MNI Interview: Hainan To Trial China’s Opening Up Reforms
Beijing will first trial opening up reforms in Hainan before evaluating policies nationwide, a Hainan government official has told MNI.
Beijing will use Hainan as a test bed for economic reform, such as capital account liberalisation, which will help the province reach its 8% GDP growth target this year, before evaluating whether the policies should be rolled out nationwide, a Hainan official told MNI.
Cross border capital flow controls will no longer apply to foreign and domestic firms transacting offshore via Hainan, while transfers with the mainland will need to comply with a quota, said Huang Cui, deputy director-general of Hainan International Economic Development Bureau – a statutory body of Hainan Free Trade Port – and chief representative at its Beijing office.
The People’s Bank of China earlier this month revealed plans to create a separate capital account for Hainan. Huang noted financial liberalisation was a key part of the government’s drive to attract foreign companies and banks to the province, along with more relaxed negative investment lists and foreign work-permit rules compared to the mainland.
“This places the island at the forefront of high-quality opening up policies nationwide,” Huang added.
Capital account relaxation will also attract domestic firms to base operations in Hainan, allowing for easier links to the Association of South East Asian Nations (ASEAN) trading bloc, she continued, noting the province’s outbound investment increased 104.9% y/y in 2023.
Beijing revealed plans last month to build the world’s largest free-trade port in Hainan by 2025 and will fund it mostly with local government bond sales, MNI reported. (See MNI INTERVIEW: Hainan Bonds To Fund World's Largest Freeport)
IMPORTS UP
Hainan's foreign trade reached CNY64.23 billion in Q1, with imports accounting for CNY42.23 billion, a 6.1% increase. Huang believes the trend will continue as the government targets duty free shopping growth, which totalled CNY43.76 billion last year, up 25.4% y/y.
She noted authorities regularly host national retail promotion events in Hainan, such as last week's China International Consumer Products Expo, which attracted 55,000 buyers, up 10% y/y, as evidence for Beijing’s support establishing the island as a national and regional hub for high-end consumption.
The island also imported 18.6 million tonnes of bulk commodities in Q1, up 45.4% y/y, driven by firms taking advantage of the zero tariffs on raw material imports, with subsequent duty-free entry to the mainland for goods with at least 30% added value from within Hainan, Huang said.
“This makes the island ideal to become a ‘gateway to the mainland’ for industrial processing activities, another key driver of growth,” she added.
Huang argued Hainan would complement other neighbouring free-trade jurisdictions such as Hong Kong and Singapore, with industrial firms in the greater bay area able to use the island to access the wider region. “We have signed long term cooperation agreements with both Hong Kong and Singapore, with investors from those regions already investing heavily in Hainan during the past few years,” Huang noted.