CHINESE President Xi Jinping, also general secretary of the Central Committee of the Communist Party of China (CPC), delivered a speech at a gathering on April 13, 2018 celebrating the 30th anniversary of the founding of Hainan Province and Hainan Special Economic Zone in South China’s Hainan Province . He announced that the CPC Central Committee decided to support Hainan in developing the island into a pilot free trade zone, and gradually exploring and steadily promoting the establishment of a free trade port with Chinese characteristics. Aiming to improve the overall level of Hainan’s opening-up, the decision has great practical and far-reaching historical significance. The report of the 19th CPC National Congress emphasized that China will grant more powers to pilot free trade zones to conduct reform, and explore the opening of free trade ports. Whether it is the construction of pilot free trade zones or the exploration of free trade ports, various regions are enthusiastic in participating in the program. The reason that Hainan was chosen to build both a zone and port for free trade was largely based on its existence as a special economic zone.
A Brand New Hainan
Over the past 30 years since the establishment of Hainan Special Economic Zone, the province has evolved from a remote island into a modern special economic zone, which has seen its GDP increase by 77.9 times, per capita GDP increase by 52.4 times, and local general public budget revenue increase by 227.7 times. In addition, Hainan has the best ecological environment in China. At the same time, because of its relatively independent geographical conditions, it can play the role of a national experimental field for reform and opening-up. Human resource is most important for Hainan’s development. This doesn’t mean a gathering of labor factors in the traditional sense, but a concentration of human resources and highly skilled workers. Those talents are expected to form a new impetus for Hainan’s economic development.
It can be foreseen that after Hainan becomes a free trade port, with Guangdong-Hong Kong-Macao Greater Bay Area to the east, Beibu Gulf Economic Zone to the west, and the Chinese inland to the north, the island will have more development opportunities. If Hainan is built into a free trade zone, the island, covering an area of 35,000 square kilometers, will become the largest free trade port in the world, greatly exceeding Hong Kong and Singapore (about 1,000 square kilometers respectively) and Dubai (less than 4,000 square kilometers). In general, Hainan has prominent advantages in marine ecological industry and other industries such as green tech, health, senior care, tourism, and conventions & exhibitions. To establish a free trade port in Hainan will be more conducive to activating these advantages of Hainan and bring them in line with international standards. The efficiency and quality of services will be further enhanced.
Hainan has clear goals in building a pilot free trade zone and exploring the establishment of a free trade port. In accordance with the guidelines on supporting Hainan to deepen reform and opening-up issued by the CPC Central Committee and the State Council, efforts will be made to develop Hainan into a pilot zone for deepening overall reform and opening-up, a pilot zone for ecologically sustainable development, an international tourism and consumption center, and a major national strategic logistics zone. However, to achieve the above goals is not easy: there must be huge investments before construction can start, and it is necessary to figure out what should and should not be done.
The 12th Tour of the Hainan International Road Cycling Race in 2017.
Dos and Don’ts
The construction of a pilot free trade zone and exploration of a free trade port needs to be combined with Hainan’s economic development features. For ecologically sustainable development, Hainan should focus on creating suitable industries such as ecotourism, eco-agriculture, marine industry, senior care industry, business services, finance, convention and exhibition industry, biopharmaceutical industry, and information industry. It is not suitable to develop industries that are likely to exert significant pressure on the ecological environment, such as re-exports, rough machining, and heavy chemical industries. At this stage, Hainan’s economy largely relies on the service industry. In 2017, Hainan’s service industry contributed 79.5 percent to its economic growth.
The 11 pilot free trade zones previously approved by the State Council only cover about 120 square kilometers respectively, and the limited area restricts the development of ecotourism and eco-agriculture; however, it is not a problem in Hainan. Many industries in Hainan will have enough space to grow. It is not difficult to see that the above-mentioned industry layout can help Hainan better display its strengths and avoid weaknesses in the course of economic development.
As for how to make best use of the advantages and bypass the disadvantages, China must combine top-level design with advancing cautiously. Some of the plans include guiding Hainan to accelerate the reform of urban-rural integrative development, talent cultivation, fiscal and financial systems, income distribution systems, and state-owned enterprises; supporting Hainan in establishing trading venues of energy products, shipping, bulk commodity, property rights, equity, and carbon emissions; actively developing a new generation of information technology and digital economy, so as to promote the deep integration of the Internet, Internet of Things, big data, satellite navigation, and artificial intelligence with the real economy; supporting Hainan in laying out a number of major scientific research infrastructure and platforms, and establishing a demonstration zone for international offshore innovation and entrepreneurship; accelerating the innovation and development of service trade, to form an industrial structure based on a service-oriented economy; implementing a more open and convenient policy for offshore duty-free shopping, and promoting the development of tourism; establishing a management system that will better attract foreign high-tech talents, and so on.
In addition, Hainan can develop modern tourism, building itself into a national park, which will be an ideal location for developing the healthcare industry and the rehabilitation industry to generate more profits. In terms of agriculture, the entire island has a tropical agriculture, so large-scale cultivation and off-season vegetable cultivation can be developed. The Hainan government must pay more attention to the development of high-end manufacturing and modern service industries. This requires Hainan to emphasize the comprehensive development of human resources, and fully inspire vitality and creativity of the people, so to create a higher-level, open economy.
Besides, Hainan’s construction of a free trade pilot zone and the gradual exploration of the construction of a free trade port will need to overcome some problems. At the beginning of the establishment of Hainan Special Economic Zone, it also experienced the property bubble. In the future, the construction of pilot free trade zone and port will surely bring more development opportunities to the real estate industry in Hainan. However, the development opportunities in the real estate industry do not equal to a new round of real estate speculation. Hainan’s real estate development should be combined with the development of the tourism and senior care industries. In addition, Hainan is a place with a superior ecological environment. Its economic development must be based on the protection of the environment. In this sense, some industries with high energy consumption and high pollution should be strictly regulated or even banned. Although some fields do not fall within the scope of negative lists, the region can also raise barriers to entry by implementing more stringent environmental protection laws and regulations.
Generating New Dividends
Of course, the relationship between Hainan’s dos and don’ts in building the pilot free trade zone and exploring the establishment of the free trade port is not absolutely immutable. For example, the development of the financial industry in Hainan should proceed step by step. At the stage of construction of the pilot zone for free trade, the construction of various types of trading venues should be based on the scope of the real economy, and should not be rushed to carry out offshore trade and offshore financial services. With the completion of a free trade port, the development of offshore trade and offshore financial services will become necessary. In terms of offshore trade and offshore finance, free trade ports have more advantages than free trade zones. The Hainan government should firmly grasp the opportunities, including improving infrastructure, setting foot on tourism, providing visa-free entry and landing visa, and boosting offshore duty-free shopping. The general re-export trade, which involves simple processing, assembly, and manufacturing, is not suitable in Hainan, because the cost for ecological restoration will be too high. China wants the island to seek ecologically sustainable development, taking advantage of its geographical features to develop tourism consumption, eco-agriculture, and healthcare and senior care industries.
Compared with Hong Kong and Singapore, Hainan has a unique advantage. As port cities, Hong Kong and Singapore can only play their role as a shipping center, financial center, and trade center to develop transit trade. Hainan covers an area of 35,000 square kilometers. This large area enables it to explore development that other free ports and free trade areas have failed to explore.
The construction of the pilot free trade zone, and the exploration of the free trade port can be described as a golden opportunity for the development of Hainan. To grasp such a historical opportunity not only requires courage but also wisdom. The guidelines on supporting Hainan to deepen reform and opening-up emphasize the balance between delegating power and strengthening regulation, so to better carry out opening-up and reduce the probability of failure. Hainan’s comprehensive deepening of reform and opening-up has many highlights, including the construction of a modern economic system, the construction of an international tourism island, the promotion of ecologically sustainable development, and the improvement of the talent development system. If closely integrated with these highlights, construction of the free trade zone and exploration of the free trade port in Hainan will be more easily carried out.
At present, some people are worried that China’s attitude toward opening-up will be shaken. China has made its attitude clear to the world by establishing Hainan as a pilot free trade zone. This means that China’s door to the world will not be closed but continue to open wider. As a free trade zone and special economic zone, the new development of Hainan will generate more dividends in the future.