beijing.

The island will also allow foreign investors to take majority stakes in services such as internet access, video conferencing, and voicemails, according to the guideline published by the State Council on Tuesday.

The new regulation allows foreigners to invest in China’s virtual private network (VPN), a service often used to bypass the country’s internet censorship, but caps foreign ownership at 50 per cent.

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The guideline comes nearly six months after Chinese President Xi Jinping announced a plan to make the whole island, which is a bit smaller than Switzerland with 9 million people, a free-trade zone and a new front in opening up to the rest of the world.

In the guideline, Beijing portrayed Hainan as a significant portal opening up the Pacific and Indian Ocean and asked the local government to carry out a more proactive policy to woo investors.

As the trade war between China and US rages on, the Chinese government is trying to show a friendly face to traders and investors, including US businesses, to maintain the country’s position in global value chains.

Vice-commerce minister Wang Shouwen, a key member of Beijing’s team talking with the US over trade, said at a press conference in Beijing on Tuesday that the Hainan free trade plan “demonstrated China’s confidence and determination in opening up to the world”.

In the guideline, the central government lifted restrictions of foreign investment in new-energy vehicle manufacturing on the island. It also allows foreign investors to take more than 50 per cent shares in sectors such as shipping, general aircraft design, manufacturing, and maintenance. Foreign shares in life insurance companies were loosened to only 51 per cent.

Some of the so-called special policies can be found in other places as well. For instance, Tesla has already signed a deal with the Shanghai government to set up an exclusively owned factory there.

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At the same time, the new guideline did not mention horse racing and related betting services, a highly hyped subject that many believe will help the sleepy Hainan economy.

The Hainan government has previously announced a few ambitious but controversial polices, such as recruiting one million skilled migrants to the island and setting up zones with uncensored internet access so foreigners could access Google, Facebook and Twitter – the plan was scrapped after only two days.

Hainan is looking for new sources of economic growth as property sales are on hold and seasonal tourism is insufficient to drive its economy.

Compared with the development of Shenzhen, which became a special economic zone in 1980, Hainan has lagged far behind. In the late 1980s, Hainan’s economy was larger than Shenzhen’s – now it’s only a fifth of the size.