China’s Hainan free trade port set to deepen ties with ASEAN

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A woman poses for photos in front of a placard for the Boao Forum for Asia annual conference in Boao, Hainan province, China April 20, 2022. (Reuters Photo)

HONG KONG (Reuters) – Hainan’s transformation into a free trade port will open new doors for trade between China and the Association of Southeast Asian Nations (ASEAN), but its success will require an act of faith and a pioneering spirit, experts said.

Beijing plans to turn the 35,000 square kilometer island into the world’s largest free trade port by 2035, using lower taxes to attract investors, businesses and individuals, and tighter visa requirements flexible to attract tourists and foreign talent. It plans to establish an independent customs regime by 2025.

Located at the southern tip of China, the free trade port is well placed to strengthen ties with Asean, which has collectively overtaken the European Union to become China’s biggest trading partner in 2020.

ASEAN companies will be encouraged to invest in Hainan, especially in the service sector, thanks to the easing of restrictions and tax breaks, said Shen Danyang, executive vice governor of Hainan province, during the meeting. Boao forum last week.

Traveling between Singapore, Malaysia and Thailand was once a popular route for Chinese tourists. Hainan, which is touted as an international tourist island and duty-free hub, could be part of the itinerary in the future, Shen said, adding that foreign travel agencies will be able to set up businesses on the island. that they can’t do. do on the mainland.

“Tourists could come to Hainan before traveling to places like Vietnam, Cambodia, Indonesia and Singapore, and buy offshore duty-free goods that could be directly delivered to their homes, each person can buy up to 100,000 yuan ($15,255)”. Shen said.

Tourists from Southeast Asian countries might also be inclined to visit Hainan before visiting mainland China, he said.

“It will expand the scale of two-way tourism and provide opportunities for education and employment collaboration,” Shen said, adding that the province will soon allow skilled foreign workers to be employed based on the needs of the country. market.

In 2019, tourist trips between China and ASEAN exceeded 65 million, with nearly 4,500 flights, compared to 57 million trips and 4,000 flights in 2018.

Chinese investors will also be encouraged to register in Hainan, as their overseas expenses will be exempt from income tax, Shen said.

President Xi Jinping said during a visit to Hainan earlier this month that the island should become an internationally influential free trade port with Chinese characteristics.

But questions remain about how it will work outside the systems used on the continent.

“We need to get a sense of what characterizes an advanced free trade port in the 21st century; the arrangements in terms of legality, talent, capital as well as policies and strategies will all be different from those on the continent,” he said. said Wu Xiaoqiu, former vice president. -President of Renmin University of China and Dean of China Capital Market Research Institute, Boao Forum for Asia.

The island’s transformation is part of Beijing’s “dual circulation” strategy, which aims to boost domestic consumption and bolster economic independence to offset external uncertainty.

At the same time, the free trade port is part of Xi’s plan to maintain global flows of trade and services as the United States threatens to decouple from China and Hong Kong’s role as a international financial center is under threat following the implementation of a controversial national agreement. security law.

Hainan’s experience is often compared to the transformation of Shenzhen in the 1980s from a sleepy fishing village into a thriving special economic zone that encouraged entrepreneurship and attracted foreign trade and investment.

But Shenzhen’s success took a lot of pioneering spirit and courage to make mistakes, Wu said.

“[Hainan] must be brave enough to take responsibility, there is no way to know which path is the right one while exploring an uncharted path. There could be detours, but we have to go in this direction,” he said.

Hainan also needs to find its place in the Regional Comprehensive Economic Partnership (RCEP), which is the world’s largest free trade agreement, said Bert Hofman, director of the East Asia Institute at the National University of Singapore and former Country Director of the World Bank. for China.

RCEP involves about 15 countries and covers almost a third of the world’s population and about 30% of its global gross domestic product.

Although Hainan can learn from Singapore when establishing a free trade port, there is a big difference – one is a country, the other a province, Hofman said at the forum last Thursday.

“Hainan needs to communicate better with the central government to find its place in the system, that’s the key,” he said.

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