As part of China’s push to open its doors to foreign investment amid a slowing economy, the central government has vowed to grant foreign firms greater economic freedom on the island, with priority given to the development of the trade, tourism and hi-tech sectors.

The targets for the province are clear. By 2020 Hainan is expected to be operating as a “high standard and high-quality FTZ” promoting foreign trade and investment and acting as a “pilot zone for the reform and innovation of China’s tourism industry”.

By 2025 Hainan’s free trade port system should have taken shape and, in 2035, it is expected to have matured into a globally influential trading centre for the digital age.

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Mao Chaofeng, deputy governor of Hainan province and one of the top 13 provincial committee members running the island, told the South China Morning Post that a top challenge was to overcome the province’s accumulated past shortcomings in time for the FTZ to be in place next year.

“To be honest, Hainan is still lagging behind in development if we look at it from a national level. Our GDP, GDP per capita … especially our hardware, still have some way to go in becoming the FTZ,” Mao said on the sidelines of the political meetings in Beijing.

Although the island, at the southernmost part of China, has been the country’s biggest special economic zone since 1988, it has trailed rival zones, such as Shenzhen, in development and status.

The advancement of Hainan has been a national-level strategy for three decades and yet, according to the latest data from China’s National Bureau of Statistics, it ranked only 14th out of the country’s 31 provinces in terms of per capita disposable income in 2017.

“We have not reached the [Communist] party’s target of transforming into a modernised economy that can support a FTZ or free trade port yet … our airport, railway, seaport … these are where we are still seeing shortcomings,” Mao said.

Building Infrastructure

Work on a new airport at Sanya, the island’s most popular tourist destination, has been stalled for more than 1½ years. The project was stopped by the central government in July 2017 when it was revealed the necessary environmental impact clearances for the reclamation work had not been obtained.

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Mao said no further progress had been made on the US$15 billion project, despite the reclamation work that had been carried out in the earlier stage.

“But the airport will be built because, without it, we will not attain our goal of becoming a world-class tourist spot. It’s just that we are still in the planning stage, still trying to get documents approved, but it has to go on,” Mao said, without revealing the government’s target date.

Expanding Tourism

Overseas visitors to Hainan numbered about 1.1 million in the first 11 months of last year, up 12.6 per cent on the previous year, a figure the island’s authorities aim to double to 2 million by 2020.

If achieved, that target will be well below the visitor numbers enjoyed by rival holiday destination Bali which, at one-sixth the size of Hainan, welcomed 5.2 million foreign tourists between January and October last year.

In a bid to lure overseas travellers to Hainan, Beijing waived the visa requirement in May last year – shortly after Xi’s announcement of the FTZ plan – for individuals and groups from 59 countries, including Britain, France, Germany, Russia and the United States.

But, while the tropical island province remains a favourite holiday destination for domestic tourists, Mao admits the present visa system is still failing to maximise visitor numbers from overseas.

The Post reported last year that, since the scheme’s launch, there had been a number of cases of people arriving in Hainan only to be refused entry, with most visitors having to spend 24 hours in the arrivals lounge before they were eventually given the green light.

The problem is that, while tourists are allowed to visit Hainan for up to 30 days without a visa, they must submit their personal and flight documents through a local travel agency 48 hours before arrival. They then face a processing delay, which includes having their fingerprints taken, before they are permitted to leave the airport and begin their holiday.

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“We are in discussion with the immigration department on how to implement an actual visa-free policy,” Mao said.

“To build an FTZ, we do understand that it has to be favourable to the free flow of people, logistics and capital. Without these we cannot call ourselves free,” he said, adding he was still optimistic as Hainan had relatively more freedom than other parts of the country in managing its unique policies under its new FTZ status.

Economic restructuring

The island, with its 9.3 million population, has been infamous for booms and busts in its housing market as a result of speculative capital. Property prices in the provincial capital of Haikou have surged 80 per cent since the start of 2017, the second-biggest jump among all Chinese cities where such data is available.

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Nine days after Xi’s announcement about the FTZ, which triggered a rush in property transactions and price increases, the provincial government imposed an island-wide sale ban, including a requirement for non-residents or new residents to have two-year work records before they could make home purchases.

According to the provincial statistics bureau, property investment fell by 16.5 per cent in 2018, while sales were down 37.5 per cent.

“The policy has really made our property market more stable. We are very determined to cut off our economy’s reliance on the property market because it is just unsustainable,” Mao said.

Mao said there were no plans to loosen Hainan’s tight property purchase laws, even though the market had stabilised.

Talent and technology

In the document released by the central government alongside Xi’s speech announcing Hainan as the next FTZ, the province was also asked to become an “island of talent and technology innovation”.

“Hainan currently lacks the supply of tech personnel, protection of innovation, and policies to support innovation … I believe we have to be more focused when developing in tech, and we need to focus on what we are already good at,” Mao said.

Mao said the island had an edge in deep sea technology, given its geographical location. He also has high hopes for further development of agricultural technology in the province, due to its dominant primary sector – predominantly fisheries – which accounts for one of the largest shares in its GDP among all of China’s provinces. Aerospace technology was another potential area for development, with China’s fourth spacecraft launch site established in the Hainan city of Wenchang in 2014.

Mao said he hoped the newly introduced foreign investment law, expected to be passed by the end of the NPC, would somehow attract more foreign firms to Hainan, especially in the fields of technology and innovation.

In the five years through 2017, Hainan attracted less than US$10 billion in foreign investment – only 1.5 per cent of China’s total – and has struggled to find its place in the nation’s economic landscape. Up to 80 per cent of foreign investment in Hainan still comes from Hong Kong and Macau.

But Mao is optimistic. In the past year, he said, Hainan had attracted investment from Thomas Cook, the Britain-based leisure travel corporation, and confirmed plans for an international branch of Harrow School – one of Britain’s most expensive and privileged private boarding schools.

“When I went to the United Kingdom for a promotion of Hainan as an FTZ last year, I found many elites in British society had never heard of Hainan. We hope that is going to change,” Mao said.