Editor's note: Cao Yuanzheng, former chief economist of the Bank of China, is a visiting professor of Tsinghua University. The article reflects the author's opinions and not necessarily the views of CGTN.

With the launch of island-wide special customs operations on December 18, the Hainan Free Trade Port (FTP) in southernmost China marks another landmark in the nation's reform and opening-up.

Amid profound global shifts unseen in a century and rampant deglobalization headwinds, this is a bulwark for economic globalization and an important driver of opening-up in the new era. Without any doubt, the island-wide special customs operations will become a defining feature of Chinese modernization.

Building bridges in a fragmented world

In November 2025, while reviewing a work report in Sanya, Hainan Province, on the construction of the Hainan FTP, Chinese President Xi Jinping defined its goal as building "a key gateway driving the country's opening-up in the new era." He further noted that developing the Hainan FTP to "high standards" is intended to advance Hainan's high-quality development and contribute to forging a new development paradigm nationwide.

This directive not only clarifies the strategic linkage between the Hainan FTP and China's broader economic agenda at the national level but also situates the FTP within the context of profound global economic shifts, underscoring its role and significance in the evolving world economy.

Today's global economy is built upon the victory of World War II (WWII). However, it is also colored by the North-South divide, which still dictates the current global economic operation, as well as economic and financial governance, giving rise to a center-periphery international economic structure.

For a long time, developing countries have not only suffered from biased terms of trade but also faced stringent conditions for attracting direct investment, as well as discriminatory treatment in financial arrangements. The unjustness in the international economic order has made them cautious about opening-up.

Right now, the world economy is undergoing profound changes unseen in a century. Since 2017, "deglobalization," once a popular street ideology, has begun to be consolidated as institutional arrangements. Particularly after the Russia-Ukraine conflict, both sides and their backers weaponized international rules for sanctions, severely impacting the institutional foundations of economic globalization established after WWII. Especially with the Trump administration's return in 2025, which emphasizes "America First" and has imposed widespread tariffs on imports, the free trade principles have been blatantly contravened, leading to fragmented globalization.

In this major realignment of the global political and economic landscape, the attitudes of the United States and China, the world's two largest economies, towards the world, and their strategic interactions, are once again central.

Consequently, "non-alignment" is emerging as a new global trend, with the Global South asserting itself. Against this backdrop, the island-wide special customs operations of the Hainan FTP have profound significance, going beyond regional scope. The operations demonstrate that at a time when globalization faces strong headwinds, China has opted for further opening-up rather than closure, choosing to build bridges instead of erecting walls.

From factor mobility to rule alignment

At the center of Hainan's development is its institutional framework. An FTP may start as an open gateway, but it cannot remain only that. It is, fundamentally, an institutional arrangement: a comprehensive system aligned with global norms and capable of evolving with the times, enabling deeper integration with the world economy. The enduring competitiveness of the Hong Kong Special Administrative Region of China and Singapore over more than six decades, despite shifts in the global economic landscape, stems precisely from the strength and continuity of their institutional foundations.

China's own experience over more than 40 years of reform and opening-up underscores the same lesson: Institutional design is not just important, but decisive. When Shenzhen in south China was first established as a special economic zone (SEZ), the goal was straightforward: to accelerate national industrialization.

Shenzhen became a strategic gateway between global markets and the domestic economy. Through institutional arrangements more open and advanced than those in the hinterland, the city attracted capital, technology and managerial expertise. In doing so, Shenzhen not only drove its own industrial growth but also set a benchmark and direction for the rest of the country.

Shenzhen's ascent propelled China's industrial opening-up, integrating the industrialization into global markets and synchronizing its development with the world economy, ultimately shaping China into the "world's factory." If this marks the success of SEZs as an institutional design, then the Hainan FTP must build on that foundation. The task now is not to replicate the past, but to pursue integrated institutional innovation informed by the proven achievements of earlier SEZs.

China's industrialization is now in its mid-to-late stage, making the shift toward a service-oriented economy central to high-quality development. Against this backdrop, using opening-up to drive reform and growth in the service sector has become the core mission of the Hainan FTP. This requires an institutional framework that moves beyond the SEZ model.

While carrying forward the pioneering spirit that defined Shenzhen's early years, Hainan must establish a new, internationally benchmarked standard of opening-up through integrated institutional innovation. Only then can it become a national model for advancing the service economy and meeting the demands of Chinese modernization.

Unlike industrial opening, opening the service sector is fundamentally about aligning standards. Industrial standards are largely rooted in objective, measurable criteria. By contrast, service-sector standards are shaped by human behavior and therefore depend on rules, norms, and regulatory frameworks.

Industrial opening-up, supported by objective technical benchmarks, can often be advanced simply by liberalizing the flow of production factors. Reducing the cost of labor and land, coupled with preferential policies, can create investment-friendly zones that attract capital and fuel industrial growth.

Service-sector opening-up, however, is inherently institutional. It requires clear rules, unified standards, strong regulatory systems and effective governance. Only a comprehensive and high-standard institutional framework can ensure an orderly opening and high-quality development of the service economy.

A new nexus in global supply chain restructuring

Amidst the accelerated restructuring of global industrial and supply chains, Hainan is far more than a conventional processing-trade platform. It is poised to become a hub linking China's colossal domestic market with global industrial chains.

On the supply side, China remains the world's largest producer. It possesses a full-spectrum industrial system, from artisanal manufacturing to advanced high-tech, and holds world-leading capabilities in heavy and chemical industries, which makes it irreplaceable and of global significance.

While heavy and chemical industries may not be high-tech, they are the bedrock of modern economies. China has achieved comprehensive technological self-reliance in this domain, emerging as a global leader.

The sheer scale of China's economy continues to generate new industries and shape future development trajectories. This is especially evident in the rapid rise of green, low-carbon and digital sectors.

As the only country possessing every industrial category indexed in the UN's International Standard Industrial Classification of All Economic Activities, China provides unmatched breadth for deploying decarbonization technologies. The size of key sectors, including heavy industry, also ensures commercial feasibility and economies of scale, giving China a distinctive advantage in green and low-carbon innovation.

A similar pattern is unfolding in the digital economy. China's extensive supply chain network and massive population generate enormous data flows, creating both an urgent need and practical conditions to develop big data, cloud computing, AI and 5G. This has driven simultaneous progress in physical device manufacturing and algorithmic innovation, fueling the rise of high-tech giants such as Huawei and DeepSeek.

On the demand side, China is rapidly becoming a major driver of global consumption. After the 2008 financial crisis, expanding domestic demand became a national strategy, with income growth as the cornerstone. Within a decade, both GDP and household income doubled.

By 2021, China had eliminated absolute poverty and achieved a moderately prosperous society. By 2024, China's per capita GDP reached $13,400, only $600 shy of the World Bank's high-income threshold. Rising incomes have translated into a surge in consumption, and China's total retail sales are now comparable to those of the United States. At current momentum, China is on track to become the world's largest consumer market.

It is on this foundation that China proposes building a "super-large domestic market" as a long-term national strategy. Institutional opening-up, in this context, is not merely about access. It is about sharing the opportunities created by this process with the world. Hainan stands at the forefront of this effort, serving as a new platform through which China's growth can fuel global economic dynamism.

Global significance of Chinese characteristics

Hainan's special customs operations make the island a distinctive model with Chinese characteristics. While sharing the core features of free trade ports globally, it is grounded in China's unique national conditions.

As one of the world's most populous nations and the second largest economy, China requires an FTP that integrates both market access and institutional innovation. Hainan is therefore not only a gateway for deeper integration with the global economy, but also a showcase of an institutional approach to modernization.

Modernizing a nation through industrialization has long been the mainstream pathway for development and remains a strategic pursuit of late-developing economies. Though China, despite its splendid civilization, once lagged in the global modernization process, it has since transformed into a determined and dynamic participant.

The founding of the People's Republic of China in 1949 enabled the country to pursue independent industrialization. However, historical limitations led to the adoption of a planned economy. Although both the planned economy and market system can shape industrialization, global experience shows that rapid and high-quality industrialization is more closely linked to market-based systems. Reform and opening-up thus became a historic necessity.

China has seen institutional innovation at both the macro and micro levels. At the macro level, it reflects a synergy between an effective market and a proactive government. With a vast labor force, predominantly rural during early reform, China faced enormous pressure to expand employment and raise living standards.

Rooted in the governance tradition of "serving the people," and driven by political incentives to deliver economic results, local governments competed to attract investment, improve the business environment and accelerate growth, boosting people's quality of life with increased revenues.

Unlike the minimalist "night-watchman state" model common in the West, Chinese local governments often operate like determined enterprise managers: setting performance targets, often tied to GDP, benchmarking against peers, and creating development zones supported by development financing.

At the micro level, China's institutional model accelerates industrial iteration and expands economies of scale. This competitive yet efficient industrial organization pushes firms to innovate continuously.

The electric vehicle industry offers a clear illustration: China's push for infrastructure – connecting roads, and ensuring electricity and digital signals in every village – absorbed the externalities that typically hinder market adoption, leading to rapid scalability, falling unit costs and widening market penetration. This dynamic explains why even cutting-edge technologies from places like Silicon Valley in the U.S. often find their first large-scale commercialization in China.

Under globalization, the combination of a proactive state and efficient markets produces industrial ecosystems with super-scale advantages. And that's what the Chinese government has done. Goods manufactured in China are consistently produced at the largest scale, lowest cost and with the highest competitive strength.

Scale itself becomes a multiplier: Once supply chain networks reach a certain size, each additional node strengthens the whole system, enhances collaborative innovation, and accelerates iteration. Scale becomes not just an outcome, but a structural force that drives further development.

In any supply chain network, gateways define the connection to the wider world. The Hainan FTP is emerging as the strategic cluster of those gateways. It is not merely a conduit for China's trade and economic engagement with global partners; it is also a testing ground for institutional innovation. Its significance lies in marking China's shift from opening markets through factor mobility to opening its system through rules, regulations, standards and governance.

An experimental zone

The special customs operations are not merely an initiative in economic opening but an effort to explore new possibilities for global governance reform. At a time when the international governance system faces structural challenges, Hainan's evolving model offers ideas and inspiration for shaping a fairer global order.

For decades, many developing countries suffered from worsening terms of trade, restrictive investment conditions and discriminatory financial arrangements, which understandably made them cautious about opening-up. Hence, there's a dilemma: They must attract capital and foreign exchange to support growth, yet simultaneously protect nascent industries from external shocks.

This balancing act led to controlled opening: constructing strategic gateways that enabled international exchange while allowing necessary oversight. Over time, these gateways evolved into economic hubs.

FTPs represent the most advanced form of this evolution. They begin as strategic entry points for major economies, as Dubai is for the United Arab Emirates, and grow into high-capacity economic engines. Even in city-state economies like Singapore, FTP functions expanded outward from early concentrated districts. Hong Kong exemplifies this combined process of "gateway plus growth."

Combining a proactive government and an effective market, the Hainan FTP is exploring how a major developing economy can achieve high-level opening-up while maintaining economic autonomy. This approach offers developing nations an alternative to Western-led development paths, particularly in managing the balance between openness and security, and between efficiency and equity.

Exploring new rules for global governance in the digital economy era, Hainan is also testing new regulatory frameworks. While ensuring the secure and orderly flow of data, it is expanding data opening-up, experimenting with governance models that support innovation while controlling risks. These efforts will help lay the foundation for a more inclusive, fair and sustainable global digital governance framework.

Meanwhile, by benchmarking itself against high-standard trade rules such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement, Hainan is performing a real-world stress test for China's broader participation in next-generation trade frameworks.

China's application to join the CPTPP signals a commitment to multilateralism, and Hainan serves as a touchstone for meeting the obligations tied to high-level opening-up. This pragmatic pathway, advancing reform through opening-up, offers fresh momentum for breaking the impasse in the global trade system reform.

How the world views the Hainan experiment

The special customs operations of the Hainan FTP bring both opportunities and challenges for the global economy and enterprises.

From the opportunity perspective, Hainan presents three distinct possibilities. First, it serves as a gateway to China's vast consumer market. International brands and service providers can use Hainan as a "pre-positioning hub" or "experience store" to test the Chinese market with lower costs and greater flexibility, dramatically lowering entry barriers for small and medium-sized enterprises, and innovative businesses.

Second, Hainan functions as a collaborative laboratory for green and digital revolutions. Global enterprises can integrate into China's green and digital supply chains via Hainan, participating in emerging industries from new energy vehicles to renewable energy and artificial intelligence. In these areas, Hainan is poised to become a hub for international cooperation.

Third, it offers a repository of case studies for China's solutions in global governance. The Hainan model demonstrates incremental reform, strategic government planning, and institutional innovation, providing valuable lessons for economies facing similar developmental challenges.

This grand experiment faces challenges and doubts as well. Implementation capacity is a key concern. Can a carefully designed blueprint translate into consistent action at the grassroot level? And can complex institutional arrangements retain their intent during execution? These are the concerns of international observers.

Balancing security and opening-up is another critical test. In domains such as cross-border data flows and financial liberalization, China's emphasis on national security raises questions about the limits of access and convenience. Maximizing opening-up while maintaining security requires meticulous institutional design and regulatory judgment.

Geopolitical factors add further uncertainty. Will the Sino-U.S. strategic competition influence Hainan's ability to attract advanced Western technology and capital? Will international firms hesitate amid pressure to take sides? Such external variables will shape Hainan's internationalization trajectory.

A milestone worthy of global attention

The island-wide special customs operations are more than a regional event. They are a lens through which to observe China's future and emerging patterns of globalization. They are also key to understanding the shifts in the Asia-Pacific and global economic landscape over the coming decade.

There are still other concerns: Can a socialist economy align with high-standard international economic and trade rules through institutional opening-up? Can a development model emphasizing a proactive government achieve high-level opening-up while sustaining economic dynamism?

The answers will shape not only Hainan's future but also new possibilities for global economic cooperation. Success will hinge not on replicating Hong Kong or Singapore, but on forging a distinctive path of opening-up that reflects Chinese characteristics while remaining acceptable to the world.

For businesses, policymakers and international observers, monitoring Hainan's special customs operations and subsequent developments is essential to understand China's evolving role in the global economy. In this sense, Hainan belongs not only to China, but to the world. Each success and setback will yield lessons for global cooperation in an era of uncertainty.

As Hainan embarks on this journey, it is clear that this is only the first milestone on a long, unprecedented path. The road ahead demands focus, pragmatism, continuous experimentation and resolute progress. In a world fraught with challenges, Hainan's experiment embodies the conviction that opening-up and cooperation remain the best tools for addressing shared problems. This FTP, sitting on the South China Sea, carries the promise of a more inclusive, sustainable model of globalization.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com. Follow @thouse_opinions on X to discover the latest commentaries in the CGTN Opinion Section.)