Industry among palm trees: Hainan is developing rapidly, both in the tourism sector and in logistics and industry
Hainan is the southern-most province and the largest island in the People's Republic. It is popularly known as 'China's Hawaii' thanks to its sandy beaches and tropical temperatures. In addition to being one of the country's most popular tourism destinations, the island, which until the 1990s was among the poorest regions in China, is set to play a more important role in trade in the future.
The Hainan Free Trade Zone is conveniently located in the South China Sea, halfway between Vietnam, Thailand and Malaysia in the west, and Hong Kong, Taiwan and the Pearl River Delta around the megacities of Shenzhen and Guangzhou in the east. As part of the Silk Road (Belt and Road Initiative), Hainan also serves as an extension on the north-south transport route from Russia and Mongolia through China's northern provinces and on to countries in South East Asia.
Yang Pu Free Trade Port
The port of Yang Pu in the north of the island plays a key role in this plan. It mainly handles goods from the petrochemical, paper, construction and food industries at the moment, but the Chinese government's new infrastructure project will see the area also play a leading role in goods logistics and in the import/export business.
A free trade zone covering 120 square kilometres and with a capacity of up to five million containers a year will be created by 2025. By way of comparison, Bremerhaven, Europe's fourth-largest port, processes 4.9 million containers a year. The aim is to develop the region economically and to divert some of the transshipment business (container shipping) from larger ports such as Shanghai and Shenzhen. Around a million containers already arrive at the port of Yang Pu every year. The free trade zone, which has been running as a pilot scheme since 2018, is set to be expanded by 2025 and fully operational by 2035.
Benefiting from free trade
The free trade zone around Yang Pu is a springboard to China for companies from Europe. It also offers some attractive tax benefits: goods that are more than 30 per cent made in Hainan (as a proportion of the added value) will be allowed to enter mainland China duty free. Neither import value-added tax nor import and excise duties are due for importing production facilities, vehicles or raw and auxiliary materials required for production in Hainan. Corporation tax in the free trade zone has been reduced from 25 per cent to 15 per cent, as has income tax for highly skilled workers.
This makes the island port particularly interesting for companies looking to base part of or all of their production in China. They also benefit from the proximity to the most populous and thus strongest sales region in the People's Republic. Companies can either rent ready-made premises in Yang Pu or lease land on which to build their own factories.
Further bureaucratic and regulatory relief is designed to make the entire island of Hainan more attractive for inward investment and help develop infrastructure and innovation.