From special customs operations to global connectivity: Hainan builds a global free port for capital flows

Editor's note: Zhu Fangfei is deputy director of the Institute for Public Policy of Zhejiang Province and director of the Research Department of the Institute for Public Policy of Zhejiang University. The article has been translated from Chinese and edited for brevity and clarity. The article reflects the author's views, and not necessarily those of CGTN.

On December 18, the Hainan Free Trade Port will officially launch special customs operations. Once the operations start, the entire Hainan island will become a special customs supervision zone governed by a liberalization and facilitation policy framework characterized by "freer access at the first line, regulated access at the second line, free flow within the island."

The special customs operations mark a pivotal step for China to advance financial opening up. With reliance on its regulatory model of "freer access at the first line, regulated access at the second line," as well as preferential tax policies, free cross-border capital flows, and other policy advantages; coupled with institutional innovations such as financial infrastructure, integrated domestic-foreign currency pools, and high-standard opening up in cross-border trade and investment, the island has fostered an open financial ecosystem aligned with the strategic positioning of the Free Trade Port.

This development is of great significance for building a new hub for global capital inflows and outflows, and accelerating the concentration of international financial capital, while also exploring viable pathways for China's institutional opening up in the financial sector.

Special customs operations do not mean sealing off the island; rather, it is about deeper opening up, ensuring even more seamless connectivity between Hainan and the world

"Freer access at the first line" refers to treating flows between the Hainan Free Trade Port and countries and regions outside China's customs territory as the "first line," along which a series of measures liberalizing and facilitating entries and exits will be implemented. "Regulated access at the second line" refers to treating flows between the Hainan Free Trade Port and the Chinese mainland as the "second line," where targeted management will be applied corresponding to first-line liberalization. "Free flow within the island" means that production factors can circulate relatively freely inside the Hainan Free Trade Port. 

High-standard opening up in the economy and trade, as well as the advancement in trade liberalization and investment facilitation, hinges on high-quality financial opening up. On the basis of a highly open market environment located within Chin's territory but outside its customs boundary, and grounded in China's financial rules and institutional framework, the Hainan Free Trade Port enables various cross-border and offshore financial transactions. This allows international investors to apply, familiarize themselves with, and gradually accept China's financial rules and laws in practice, thereby advancing orderly opening up in the financial sector both domestically and internationally and steadily enhancing the global influence of China's financial institutions.

The Hainan Free Trade Port has already achieved notable results in financial opening up

The multi-functional free trade account (electronic fence account, or EF account), launched in 2024, has created an entirely new financial infrastructure facilitating the free flow of capital across borders in the Hainan Free Trade Port (FTP). By the end of 2024, a total of 158 main accounts under the EF account system had been opened in Hainan, with cumulative receipts and payments amounting to over 66 billion yuan ($9.28 billion). 

In 2024, the province's free trade accounts (FT accounts) recorded receipts and payments equivalent to 1.33 trillion yuan ($190 billion), up 89.07 percent year-on-year. Total cross-border receipts and payments reached $108.63 billion, increasing by 24.4 percent year-on-year. Under the Qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) schemes, cumulative inflows reached $1.951 billion, while outflows stood at $1.148 billion.

Centralized cross-border capital operations centers are becoming critical nodes for transnational enterprises to integrate their onshore and offshore capital flows

In May 2025, three centralized cross-border capital operations centers were officially approved in the Hainan Free Trade Port; by late July, a fourth had joined, reflecting the steady expansion of the policy framework. These centers use EF accounts to conduct overseas lending, outbound investment, and cross-border fund pooling and allocation. These operations not only take full advantage of Free Trade Port policies to significantly facilitate cross-border capital flows but also mitigate the security risks associated with holding funds overseas amid increasingly complex international and geopolitical conditions. 

In the meantime, enterprises can benefit from policy incentives exclusive to the Free Trade Port, including the "dual 15 percent" preferential tax regime (maximum personal income tax of 15 percent for eligible talent and corporate income tax of 15 percent for companies in encouraged industries) and exemptions on newly generated overseas direct investment income. Drawing on the strengths of Hainan's EF Account system, these centralized cross-border capital operations centers enable companies to more efficiently allocate and transfer idle funds both onshore and offshore, thereby easing their liquidity pressures, improving capital utilization, and achieving integrated operations across cross-border settlement, financing, and risk hedging.

Hainan is emerging as an "institutional testing ground" for linking Chinese and international financial markets, serving as an important reference for advancing China's institutional opening up in the financial sector

Once the "freer access at the first line," is implemented, Hainan will become a part of the international market, a transition that requires institutional opening in finance as the foundation. At its core, trade and investment liberalization and facilitation rely on the free and convenient flow of cross-border capital. This requires not only the reform and optimization of existing rules governing cross-border transactions, but also the gradual establishment of a new institutional framework capable of supporting deeper liberalization in the future. 

Institutional opening up in the financial sector will inevitably involve financial risks, and because such opening up is inherently innovative and groundbreaking, the uncertainty and difficulty of anticipating and managing these risks are further heightened. 

By establishing an "electronic perimeter" to regulate capital flows between the island and the Chinese mainland, Hainan lays a solid foundation for effectively preventing and managing potential risks as it expands institutional opening up in the financial sector in line with the world's highest standards of openness. 

At the same time, compared with first-tier cities such as Shanghai, Beijing and Shenzhen, Hainan's financial market is smaller and has less diversified business forms. Although this may appear to be a developmental constraint, it also reduces the likelihood of extensive, sophisticated financial risks as well as challenges and hazards in the course of further opening posed by institutional path dependence. 

Therefore, the Hainan Free Trade Port is inherently well positioned to promote institutional opening up in the financial sector, while steadily expanding such opening to support its high-quality development. It serves as an "optimal testing ground" for China's institutional financial opening, both domestically and internationally.