China’s Hainan free-trade port tipped to deepen Asean ties, but island must ‘brave’ uncertainty
- Southeast Asian firms will be incentivised to invest in Hainan, especially in the service sector, thanks to the easing of restrictions and lower taxes
- Hainan, which is being touted as an international tourism island and duty-free hub, could see a surge in travellers and exchanges with Asean nations
Hainan’s transformation into a free-trade port will open new doors for trade between China and Asean, but its success will require a leap of faith and pioneering spirit, experts said.
Seated at the southernmost tip of China, the free-trade port is well placed to strengthen ties with the Association of Southeast Asian Nations (Asean), which collectively overtook the European Union to become China’s biggest trade partner in 2020.
Asean companies will be incentivised to invest in Hainan, especially in the service sector, thanks to the easing of restrictions and tax breaks, said Shen Danyang, executive vice-governor of Hainan province, at the Boao Forum last week.
Travel between Singapore, Malaysia and Thailand used to be a popular route for Chinese tourists. Hainan, which is being touted as an international tourism island and duty-free hub, could be a part of the itinerary in the future, said Shen, adding that foreign travel agencies will be able to set up businesses on the island, which they cannot do on the mainland.
“Tourists could come to Hainan before going to places such as Vietnam, Cambodia, Indonesia and Singapore, and shop offshore duty-free products which could be directly delivered back home, each person can purchase as much as 100,000 yuan (US$15,255),” Shen said.
Tourists from Southeast Asian countries could also be inclined to visit Hainan before touring mainland China, he said.
“This will expand the scale of bilateral tourism and provide opportunities for education and employment collaborations,” said Shen, adding the province will soon allow skilled foreign workers to be employed depending on market needs.
In 2019, tourist trips between China and Asean topped 65 million, with nearly 4,500 flights, up from 57 million trips and 4,000 flights in 2018.
Chinese investors will also be encouraged to register in Hainan, as their overseas spending will receive an income tax exemption, Shen said.
President Xi Jinping said during a visit to Hainan earlier this month the island must become an internationally influential free-trade port with Chinese characteristics.
But questions remain on how it will operate outside of systems used on the mainland.
“We must have an idea of what characterises an advanced free trade port in the 21 century; the arrangements in terms of legality, talent, capital as well as policies and strategies will all be different from the mainland,” said Wu Xiaoqiu, former vice-president of Renmin University of China and dean of China Capital Market Research Institute, at the Boao Forum for Asia.
At the same time, the free-trade port is part of Xi’s plan to maintain global trade and service flows when the United States is threatening to decouple from China and Hong Kong’s role as international finance centre is under threat following the implementation of a controversial national security law.
Hainan’s experience is often compared with the transformation of Shenzhen in the 1980s, from a sleepy fishing village into a thriving special economic zone that encourages entrepreneurship and rakes in foreign trade and investments.
But the success of Shenzhen took a lot of pioneering spirit and courage to make mistakes, Wu said.
“[Hainan] needs to be brave enough to take responsibilities, there is no way of knowing which path is the right one while exploring an untrodden path. There could be detours taken, but we must go towards this direction,” he said.
Hainan also needs to find its place in the Regional Comprehensive Economic Partnership (RCEP) framework, which is the world’s largest free-trade agreement, said Bert Hofman, the director of the East Asian Institute at National University of Singapore and former World Bank Country director for China.
RCEP involves about 15 countries and covers nearly a third of the global population and about 30 per cent of its global gross domestic product.
Though Hainan can learn from Singapore when creating a free-trade port, there is a big difference – one is a country, the other a province, Hofman said at the forum last Thursday.
“Hainan must better communicate with the central government to find its place in the system, this is the key,” he said.