China’s massive Hainan free-trade port plan raises questions over global trading rules compliance, experts say
- China’s plan to turn Hainan into a free-trade port may run counter to global trade and competition rules, experts say
- Free-trade zones are common, but few are on the scale of Hainan, nor do they promise access to the world’s largest consumer market for select firms
While the world is dotted with free-trade and special economic zones, few are on the scale of Hainan, China’s most populous island, covering an area only slightly smaller than Taiwan, and home to more than 9 million people.
As a World Trade Organisation (WTO) member in its own right, Hong Kong has independent trade and customs regimes and policies to those set in Beijing. Hainan however, does not, and some experts have questioned whether establishing a separate massive customs regime off China’s southern coast might flout global trading rules.
Hainan will offer duty-free treatment for most goods and commodities, lower income tax and relaxed visa requirements for foreign tourists and professionals, but crucially will also allow goods to enter the rest of China duty free, provided 30 per cent of their value is added on Hainan.
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It is thought that customs control between Hainan and mainland China would be established by 2025, with the full Hainan blueprint to be rolled out over the following 10 years.
Trade and customs specialists are concerned that the scale of Hainan, coupled with the fact that firms allowed to open factories there could have cheaper access to China’s giant consumer market, could skirt competition rules.
While the WTO does not have precise provisions on free-trade zones, the Hainan blueprint is “inconsistent with the WTO spirit and principle that trade and customs legal rules shall be administered and applied consistently and uniformly throughout a customs territory”, said Zhaokang Jiang, an expert on Chinese customs and managing partner of GSC Potomac, a trade consultancy.
“In appearance, the Hainan free-trade port is ‘going back’ to the original special economic zone programme, with even more preferential tax and trade incentives,” said Jiang, referring to the steps China took as part of its WTO application to harmonise tariff and customs regimes for the entire country, including bringing the separate tariff scheme for Tibet into the central customs system.