On December 18, 2024, Chinese Communist Party leader Xi Jinping urged local officials in Sanya City, Hainan Province to accelerate the implementation of core policies for the Hainan Free Trade Port. The Hainan Free Trade Port is expected to be fully operational by 2025. However, official experts also indicated that the challenges for the Hainan Free Trade Port are greater than the opportunities it presents.
According to a report by Xinhua News Agency, Xi Jinping demanded that officials in Hainan Province implement the central government’s directives regarding the construction of the Hainan Free Trade Port, plan the work before and after the closure, and ensure a smooth and orderly operation.
The Hainan Free Trade Port was a creation pushed forward by Xi Jinping himself. On April 13, 2018, Xi Jinping announced the construction of a free trade pilot zone across the entire island of Hainan, establishing the so-called “Chinese characteristic free trade port.” Subsequently, in 2020 and 2021, authorities respectively issued the “Overall Plan for the Construction of the Hainan Free Trade Port” and the “Hainan Free Trade Port Law,” planning for zero tariffs across the entire island.
As per the plan, the Hainan Free Trade Port is to complete its preparatory work by the end of this month and achieve full operation by the end of 2025.
However, official experts also highlighted that the challenges facing the Hainan Free Trade Port are greater than the opportunities it offers.
Official data showed that in the first three quarters of this year, the economy of Hainan Province grew by 3.2% year-on-year, far below the local government’s annual target of 8% and the national growth rate of 4.6%.
Statistics from the three major airports in Hainan showed that from January to October this year, the number of inbound passengers at the three major airports reached 20.2485 million, a 4.6% increase compared to the same period last year. However, with China currently experiencing a downgrade in consumer spending, tourists are visiting but not spending much. According to statistics from Haikou Customs, the amount of duty-free shopping on outlying islands from January to October 2024 was 26.14 billion yuan, a 31.6% decrease year-on-year, and the actual number of duty-free shoppers was 4.854 million, a 16.2% decrease year-on-year.
Furthermore, from January to September this year, the growth of newly established foreign-invested enterprises in Hainan increased by 10%, but the actual utilization of foreign capital decreased by about 20% year-on-year.
Professor Xie Tian from the Aiken Business School at the University of South Carolina previously told Dajiyuan that the series of poor economic data indicates that Hainan has become a destination for domestic tourists with “poverty tourism” and “downgrade in consumption.” While the number of investment enterprises is said to have increased, the actual use of funds has significantly decreased, indicating a dim future for the economic development of Hainan.
Xie Tian also stated that the increasing strict control by the Chinese Communist Party over the economy and suppression of private enterprises, without freedom and rule of law, will render the Hainan Free Trade Port merely a hollow name.
At a legal forum on the Hainan Free Trade Port on October 17, 2024, the consultant of the Hainan Provincial Government and Director of the China Institute for Reform and Development, Chi Fulin, mentioned that the challenges for the Hainan Free Trade Port outweigh the opportunities.
Chi Fulin pointed out that the policy of the Hainan Free Trade Port has limited attractiveness to American and European capital. In 2022, only the UK invested $350 million in Hainan, and the US investment in Hainan was merely $53,000. From 2018 to 2022, actual foreign investment in Hainan showed a continuous growth trend, but in 2023, it decreased by 12.1% year-on-year.
Chi Fulin rarely hinted that the national security policy of the Chinese Communist Party has become an obstacle to building the free trade port. Under the authorities’ concept of “coordinated development and security,” the difficulty of implementing the policies of the Hainan Free Trade Port has increased. The term “security” appeared 44 times in the “Decision” of the Third Plenary Session of the 20th Central Committee of the Chinese Communist Party. Under strict supervision, the attractiveness of some policies has decreased. For example, due to the possibility that private equity funds in Hainan could be used for transferring assets overseas by high net worth individuals, related approval for the open policy towards foreign investment has been temporarily suspended.
An article by the American magazine “The Wire” on November 17, 2024, quoted Alicia García-Herrero, Chief Economist for Asia at the French investment bank Natixis, stating that the problem with Hainan is that the promised removal of trade barriers has not been realized. “There are many regulations in free trade zones that should be lifted, such as negative lists for investments, investment laws, and industry-wide openness, but this is evidently not the case.”
Ngeow Chow-Bing, Director of the China Research Institute at the University of Malaya, mentioned that Hainan is somewhat like a border area in China; it does not have the most concentrated talent or the best industrial ecosystem.