Financial innovation will boost Hainan's next leap in opening-up

Editor's note: Wang Fanghong, a special commentator for CGTN, is a senior researcher at Hainan Institute of Financial Research of the Bank of China. The article reflects the author's opinions and not necessarily the views of CGTN.

When Hainan launches its special customs operations, the island will enter a new phase of opening-up, one driven not only by freer flows of goods and investment, but by financial innovation needed to support them. In May 2025, three centralized cross-border capital operations centers were officially approved in the Hainan Free Trade Port (FTP); by late July, a fourth had joined; in November, the number reached six, reflecting the steady expansion of the policy framework. The move not only captures the expansion of the policies' effects but also signals how financial innovation is becoming the backbone of Hainan's transformation into a high-level gateway for global commerce.

The centralized cross-border capital operations centers reflect what Hainan aims to achieve: integrated policies that make institutional opening-up real. As independent legal entities, the centers pull together both domestic and overseas foreign-currency funds from various subsidiaries of a multinational group. Using a multi-functional free trade account (also known as an electronic fence account, or EF account) enables centralized payments, foreign exchange, investment, and financing across borders. In doing so, it equips companies with the visibility, controllability, and efficiency required to manage global capital in a fast-moving economy.

This sits at the heart of Hainan's mission. Finance is the core of the modern economy, and Hainan's path to high-level institutional opening-up inevitably runs through financial reform. As a state-designated "pilot zone for the comprehensive deepening of reform and opening-up," the Hainan FTP is responsible for breaking new ground. Its highly open market environment, its ability to trial more ambitious policies, and the risk-controllable nature of an island economy together make it an ideal testing ground for China's next stage of financial opening. This is especially true in two core areas: RMB internationalization and capital account convertibility, where progress depends on ground-breaking, carefully designed innovation. Only by advancing in these areas can Hainan truly reach the level of opening-up envisioned for it.

The strategic goal is clear: Turn Hainan into an important gateway of leading China's opening-up in the new era. And financial innovation is quietly making that possible, shaping not only trade and investment flows but also the upgrading of industries, such as shipping and even the financial sector itself, that anchor the island's global role.

Consider Hainan Rubber, a world-leading natural rubber company that grew from the island's soil and now operates across 15 countries, with annual trade volumes accounting for roughly 27 percent of global natural rubber consumption. For years, one of its major challenges was capital management. Funds scattered around the world created information gaps, inefficient allocation, and exchange-rate risk exposures that complicated daily operations.

That changed with the rollout of the policy to build centralized cross-border capital operations centers in Hainan at the end of 2024. In May 2025, Hainan Rubber became one of the first companies approved to operate a cross-border capital center. For Yang Yu, the company's general manager, the timing could not have been better. The new platform, he argues, will reshape the company's industrial and value chains, strengthen its global competitiveness, and reduce operational frictions.

This is more than a corporate success story. It demonstrates how special customs operations, supported by financial tools, can improve the efficiency of capital movement on a global scale.

These innovations extend across Hainan. EF accounts are already essential for building a trade portal. The principle of "freer access at the first line, regulated access at the second line, free flow within the island" underpins the new customs territory, but the flow of capital requires a parallel system. By aligning cross-border capital rules with those governing import and export processes, namely "first-line liberalization, second-line cross-border management," Hainan has eased settlement procedures and fostered rapid trade growth. Between 2020 and 2024, the value of goods entering and leaving Hainan grew more than 30 percent annually on average, one of the fastest growth rates in the country. The province's trade dependence also climbed sharply, from 14.6 percentage points below the national average to 2.5 points above it.

Investment opening-up is following a similar path. For Hainan, a hub connecting domestic and international circulation, to build headquarters bases for Chinese firms going global and foreign firms entering China, it needs a robust platform for managing large cross-border capital flows. Centralized cross-border capital operations centers meet this demand. It enables multinational companies to optimize global capital allocation and strengthen capital management, while also being classified as an encouraged industry. That designation provides tax incentives for cross-border investment, financing, and profit repatriation, resulting in tangible reductions in financial costs for enterprises. These advantages give the centers a strong appeal and competitiveness, creating a solid financial foundation for Hainan to build an investment-oriented gateway. Its impact is particularly relevant as more Chinese firms go global and as projects under the Belt and Road Initiative continue to expand.

Shipping and aviation are also advancing on the back of financial policy innovation. Guided by its goal of building the "two hubs" – an international shipping hub for the new Western Land-Sea Trade Corridor and a regional aviation gateway facing the Pacific and Indian Oceans – the Hainan FTP has layered several core opening policies on top of traditional shipping and aircraft leasing models. These include domestic ship export tax rebates, cross-border RMB settlement, and a preferential 15 percent corporate income tax rate. Together, they have enabled a series of innovative aircraft and ship leasing cases and drawn a cluster of financial leasing firms to the island.

The industry is now showing an apparent agglomeration effect, accelerating the development of Hainan's shipping portal. By October 2025, Yangpu had become China's leading free-trade-port ship registry in both international vessel registrations and shipping capacity, with a route network emerging across Southeast and South Asia and extending to the Middle East, the Americas, and Oceania. Hainan's aviation links have expanded as well, with 79 international passenger routes connecting the province to 21 countries and 39 cities.

Hainan is also carving out a new space for capital market opening-up. Hainan's pilot program for cross-border asset management introduces a fundamentally new model of market access. The products offered under the pilot, including wealth management products, private asset management products, public securities investment funds, and insurance asset management products, all fall within the "collective investment instruments" category in the IMF's capital account classification, and are available to overseas investors for the first time, offering fresh channels for international capital to enter China and new opportunities for domestic institutions to serve global clients.

Perhaps most significantly, these initiatives are advancing RMB internationalization. The Hainan FTP is using its policy advantages to create new channels for cross-border RMB payments and repatriation, broaden the offshore RMB user base through product innovation, and cultivate new application scenarios for offshore RMB. Each of these efforts strengthens the currency's global reach.

Some reforms directly require the use of RMB, for example, transfers between EF accounts and their domestic accounts with the same name, as well as transactions under the cross-border asset management pilot. Other policies that facilitate trade and investment settlements strongly encourage the use of RMB. As cross-border activity in Hainan expands, these measures are already shifting behavior. In 2024, cross-border RMB settlements in the Free Trade Port rose to 457 billion yuan (around $65.69 billion), up 53 percent year-on-year. RMB now accounts for 63.8 percent of all cross-border settlements in Hainan, up 10.4 percentage points from the previous year.

The 15th Five-Year Plan marks the first complete planning cycle since the launch of special customs operations in Hainan, and Beijing has made its expectations clear: the port must be built to high standards. Meeting this goal requires more than simply rolling out existing financial innovations more widely. It calls for expanding the range of users and application scenarios so that current policies deliver their full effect, while also accelerating the implementation of core measures such as offshore financial services and phased capital account liberalization. These steps will open new market space and support new financial business models.

At the same time, Hainan must benchmark itself against international rules and frontier practices as it designs the next stage of high-level financial opening. Only by combining global standards with breakthrough innovations can Hainan build the globally influential financial ecosystem envisioned for it, with Chinese characteristics.

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