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Hainan, China’s southernmost island province, will become the country’s largest pilot free trade zone and the forefront of reform with the highest degree of opening-up

By NewsChina Updated May.3

On April 13, 2018, Chinese President Xi Jinping announced that the central government would transform Hainan Province into a pilot international free trade zone for deepening overall reform and opening-up, a pilot national ecological zone, an international tourism and consumption center, as well as a major national strategic logistics zone. 

“Hainan will become an example of the nation’s image,” Xi said, announcing the move at a conference celebrating the 30th anniversary of the province and Hainan Special Economic Zone (SEZ). 

Since the SEZ was founded in 1988, Hainan Province has become a microcosm of China’s reform and opening-up, leaping to the forefront from its previous position as a backward administrative region of Guangdong Province.
Back then, there were few traffic lights and no large power stations. Shops had to generate their own power through small electric generators. “Haikou, the capital city of Hainan, resonated with the thundering noise of generators every day,” said Xing Zengyi, a longtime resident who moved to Haikou for business in 1987. 
Upgrading Hainan’s inferior infrastructure and improving the investment environment has been a priority of the local government ever since. 
On January 7, 2003, China’s first cross-sea rail-line, linking Hainan and Guangdong Province, was opened. On December 30, 2015, a bullet train network of some 650 kilometers circling the island was launched, turning Hainan into a business zone that can be circumnavigated in three hours. According to official figures, Hainan’s GDP soared to 446 billion yuan (US$71b) in 2017, up from 5.7 billion yuan (US$908 million) 30 years ago.  

Cooling Property 

In 1991, Hainan registered GDP growth of 14.9 percent, which climbed to 41.5 percent in 1992 off the back of real estate development. Back then, the island, with a population of 6.6 million, was home to at least 20,000 property development companies. 
In June 1993, the central government announced it had restricted real estate companies from going public, stopped banks from entering the property market and raised deposit interest rates substantially. Following these stringent measures, the real estate boom in Hainan went into a downward spiral. 
Meanwhile, the province had a large number of vacant buildings, with floor space totaling 5.94 million square meters, and numerous unfinished projects. The real estate bubble gave rise to a financial crisis in the province. Hainan Development Bank, which launched in 1995, lasted for only three years, becoming the first Chinese commercial bank to collapse. 

But in recent years, a growing number of Chinese nationwide have moved to Hainan for tourism, jobs, investment or to retire, pushing up property prices again.
“The government’s financial dependence on land-sales revenue has to be halted. We have to bear in mind that housing is for living in, not for speculation,” Liu Cigui, Party chief of Hainan, said during an economic meeting in December 2017. 

The Housing and Urban-rural Development Department of Hainan told our reporter that to cool down the real estate frenzy and restructure the economy, the province has introduced a package of measures to support its competitive industries and put an end to the assessment of GDP growth in its 21 cities and counties. 
The bureau added that while it would strictly prohibit speculation on commercial housing projects, it would give a green light to the construction of public rental housing and common property housing.
During the 2018 National People’s Congress in March, Hainan governor Shen Xiaoming said to fill the business gap left by the property industry, Hainan would support 12 key sectors, including tourism, agriculture and the digital economy. Meanwhile, he said, the province would work to grow the proportion of consumption in the local economy. 

International Challenge 

In January 2010, the State Council, China’s cabinet, announced that great effort would be made to transform Hainan into a site of international tourism. The province has since opened 56 international air routes. Since 2000, it has provided visa-free entry for residents from 26 countries and extended this to 59 countries on May 1, 2018. On December 6, 2017, Hainan passed a record of one million tourists for the year. 

However, the island’s tourism services have a long way to go before they meet international standards. During the recent Chinese New Year holiday, heavy fog disrupted ferry services on the Qiongzhou Strait that links Hainan and Guangdong, stranding over 100,000 passengers and at least 10,000 vehicles on the island. 
“We have to be aware of international standards. The number of international tourists is important, but what is more important is the level of oneness with the outside world,” Governor Shen said during a meeting on the construction of Hainan international tourist island.
On April 20, 2011, Hainan unveiled duty-free policies for tourists both in China and abroad, but has to date failed to meet the growing demands of tourists. According to Liu Jing, general manager of Sanya Duty Free Store, no tourist can buy more than one article priced at more than 8,000 yuan (US$1,275), and they must pay a high tax to mail it. Furthermore, each tourist can only purchase commodities that total less than 16,000 yuan (US$2,550). 

“The duty-free policy has to grow with the times,” Liu said. “As an international tourist island, polices should meet international standards.” 

In order to assess the “internationalization” of the island, Sanya tourism authority established a complete set of appraisal criteria to gauge the tourism services in the city. “We always have to be aware of our status in the world and the services that competitors provide,” Wang Feifei, deputy director of the Sanya Tourist Commission, told our reporter. 

She added that the commission had applied technological measures, including big data analysis, to quantify the province’s competitiveness on price, traffic issues and public services, comparing them with 11 top global tourist destinations. 

Natural Assets 

With a land area of 34,000 square kilometers and a sea area of 2 million square kilometers, Hainan is China’s only tropical island province. “Hainan’s sea area accounts for two-thirds that of China. The vast sea area offers a variety of marine resources,” said a senior official from the province’s ocean and fisheries department, who declined to be named for this story.
Hainan may be a major maritime province, but it is not a powerful maritime province. The lack of maritime awareness has led to a relatively weak ocean industry. Poor maritime technology and investment and a lack of skills in the sector have continued to impede the healthy development of the ocean province. “The greatest potential for the province lies in the sea,” the official told our reporter, adding that the province will continue its opening-up policy.
“Reform and opening-up is a crucial step for the development of Hainan,” Chinese President Xi Jinping said during a field trip to Hainan in 2013. To date, Hainan, as the country’s biggest special economic zone, still trails some island economies and provinces which are strong in international trade.
Lü Yong, head of the Hainan Provincial Department of Commerce, told NewsChina the scale of international trade in the province remains weak, with large foreign-funded projects scarce. The province’s service industry leaves much to be desired, he said.  
“We will give priority to the innovative pilot projects in services and open the service trade,” he said, adding that it would focus on tourism, education, healthcare, transportation, insurance and traditional Chinese medicine. “The province’s service export and import volume increased 19.3 percent and 23.9 percent in 2016 and 2017 respectively,” Lü said. 
Chi Fulin, who heads the China Institute for Reform and Development, said the lesson of the past 30 years was that Hainan could not have achieved success if it relied on preferential policies and refused to open up to the outside world. 
“Hainan’s development lies in the highest degree of opening-up,” Chi told NewsChina. “Regional openness boosts industrial openness and the integration of both will be the biggest second-mover advantage for Hainan.”