Accelerate Planning to Benefit from Policies for Hainan Free Trade Port

Authors: Cai Zhenwei and Yu Tao

Since the release of the Overall Plan for the Construction of Hainan Free Trade Port (hereinafter referred to as the "Overall Plan") more than a year ago, the Hainan Free Trade Port (Hainan FTP) has focused on trade and investment liberalization and facilitation, accelerated policy arrangement and implementation, and seen expedited gathering of various elements. The construction of the free trade port is in full swing.

First of all, the legal system has been improved. The Hainan Free Trade Port Law of the People's Republic of China was published and implemented to establish the basic framework and core institutional arrangements for the construction of the Hainan FTP in the form of state legislation. It gave Hainan greater legislative autonomy and provided a solid foundation for construction of the Hainan FTP, stability in expectations, and achievement of long-term goals. In addition, in accordance with the legislative idea of targeting small issues with fast and effective legislation, Hainan has accelerated the legislation process of relevant local laws and regulations. A number of local regulations closely related to the construction of the FTP, including Regulations on Optimizing the Business Environment of Hainan Free Trade Port, Hainan Free Trade Port Fair Competition Regulations, Social Credit Ordinance of Hainan Province, Regulations on Registration Cancellation of Commercial Subjects in Hainan Free Trade Port, Regulations on the Protection of Intellectual Property Rights in Hainan Free Trade Port, and Hainan Free Trade Port Collection and Requisition Regulations, have entered the legislative review process, and some of them have been passed and will be promulgated and implemented.

Second, core policies have been implemented and proven to be effective. Since the release of the Overall Plan, more than 140 policies have been announced and implemented, one after another. Preferential policies on individual income tax and corporate income tax have been implemented, benefiting high-end talents that are in demand, and relevant market players. Three "zero-tariff" lists, for the production of raw and auxiliary materials, vehicles and yachts, and self-use production equipment, have been successively implemented. According to statistics, as of the end of this July, the value of products imported under the coverage of "zero tariff" policies totaled CNY 2.69 billion, and tax relief for enterprises amounted to CNY 462 million. The policy on value-added processing has also been implemented, starting in the Yangpu Bonded Port Area, and many enterprises have completed their qualification filing.

Third, coordinated effect of favorable policies is increasingly evident. Promoted by a series of favorable policies, more and more results have been achieved at the early stage, and the attraction of the Hainan FTP has been strengthened. In terms of economic growth, in the first half of this year, Hainan's regional GDP was about CNY 288.6 billion, an increase of 17.5% year-on-year. The growth rate ranked second in China. In terms of attracting foreign investment, from January to August this year, 1,367 foreign-invested enterprises were established in the Hainan FTP, a surge of 235.87% year-on-year. Doubling for three consecutive years, the actual use of foreign capital from January to August this year reached USD 1.907 billion, a year-on-year increase of 388.09%, and the growth rate ranked first in China. From June last year to July this year, Hainan registered 470,000 new market entities, including nearly 215,000 newly established enterprises. From last June to this July, the province attracted a total of 210,000 talents of various types, skyrocketing 404% year on year.

In the future, the Hainan FTP should continue to facilitate the freedom of trade, investment, the cross-border flow of funds, personnel exit and entry, and transportation, and ensure the secure and orderly flow of data. It should refine policy implementation plans and details, make full use of the "synergy effect" and "dividend effect" of policies, and strive to achieve more results. With these efforts, it will lay a solid foundation for the operation of the FTP with preferential tariff treatment by 2025.

First, it should promote and use policies more intensively to benefit more market entities. After the release of various policies, policy implementation effectiveness will be an important indicator to measure and test the results of the FTP construction. Hainan should promote the policies at home and abroad more intensively, and strengthen the guidance and services for enterprises in leveraging the policies for the free trade port. It should develop more maneuverable policy implementation rules to ensure that policies are used well and fully, and that enterprises really benefit from FTP policies, so that all kinds of preferential policies become a booster for the growth of various market players. In this way, more talents, goods, funds, information, data and other elements will be attracted to the Hainan FTP. For example, industries such as processing of grain, oil and gemstone have used the principles of the FTP's value-added processing policy to generate good effects. Hainan should fully expand the applicable fields, industries and products of the principles of value-added processing to attract more enterprises in the fields of biomedical manufacturing, new energy vehicles, yacht repair and manufacturing, etc. to settle in the province.

Second, Hainan should continue to strengthen the innovation of institutional integration and give full play to the coordinated effect of policies. General Secretary of the Communist Party of China Central Committee Xi Jinping stressed that the construction of the Hainan FTP should prioritize the innovation of institutional integration. The practice has proven that the innovation of institutional integration is a tool to solve prominent and difficult issues in the construction of the FTP. Focusing on the core tasks proposed in the Overall Plan and the difficult and slow implementation of policies, Hainan should vigorously promote a full range of high-level innovation of institutional integration to solve problems encountered by market players in their settlement, operation, and development. For instance, to develop the yacht industry, Hainan should have a zero-tariff policy on yacht imports and pay attention to the design, manufacturing, procurement, display, trading, operation, leasing, maintenance and other aspects of the industry. It should motivate relevant functional departments to introduce a policy package, so as to effectively solve various problems faced by market players in their operations and maximize the promotion effect of preferential policies.

Third, Hainan should utilize policies thoroughly to promote industrial development and solidify the foundation for the FTP's development. The construction of a modern industrial system is an important element of the high-quality and high-standard construction of the Hainan FTP, and a key factor that determines the international competitiveness and influence of the FTP. Hainan should enhance the ability to utilize various policies, play the role of preferential policies in attracting resources and driving industrial development, and form as soon as possible differentiated development advantages in leading industries and fields such as tourism, modern services, high-tech industries, and profitable tropical agriculture. For example, Hainan's negative list for cross-border trade in services is the first negative list of its kind in China. Hainan should seize the opportunity and make in-depth use of the negative list, so as to stimulate the potential of cross-border trade in services and strongly promote the development of modern service industries such as finance, transportation, and professional services.

Fourth, Hainan should align with the highest opening up standards in the world and increase its opening-up efforts. A pilot zone for comprehensively deepening reform and opening up - this is one of the important strategic positions given to Hainan by the state. Hainan should take the initiative to adapt to the new trend of reconstructing international economic and trade rules, expedite the exploration and promotion of institutional opening up of rules, regulations, management and standards, and establish a policy system that is compatible with a high-level free trade port. On September 16, China formally submitted its application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). As a frontier in China's deep integration into the global economic system, Hainan should be forward-looking in conducting analysis and research on the impact of China's accession to the CPTPP on the construction of the FTP. Hainan should prepare for the alignment of rules as early as possible, enhance the foundation, strengthen areas of weakness, and perform stress tests for China's further opening up.

(About the authors: Cai Zhenwei, Deputy Director of the Research Center for Free Trade Port of the National Institute for South China Sea Studies; Yu Tao, Director of the Research Center for Free Trade Port of the National Institute for South China Sea Studies.)