Five Key Policy Reforms

The FTP’s policy shifts have been described as “five greater freedoms and conveniences” around 1) trade, 2) investment, 3) cross-border capital flows, 4) movement of people, and 5) ease of travel.

1. Trade

Examples include customs clearance being fully digitised through a single online window. Tariffs will drop significantly – 74% of tariff lines will enjoy zero tariffs, with a focus on benefiting sectors like pharmaceuticals and food processing. Import complexity will also be relaxed for 98 commodity codes. There is also a value-added processing incentive, whereby selective goods that are further processed up to a specified level on Hainan Island will be able to be sold to the mainland tariff-free.

2. Investment

The FTP will open more sectors, streamline foreign investment, and offer tax incentives. Activities will follow an “ultra-streamlined” list rather than the mainland’s pre-establishment national treatment plus negative list. Eligible businesses and personnel will enjoy a 15% tax rate, compared to higher mainland rates.

Sectors being fostered include medical tourism and space collaborations. Hainan is, for example, home to the Wenchang Commercial Space Launch Site, China’s first specialised commercial space base. The iSpace rocket factory will soon be operational and will have capacity for 1,000 satellite launches annually, offering a “from factory-to-launch” service that is easily accessible to scientists globally. The island’s Boao Lecheng International Medical Tourism Pilot Zone offers services for  treating rare diseases, and also pilots pharmaceutical research.

3. Capital Flows

Hainan will pilot liberalised cross-border capital flows, drawing lessons from Hong Kong to optimise corporate income tax, capital gains tax, and stamp duty for offshore financial businesses. In terms of direct means for developing the financial sector, market access for financial institutions will be eased for foreign banks, insurance companies, securities companies and other financial institutions, with joint-venture financial institutions encouraged. The FTP will also support RMB internationalisation and real-time monitoring of capital flows.

4. Movement of People

The movement of people and workers – Chinese and foreign alike - will be eased, and travel in general will be eased too. For example, not only will certain talent categories pay a lower rate of income tax than on the mainland, but the entry and residence permit process will be bundled and more talent-centric than employer-centric (as on the mainland).

5. Ease of Travel

New flight and cruise routes will connect Hainan more widely with the world, supported by an expanded visa-free list, which grows from 47 to 86 countries. Further, for citizens of 59 nations, visa-free entry will now extend beyond tourism to include trade, medical care, and exhibitions. These changes will not only make trade and business deals between China and most countries easier, but also, for example, position Hainan Island to host international conferences with relative ease and speed for international arrivals from anywhere.

Implications for Australia

Hainan FTP will bring both opportunities and competitive challenges for Australia. Its separate customs status and focus on high-quality food, pharmaceuticals, and professional services – areas in which Australia has strengths – may open new investment destinations, yet also ultimately intensify trade competition. In particular, expanding links between Hainan (and China) and countries of Global South, especially South-East Asian nations, may increasingly present competition for Australian exports and investors alike.

For pharmaceutical companies, it may be worth exploring whether the FTP’s regulatory environment is uniquely favourable and brand-sustainable for research. For the financial sector, meantime, elevated internationalisation of the Renminbi and opening of China’s capital account may similarly present new opportunities and shifting global portfolio interests and competition.