Hainan FTP: Catalyzing duty-free sales and widening openness

Known for its tropical island charm, Hainan Province in south China has emerged as a tourist magnet, attracting an increasing number of domestic and international visitors. The appeal of duty-free shopping has significantly boosted Hainan's tourism, making it a key attraction for travelers, especially those drawn primarily by the shopping opportunities.

In 2023, offshore duty-free shopping saw remarkable growth, with a 59.9 percent increase in the number of shoppers and a 25.4 percent rise in total sales compared to the previous year, according to Liu Xiaoming, the provincial governor, during a press conference held in April.

Behind the booming duty-free market

First introduced in 2011, Hainan's offshore duty-free policy allows visitors to make tax-free purchases at designated stores. Originally, the policy set an annual duty-free spending limit of 30,000 yuan (approximately $4,145), and in 2020, this cap was increased to 100,000 yuan (about $13,817) per person. Also, the range of products eligible for duty-free status was broadened to include electronics, among other items.

Over the last 13 years, duty-free offerings have grown both more affordable and varied. From the start of the offshore duty-free policy in April 2011 through to October 2023, Haikou Customs reports that duty-free shopping transactions have totaled 202.4 billion yuan across 37.22 million shopping trips, involving the purchase of 268 million items.

In April last year, Hainan introduced two new methods for collecting offshore duty-free items, providing customers with more flexibility and convenience. Tourists can opt for a "guaranteed pick-up" service, which allows them to collect items costing over 50,000 yuan directly on-site with guaranteed availability.

For designated items under 20,000 yuan, the "buy and pick-up" option complements traditional collection methods, like pick-up at railways, airports, and ports, or delivery. For example, customers can purchase and immediately use items like sunscreen and sunglasses from island duty-free shops, reducing luggage and enhancing ease of shopping and comfort.

The duty-free policy boosts Hainan's tourist attraction and is part of its broader initiative of evolving into a more open global free trade port (FTP), drawing wider economic attention. Since 2018, the rate of new foreign-funded enterprises establishing themselves in Hainan has surged with an annual growth rate of 65 percent, totaling 6,543 businesses, signaling a strong endorsement from international investors.

Meanwhile, the tropical province has rolled out a series of new initiatives in key sectors, including service trade, digital trade, intellectual property protection and cross-border data flow, emphasizing its commitment to fostering a high-quality business environment.

Advancing towards greater openness

In 2021, China introduced legislation for the Hainan Free Trade Port, stating that the FTP extends across the entire island. This law sets out step-by-step policies and frameworks to facilitate and liberalize trade, investment, cross-border financial flows, entry and exit of personnel, as well as ensuring the secure transfer of data.

"This initiative anchors Hainan's development and opening up firmly within the rule of law," said Feng Fei, secretary of the Communist Party of China (CPC) Hainan Provincial Committee. "By establishing a legal framework for the Hainan Free Trade Port's key policies at the national legislative level, it significantly strengthens global investors' confidence."

Over the years, to support the development of the Hainan FTP, more than 180 policies and measures related to tariff exemptions and the facilitation of trade and investment have been implemented.

These policies establish a solid foundation for the Hainan FTP policy system, creating an effective market that fosters full competition, and this in turn unleashes market forces that spur innovation, according to Feng.

Besides favorable trade policies, the province is promoting easy access for international visitors. From February 9, travelers from 59 countries, including Russia, France, the U.S., Brazil, Japan, and the UAE, enjoy visa-free entry to Hainan for up to 30 days. This policy supports activities ranging from business and tourism to family visits, medical care, exhibitions, and sporting events.

In the next phase, Hainan plans to launch additional direct international flight routes and increase wide-body aircraft capacity on key routes for business and tourism, according to the Department of Transportation of Hainan Province. Hainan now operates a network of 45 international passenger routes that link 26 cities, including Seoul, Singapore, Bangkok, Sydney, Auckland, Abu Dhabi, Moscow, and Almaty.

Hainan is currently accelerating its efforts to launch island-wide independent customs operations by 2025, aiming to facilitate foreign trade and investment as the province advances in its transformation into a fully developed free trade port.

"Achieving independent customs operations will mark a milestone in building Hainan into a free trade port, and it's also crucial for the high-quality development of Hainan," said Feng.

"Once achieved, this will pave the way for more frequent and streamlined trade and investment between Hainan and the global community. It will allow Hainan to attract production factors from around the world and enhance the allocation of global resources."

(Cover image: Qingshui Bay in the Lingshui Li Autonomous County of south China's Hainan. /VCG)