China has unveiled a package of special policies for Hainan, including scrapping import duties, in an effort to turn the tropical island into the mainland’s answer to Hong Kong or Singapore and dampen the risk of decoupling with the United States.

Beijing on Monday outlined its plan to make the 35,000 sq km island a “free trade port” by lowering the income tax rate for selected individuals and companies to 15 per cent, and relaxing visa requirements for tourists and business travellers. The island province of 9.5 million people will also enjoy freedoms in terms of trade, investment, capital flows and the movement of people and data by 2035, as it moves toward becoming a hub of “strong international influence” by the middle of the century.

The project to make Hainan, which covers an area 30 times that of Hong Kong, into a regional trade, shopping and shipping centre has been “planned, arranged and promoted by General Secretary Xi Jinping personally”, according to the government statement. President Xi announced in April 2018 that the island, a popular holiday destination would be made into the nation’s largest free-trade zone. The Hainan government has sent delegations to Hong Kong, Singapore and Dubai to learn “free trade” practices.

The detailed blueprint has been released as the threat of decoupling between the US and Chinese economies grows, with tensions between the two nations escalating on multiple fronts beyond trade. The US said it planned to strip Hong Kong of its special trade status last week after Beijing moved ahead with a plan to impose a new national security law on the financial hub. The removal of the designation could mean Hong Kong’s exports will be subject to the same US tariffs as the mainland and threaten the city’s port status and re-export businesses, which have benefited from low duties in trading with the US.

Under the new plan for Hainan, some imported goods will be tariff free, including manufacturing equipment, vehicles, ships, aeroplanes, raw materials and consumer goods.
Chinese citizens will be able to spend as much as 100,000 yuan (US$14,000) per person every year at duty-free shops on the island, up from 30,000 yuan currently. China will build a “second customs line” for products transported from Hainan to the mainland, with goods that have had 30 per cent value added on the island allowed to enter duty free.

Investment approval will also be simplified in the province. In certain areas companies will not need to obtain government approval as long as they make promises to abide by regulations before operations begin. Foreign nationals will be able to serve as legal representatives for state-owned enterprises, which is not allowed in the mainland, while tourists arriving on international cruise ships will be allowed to visit the island for up to 15 days without a visa.

The scope of the proposed policies for Hainan goes much further than Beijing’s existing measures for other “free trade zones” in Shenzhen or Shanghai. At the same time, the policies do not include any loosening of China’s capital account and information flow controls, the pillars of a true free trade hub.

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