Economic Zones

Why Hainan could transform China's future

China is still on track for an economic opening to global trade and tourism. One of its most recent master projects demonstrates this. In July 2020, a master plan to create the first Free Port in this Asian country was published.
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July 13, 2022
July 13, 2022

Introduction

China is still on track for an economic opening to global trade and tourism. One of its most recent master projects demonstrates this. In July 2020, a master plan to create the first Free Port in this Asian country was published.

China is betting on creating a free trade port in its southernmost province, the island of Hainan. The Central Committee of the Party and the Council of State, through a joint document, announced the future conversion of Hainan into a "free trade port" (FTP). This term's choice shows a greater magnitude than the traditional "free trade zone" (FTZ), primarily oriented towards the trafficking of goods. The program details a series of regulatory facilities in all areas - tax, foreign investment and ownership, commercial operations - to promote the transit of capital, data, and people.

The size of Hainan (33,920 km2) is comparable to the size of Belgium or 32 times the size of Hong Kong and 49 times that of Singapore. With a GDP of USD 69,9 billion, its economy is the size of Panama. Currently, there are no declared free trade zones that exceed 120 square kilometers in China.

Source: China Briefing. (2018). https://www.china-briefing.com/news/hainan-free-trade-zone-what-is-the-progress/

History

Since the 1980s, Hainan has been a special economic zone in China. Before that, the province had a reputation for being untouched by industrialization, and today the region still has relatively few factories. Tourism (thanks to its tropical beaches and forests), agriculture with tropical fruit production, and fishing and fish farming play a major role in Hainan's economy.

According to economic data, Hainan's take-off never happened despite the special economic zone status; it even lagged behind China's growth. For example, it is worth noting that Hainan's salary is on average 10% lower than in the rest of the country. Some experts claim that the cause of this failure was financial speculations in the 1980s and early 1990s. The speculation was mainly in the real estate sector, so this time Hainan has stricter regulations for acquiring property to prevent this kind of problem from re-emerging and hurting the local economy.

Main cities:

Haikou: 2,046,189

Danzhou:932,362

Sanya: 685,408

Image Source: China. (2017). http://www.stats.gov.cn/tjsj/ndsj/2018/indexch.html

Benefits 

Tax measure incentives are effective from January 1, 2020, and will expire on December 31, 2024, and target specific industries: 

  • A tax exemption for the sectors of tourism, modern services, and high and new technologies; 
  • Accelerated tax deductions for eligible capital expenditures; 
  • And a 15% effective individual income tax rate.

Although the plan is to turn the entire island into a free trade port, the Chinese government was unequivocal in which industries and clusters it wants to pay more attention. They are the following: 

  • Coastal Ecological Headquarters cluster;
  • Big Airports cluster; 
  • International Comprehensive Service cluster; 
  • International Cultural Exchange cluster; 
  • Offshore Innovation and Entrepreneurship cluster;  
  • International Higher Education Research cluster.

Tourism

In the south of the country, the tropical Chinese island of Hainan will authorize tourist stays for up to one month without the need for a visa to citizens of 59 countries. The measure came into effect on May 1, 2020, making Hainan the most open Chinese province to foreign tourism. China, the fourth leading world tourist destination after Spain, France, and the United States, has tried to expand foreign visits in recent years with visa exemption policies for travelers in the country's main cities, although only for stays shorter than 72 hours. 

Image Source: (CNN, 2017) https://edition.cnn.com/travel/article/hainan-hotels-design/index.html 

Hainan Visa-Free Countries List - 59 Countries:

  • 6 American Countries: the United States, Canada, Brazil, Mexico, Argentina, Chile
  • 2 Oceania Countries: Australia, New Zealand
  • 25 Schengen Agreement Countries: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland
  • 15 Other European Countries: Russia, the United Kingdom, Ireland, Cyprus, Bulgaria, Romania, Ukraine, Serbia, Croatia, Bosnia-Herzegovina, Montenegro, Macedonia (FYROM), Albania, Belarus, Monaco
  • 11 Asian Countries: Korea, Japan, Singapore, Malaysia, Thailand, Kazakhstan, the Philippines, Indonesia, Brunei, United Arab Emirates, Qatar

China's Hawaii, as Hainan is known, in 2019 received 83 million national and foreign visitors due to its paradisiacal beaches. And they spent around USD 15,000 billion. 

Although China has had a deficit in its trade balance for tourism, and its efforts to attract tourism to this island have been significant, less than 2 million tourists to Hainan were overseas visitors. Chinese tourism accounts for more than 97% of the island's tourists. This imbalance is due to a dysfunctional strategy to attract tourists from other countries. The visa issue hides some asterisks. Although it is already a visa-free zone for some countries, it still requires that the passengers' data be sent through a local travel agency 48 hours before they arrive on the island. Processing upon arrival, including having their fingerprints taken, leads to multiple delays and inconveniences.

Medical Tourism

South China's Hainan Province has revealed plans to build a world-class health tourism center on the tropical island, combining high-end health tourism with traditional Chinese medicine and culture. This initiative is part of a plan unveiled by the China National Development and Reform Commission to encourage Hainan's tourism-related activities. Focusing on four key areas: medical treatment, medical cosmetology, rehabilitation, and health promotion, Hainan will attract internationally renowned institutions, insurance providers, and service agencies to build a high-level foundation for the international health tourism market, according to the plan.

Image Source: (Booking, 2020) https://www.booking.com/hotel/cn/bo-ao-le-cheng-yi-he-kang-yang-du-jia-jiu-dian.fi.html 

This program of medical tourism in Hainan will be reserved for another article. There is a lot of exciting information to cover about this fascinating project that revolutionizes the way of doing medicine in free trade zones.

Infrastructure

Road network: Hainan has a road network of 17,000 km. The main road circles the island along the coast and allows one to go from Haikou to Hainan in about three hours. Long-distance bus transport networks, centered on Haikou and Sanya, serve the entire island. Local bus networks supplement these means of public transport.

Image Source: (Research Gate, 2018) https://www.researchgate.net/figure/Road-hierarchy-on-Hainan-Island_fig1_323233159 

 

Railway: Hainan has three modern, standard gauge railway lines with electric traction trains. These lines go all around the island along the coast:

The western circular line connects the island's two principal cities (Sanya, the main tourist center, and Haikou, the island's administrative and economic capital) along the west coast. Embryos of this narrow gauge line were created by the Japanese during their occupation of the island. Several new sections were subsequently built, but it was not until 2004 that the continuous link between Sanya and Haikou was inaugurated. The 368 km line is covered by freight trains and a few passenger trains. 

The western circular high-speed ​​line was inaugurated in December 2015. It was built to allow faster circulation of passenger trains. Its layout is practically parallel to the first line but with slopes and curvatures of the track adapted to the speed. The line, slightly shorter (344 km), serves 16 stations and completes the route in 1 hour 56 minutes and its price is 228 yuan ($34 USD) to complete the whole loop.

Image Source: (CGTN, 2019) https://news.cgtn.com/news/3d3d514d7855544e33457a6333566d54/index.html

The eastern circular high-speed line runs from Haikou to Sanya along the east coast. This 213 km line was inaugurated in January 2011. It serves 15 stations (20 in the long term). In 2016, 8-wagon railcars of the CRH1 series provided ten connections per day, covering the distance in 1 hour and 22 minutes (maximum speed 250 km/h). One train per day from Sanya crosses the strait separating Hainan from the mainland on a ferry and continues to Canton. The rail travel time to major cities in China as of 2016 is Canton 15:25 hours, Shanghai: 36.5 hours, and Beijing 35 hours.

Despite this extensive network of roads, the island continues to be an island detached from mainland China since it does not have a direct crossing bridge to the island for trucks or cars. There are plans for the construction of a bridge to connect the island with the country.

Airports: Hainan has two international airports with regular lines connecting them not only to Beijing, Singapore, Hong Kong, and Macao but also to Russia, South Korea, and Japan:  

  • The International Airport of Haikou Meilan (code IATA: HAK • ICAO code: ZJHK ) serves the island's capital to the north. 
  • The International Airport of Sanya Phoenix (code IATA: SYX • ICAO code: ZJSY) serves the island's main tourist area. 

A third airport, Sanya-Hongtangwan International Airport, is under construction.

Image Source: (Construction Review Online, 2020) https://constructionreviewonline.com/news/second-phase-of-meilan-international-airport-project-to-be-completed-by-end-of-2020/

Haikou is the headquarters of the regional company Hainan Airlines, which belongs to the HNA Group conglomerate.

Despite being the headquarters of such a vital airline, Hainan's connectivity is minimal. Direct flights to the island were scarce even before the Covid-19 pandemic. Non-stop flights to Hong Kong were one a day, despite its geographic proximity.

Ports: Hainan has many well-protected bays constituting natural anchorages for ships. The main ports on the island are:

  • Haikou Xiuying Port 
  • Haikou New Port, located on the Nandu river 7 km from the mouth and the city center 
  • Macun Port, situated on the coast about 10 km east of the city center Yangpu port on the north coast, which provides service to the Yangpu Economic Zone 
  • Basuo Port on the west coast of the island.

Image Source: (Integra Group, 2020) https://www.integra-group.cn/hainan-master-plan/

The ports of Hainan province are not in the top 30 of the busiest ports in China. They are expected to become more active since the island as a whole is going to be a Free Trade Port. The advantage of starting almost from scratch allows such ports to be very well planned.

Conclusions

The creation in Hainan of a free trade port that would eventually compete with Hong Kong and Singapore seems ambitious given the island's poor economic performance. The absence of some of the essential characteristics which have contributed to the success of the Asian free ports (independent judicial, free cross-border flow of data, open and free capital account) is also a concern. However, the project must be the subject of particular attention because of its political support at a very high level and the island's strategic geographical position in the context of the reorganization of value chains.

Venturing to invest in this promising island can be a good idea, as long as it is accompanied by a well-prepared action plan with experts in special economic zones.

Tags
Economic Zones

Why Hainan could transform China's future

China is still on track for an economic opening to global trade and tourism. One of its most recent master projects demonstrates this. In July 2020, a master plan to create the first Free Port in this Asian country was published.
By
No items found.
,  
July 13, 2022
July 13, 2022

Introduction

China is still on track for an economic opening to global trade and tourism. One of its most recent master projects demonstrates this. In July 2020, a master plan to create the first Free Port in this Asian country was published.

China is betting on creating a free trade port in its southernmost province, the island of Hainan. The Central Committee of the Party and the Council of State, through a joint document, announced the future conversion of Hainan into a "free trade port" (FTP). This term's choice shows a greater magnitude than the traditional "free trade zone" (FTZ), primarily oriented towards the trafficking of goods. The program details a series of regulatory facilities in all areas - tax, foreign investment and ownership, commercial operations - to promote the transit of capital, data, and people.

The size of Hainan (33,920 km2) is comparable to the size of Belgium or 32 times the size of Hong Kong and 49 times that of Singapore. With a GDP of USD 69,9 billion, its economy is the size of Panama. Currently, there are no declared free trade zones that exceed 120 square kilometers in China.

Source: China Briefing. (2018). https://www.china-briefing.com/news/hainan-free-trade-zone-what-is-the-progress/

History

Since the 1980s, Hainan has been a special economic zone in China. Before that, the province had a reputation for being untouched by industrialization, and today the region still has relatively few factories. Tourism (thanks to its tropical beaches and forests), agriculture with tropical fruit production, and fishing and fish farming play a major role in Hainan's economy.

According to economic data, Hainan's take-off never happened despite the special economic zone status; it even lagged behind China's growth. For example, it is worth noting that Hainan's salary is on average 10% lower than in the rest of the country. Some experts claim that the cause of this failure was financial speculations in the 1980s and early 1990s. The speculation was mainly in the real estate sector, so this time Hainan has stricter regulations for acquiring property to prevent this kind of problem from re-emerging and hurting the local economy.

Main cities:

Haikou: 2,046,189

Danzhou:932,362

Sanya: 685,408

Image Source: China. (2017). http://www.stats.gov.cn/tjsj/ndsj/2018/indexch.html

Benefits 

Tax measure incentives are effective from January 1, 2020, and will expire on December 31, 2024, and target specific industries: 

  • A tax exemption for the sectors of tourism, modern services, and high and new technologies; 
  • Accelerated tax deductions for eligible capital expenditures; 
  • And a 15% effective individual income tax rate.

Although the plan is to turn the entire island into a free trade port, the Chinese government was unequivocal in which industries and clusters it wants to pay more attention. They are the following: 

  • Coastal Ecological Headquarters cluster;
  • Big Airports cluster; 
  • International Comprehensive Service cluster; 
  • International Cultural Exchange cluster; 
  • Offshore Innovation and Entrepreneurship cluster;  
  • International Higher Education Research cluster.

Tourism

In the south of the country, the tropical Chinese island of Hainan will authorize tourist stays for up to one month without the need for a visa to citizens of 59 countries. The measure came into effect on May 1, 2020, making Hainan the most open Chinese province to foreign tourism. China, the fourth leading world tourist destination after Spain, France, and the United States, has tried to expand foreign visits in recent years with visa exemption policies for travelers in the country's main cities, although only for stays shorter than 72 hours. 

Image Source: (CNN, 2017) https://edition.cnn.com/travel/article/hainan-hotels-design/index.html 

Hainan Visa-Free Countries List - 59 Countries:

  • 6 American Countries: the United States, Canada, Brazil, Mexico, Argentina, Chile
  • 2 Oceania Countries: Australia, New Zealand
  • 25 Schengen Agreement Countries: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland
  • 15 Other European Countries: Russia, the United Kingdom, Ireland, Cyprus, Bulgaria, Romania, Ukraine, Serbia, Croatia, Bosnia-Herzegovina, Montenegro, Macedonia (FYROM), Albania, Belarus, Monaco
  • 11 Asian Countries: Korea, Japan, Singapore, Malaysia, Thailand, Kazakhstan, the Philippines, Indonesia, Brunei, United Arab Emirates, Qatar

China's Hawaii, as Hainan is known, in 2019 received 83 million national and foreign visitors due to its paradisiacal beaches. And they spent around USD 15,000 billion. 

Although China has had a deficit in its trade balance for tourism, and its efforts to attract tourism to this island have been significant, less than 2 million tourists to Hainan were overseas visitors. Chinese tourism accounts for more than 97% of the island's tourists. This imbalance is due to a dysfunctional strategy to attract tourists from other countries. The visa issue hides some asterisks. Although it is already a visa-free zone for some countries, it still requires that the passengers' data be sent through a local travel agency 48 hours before they arrive on the island. Processing upon arrival, including having their fingerprints taken, leads to multiple delays and inconveniences.

Medical Tourism

South China's Hainan Province has revealed plans to build a world-class health tourism center on the tropical island, combining high-end health tourism with traditional Chinese medicine and culture. This initiative is part of a plan unveiled by the China National Development and Reform Commission to encourage Hainan's tourism-related activities. Focusing on four key areas: medical treatment, medical cosmetology, rehabilitation, and health promotion, Hainan will attract internationally renowned institutions, insurance providers, and service agencies to build a high-level foundation for the international health tourism market, according to the plan.

Image Source: (Booking, 2020) https://www.booking.com/hotel/cn/bo-ao-le-cheng-yi-he-kang-yang-du-jia-jiu-dian.fi.html 

This program of medical tourism in Hainan will be reserved for another article. There is a lot of exciting information to cover about this fascinating project that revolutionizes the way of doing medicine in free trade zones.

Infrastructure

Road network: Hainan has a road network of 17,000 km. The main road circles the island along the coast and allows one to go from Haikou to Hainan in about three hours. Long-distance bus transport networks, centered on Haikou and Sanya, serve the entire island. Local bus networks supplement these means of public transport.

Image Source: (Research Gate, 2018) https://www.researchgate.net/figure/Road-hierarchy-on-Hainan-Island_fig1_323233159 

 

Railway: Hainan has three modern, standard gauge railway lines with electric traction trains. These lines go all around the island along the coast:

The western circular line connects the island's two principal cities (Sanya, the main tourist center, and Haikou, the island's administrative and economic capital) along the west coast. Embryos of this narrow gauge line were created by the Japanese during their occupation of the island. Several new sections were subsequently built, but it was not until 2004 that the continuous link between Sanya and Haikou was inaugurated. The 368 km line is covered by freight trains and a few passenger trains. 

The western circular high-speed ​​line was inaugurated in December 2015. It was built to allow faster circulation of passenger trains. Its layout is practically parallel to the first line but with slopes and curvatures of the track adapted to the speed. The line, slightly shorter (344 km), serves 16 stations and completes the route in 1 hour 56 minutes and its price is 228 yuan ($34 USD) to complete the whole loop.

Image Source: (CGTN, 2019) https://news.cgtn.com/news/3d3d514d7855544e33457a6333566d54/index.html

The eastern circular high-speed line runs from Haikou to Sanya along the east coast. This 213 km line was inaugurated in January 2011. It serves 15 stations (20 in the long term). In 2016, 8-wagon railcars of the CRH1 series provided ten connections per day, covering the distance in 1 hour and 22 minutes (maximum speed 250 km/h). One train per day from Sanya crosses the strait separating Hainan from the mainland on a ferry and continues to Canton. The rail travel time to major cities in China as of 2016 is Canton 15:25 hours, Shanghai: 36.5 hours, and Beijing 35 hours.

Despite this extensive network of roads, the island continues to be an island detached from mainland China since it does not have a direct crossing bridge to the island for trucks or cars. There are plans for the construction of a bridge to connect the island with the country.

Airports: Hainan has two international airports with regular lines connecting them not only to Beijing, Singapore, Hong Kong, and Macao but also to Russia, South Korea, and Japan:  

  • The International Airport of Haikou Meilan (code IATA: HAK • ICAO code: ZJHK ) serves the island's capital to the north. 
  • The International Airport of Sanya Phoenix (code IATA: SYX • ICAO code: ZJSY) serves the island's main tourist area. 

A third airport, Sanya-Hongtangwan International Airport, is under construction.

Image Source: (Construction Review Online, 2020) https://constructionreviewonline.com/news/second-phase-of-meilan-international-airport-project-to-be-completed-by-end-of-2020/

Haikou is the headquarters of the regional company Hainan Airlines, which belongs to the HNA Group conglomerate.

Despite being the headquarters of such a vital airline, Hainan's connectivity is minimal. Direct flights to the island were scarce even before the Covid-19 pandemic. Non-stop flights to Hong Kong were one a day, despite its geographic proximity.

Ports: Hainan has many well-protected bays constituting natural anchorages for ships. The main ports on the island are:

  • Haikou Xiuying Port 
  • Haikou New Port, located on the Nandu river 7 km from the mouth and the city center 
  • Macun Port, situated on the coast about 10 km east of the city center Yangpu port on the north coast, which provides service to the Yangpu Economic Zone 
  • Basuo Port on the west coast of the island.

Image Source: (Integra Group, 2020) https://www.integra-group.cn/hainan-master-plan/

The ports of Hainan province are not in the top 30 of the busiest ports in China. They are expected to become more active since the island as a whole is going to be a Free Trade Port. The advantage of starting almost from scratch allows such ports to be very well planned.

Conclusions

The creation in Hainan of a free trade port that would eventually compete with Hong Kong and Singapore seems ambitious given the island's poor economic performance. The absence of some of the essential characteristics which have contributed to the success of the Asian free ports (independent judicial, free cross-border flow of data, open and free capital account) is also a concern. However, the project must be the subject of particular attention because of its political support at a very high level and the island's strategic geographical position in the context of the reorganization of value chains.

Venturing to invest in this promising island can be a good idea, as long as it is accompanied by a well-prepared action plan with experts in special economic zones.

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