Why in news?
China recently separated its island province Hainan from the mainland’s customs territory to pilot a duty‑free trade model. This reform is intended to help Hainan qualify for the Comprehensive and Progressive Agreement for Trans‑Pacific Partnership (CPTPP) and to create a Hong Kong‑style free‑trade hub in the South China Sea.
Background
Hainan is China’s second‑largest island after Taiwan. It lies at the country’s southernmost tip, across the Qiongzhou Strait from the mainland’s Guangdong Peninsula. Once part of Guangdong Province, Hainan became a separate province and a Special Economic Zone in 1988 to spearhead economic reforms. The island covers roughly 35,400 square kilometres and has a population of about 10 million. Its tropical climate, beaches and rain‑forests make it a major tourist destination, while crops like coconut and rubber support the local economy.
New free‑trade port initiative
- Independent customs zone: Under the 2025 pilot, Hainan will be treated as if it were outside mainland China for customs purposes. Goods imported into the island are exempt from most duties. Commodities shipped from Hainan to the mainland will attract tariffs only on the portion of value added there; products with at least 30 % value added can enter duty‑free.
- Foreign investment and CPTPP: The plan aims to attract foreign investors by reducing taxes and bureaucracy. Officials hope that aligning Hainan’s rules with international standards will strengthen China’s bid to join the CPTPP.
- Economic significance: Hainan’s gross domestic product is roughly US$113 billion, comparable to New Zealand’s. Authorities envisage transforming the island into a free‑trade port by 2035, focusing on tourism, high‑tech industries, and modern services.
Significance
The experiment reflects Beijing’s strategy of creating model zones to test reforms before wider adoption. If successful, Hainan could emerge as a duty‑free gateway linking the mainland with global markets and boosting China’s presence in the South China Sea.
Source: CNBC
