By Ma Jinnan

Today is destined to become a landmark date in the history of China’s economy.

From this moment on, Hainan Island is no longer just a geographic concept—it has officially become a testing ground for the integration of China’s economy with the rest of the world. Starting today, the curtain is rising on the island-wide special customs operations across the entire island of Hainan.

In an era where anti-globalization trends are on the rise, we have chosen to embrace the world with even greater resolve, offering global capital and enterprises a safe haven marked by certainty. Behind this decision lies China’s unwavering commitment to openness, and a profound transformation aimed at reshaping the domestic economic landscape.

So, what is the core logic behind this transformation? It can be summarized as: loosening controls at the primary border, tightening them at the secondary border, and granting freedom on the island itself.

We can imagine that in the future, Hainan will resemble a vast, globally connected shopping center. Facing the world, its doors will be wide open: except for a few restricted items, the vast majority of goods can move in and out freely, without tariffs. With its connection to the Chinese mainland, there will be a precise “firewall” ensuring that the preferential policies are implemented accurately without disrupting the domestic market. On this massive “extra-territorial but within the border” island, the free flow of goods and services will become the norm.

The foundation for all this is the policy of “zero tariffs, low tax rates, and a simple tax structure.” While we see elements of international, mature free trade ports, the policy is also distinctly marked by Chinese characteristics—making this an institutional innovation worthy of close attention.

Putting aside grand narratives, how will this transformation impact our everyday lives and businesses?

For consumers, “zero tariffs” means a dramatic drop in the prices of imported goods. Coupled with the ongoing enhancement of the offshore duty-free policy, Hainan is rapidly becoming a shopping paradise for global consumers. In fact, just before the special customs operations in November 2025, offshore duty-free shopping sales surged by 27.1% year-on-year—a sign that the shopping frenzy is just getting started.

For entrepreneurs, over 1,100 encouraged industries—especially those at the forefront such as biomedicine, offshore wind power, and specialty automobile manufacturing—will be the biggest beneficiaries. They’ll not only be able to enjoy a 15% corporate income tax rate—which is 10 percentage points lower than the national standard, translating to real, substantial savings—but also dramatically cut the cost of importing equipment and raw materials thanks to “zero tariffs.” This will allow them to gain a competitive edge in global industrial chains.

Of course, any major transformation comes with inevitable growing pains. As Hainan further cements its status as a hub for tourism and consumption, traditional retail sectors and duty-free operators outside the province will inevitably feel the pressure of losing market share and foot traffic. Some mainland manufacturing firms will also face fiercer competition as a result of the influx of “zero-tariff” products.

Opportunities and challenges coexist. With the island-wide special customs operations of Hainan’s ports, how will the region leverage key initiatives such as the upgrade of offshore duty-free shopping, the “dual 15%” tax incentives, and duty-free processing for value-added manufacturing, to stimulate consumption, energize businesses, reshape trade, and impact the region?

Back to Five Years Ago

No great transformation happens overnight; it’s never a blitzkrieg, but rather a carefully orchestrated long-term campaign. The operation sealing off Hainan Free Trade Port—this gateway that’s now open to the world—has a backstory that begins with an ambitious blueprint laid out five years ago.

The story begins in the summer of 2020. On June 1, the “Master Plan for the Construction of the Hainan Free Trade Port” was released, declaring to the world China’s determination to build a new high ground for opening up. This guiding document set a target for Hainan in 2025 and mapped out the top-level design for the entire free trade port—a model of “front line open, second line controlled, and internal island freedom”—along with an alluring tax regime.

From that very moment, Hainan’s fate became tightly bound to China’s new wave of reform and opening-up strategy.

With the blueprint in place, the next step was the painstaking work of turning paper plans into reality. These five years have been a period of intense construction for Hainan, building not only airports, ports, industrial parks, and other visible infrastructure, but also invisible systems and regulatory frameworks.

On July 23, 2025, the General Administration of Customs issued the “Regulations on the Supervision of the Hainan Free Trade Port,” providing a clear operating manual for all relevant policies. Meanwhile, the launch of a multifunctional free trade account system paved the way for the inflow of global capital and set up a fast track. Over these five years, Hainan’s business environment has continued to improve, hoping to perfect all the details to make it an ideal home for companies and residents in the future.

These five years have seen Hainan making the most thorough preparations for a grand opening.

At the press conference held by the State Council Information Office on July 23, 2025, when December 18 was officially announced as the launch date for island-wide special customs operations, all uncertainties were laid to rest.

Hainan has officially transformed from a pilot policy zone into a fully established special economic zone, set to blaze a trail for China’s economic development.

Imagine a nearly invisible border between Hainan and the rest of the world—a “virtual national gate” that is almost completely transparent. Under the new regulatory framework, with the exception of a few products listed on the so-called “negative list,” the vast majority of goods from around the globe can flow into Hainan smoothly, free from tariffs. The proportion of zero-tariff items has surged from 21% to 74%, meaning that nearly three-quarters of global goods are now subject to unrestricted movement.

However, when zero-tariff goods from Hainan are shipped to mainland China, a sophisticated “firewall” is activated. Here, customs plays a crucial role in ensuring that tax policies are not abused and that the country’s tax base is protected. For products that undergo substantial processing in Hainan—those with a value-added portion exceeding 30%—no additional duties are levied upon entry into the mainland. This encourages businesses to set up genuine production lines and R&D centers in Hainan, rather than simply acting as “middlemen.”

Within Hainan itself, a vast free-flowing marketplace takes shape. Transactions of zero-tariff goods between local enterprises do not incur additional taxes, reducing internal friction within the industrial chain and streamlining supply chain integration. Freedom here is not limited to goods—it extends to capital and talent as well. The establishment of free accounts enables smooth cross-border capital flows, while open talent policies help attract top professionals from all over the world.

A New Tax Regime

“Zero tariffs” mean a direct reduction in costs for businesses, especially in sectors like biomedicine and high-end manufacturing that rely heavily on imported equipment and raw materials. These industries stand to benefit greatly from new opportunities to reshape their global supply chains.

“Low tax rates” are another major draw—after all, a 15% corporate income tax is a full 10 percentage points lower than the national average, representing real savings. Coupled with a 15% personal income tax, Hainan is rapidly becoming a magnet for top talent and investment.

Lastly, a “simplified tax system” makes the entire framework clearer and more efficient. It reduces compliance headaches for enterprises, increases tax transparency, and enhances the overall business environment’s international competitiveness. Of course, with such a powerful set of tools, there is always the risk of misuse. Regulators must remain vigilant to prevent Hainan from turning into a mere “tax haven,” and this will be a true test of their wisdom.

The Duty-Free Shopping Frenzy and Market Reshuffle

For most people, the most tangible aspect of the island-wide special customs operations is perhaps the shopping frenzy brought about by offshore duty-free stores.

In November 2025, a new offshore duty-free policy was implemented, delivering a generous package of benefits for consumers. The range of duty-free categories expanded to 47, now including even pet supplies and musical instruments, while the annual spending cap was increased to 100,000 yuan. This sparked tremendous consumer enthusiasm. In that month alone, the total amount spent on duty-free shopping in Hainan soared by 27.1% year-on-year, reaching 2.38 billion yuan.

What’s even more groundbreaking is that, for the first time, the policy includes departing international travelers, essentially tearing down an invisible wall and greatly boosting the influence of Hainan’s duty-free market. Purchases made by offshore and departing travelers now count toward their 100,000 yuan annual duty-free allowance. This change has broadened the pool of beneficiaries, enabling more travelers to enjoy the perks of the offshore duty-free policy.

The island-wide special customs operations is not just a boon for tourists—it’s quietly upgrading the quality of life for local residents as well. An influx of zero-tariff imported cosmetics, health supplements, and everyday goods is entering the market, giving local residents more choices based not just on price, but also on quality and personal preference. In the long run, as income expectations rise and living costs fall, Hainan residents could see a dual boost in both purchasing power and overall well-being.

However, beneath this festive atmosphere, not everyone is celebrating. Prior to the island-wide special customs operations, consumer hesitance put significant pressure on China Duty Free’s performance. As noted in reports from securities firms, only players with access to prime properties, robust supply chains, and outstanding operational capabilities will be able to maintain their position in this new game. After the island-wide special customs operations, as the market landscape is redefined, those unable to adapt to the new rules will face mounting pressure to adjust.

A clash between traditional and emerging sales channels may be looming.

As Hainan’s duty-free goods become an undeniable force due to their price advantages and rich variety, traditional department stores and e-commerce platforms selling premium products will inevitably feel the impact of this powerful diversion of business. Consumers will start to ask: if they can get the same luxury goods for less in Hainan, why buy from city-center malls or through a shopping app?

However, this impact is twofold.

On one hand, the policy advantages of the Hainan Free Trade Port are giving rise to even more competitive cross-border e-commerce players; on the other hand, the immediate “buy-and-get” experience of shopping locally in Hainan is something online channels simply cannot match. The direct showdown between new and traditional retail models is inevitable, forcing all players to rethink their own positioning. Should they choose to partner with Hainan’s duty-free operators to get a piece of the action? Or should they accelerate their own transformation, improve their services and customer experience, and build new competitive barriers?

In the short term, the pressure of market diversion is real, and some pain is unavoidable. But in the long run, a more open and fiercely competitive market will push the entire industry to evolve even faster. Companies that can quickly adjust their strategies and discover their unique value within this new ecosystem will find new life after the reshuffle, while those clinging to old models and slow to react may be mercilessly swept away by this wave of change.

Attention, Business Owners!

As the Hainan Free Trade Port gradually opens its doors, the ripples it sets off go far beyond just the consumer sector. On the deeper battleground of corporate operations, a profound “reshuffle” is already underway. For some companies, this is the gold rush they’ve been dreaming of; for others, it’s a period of growing pains that simply has to be endured.

Hainan’s first big gift is a highly attractive tax incentive. The 15% corporate income tax rate is a full 10 percentage points below the national standard—but for now, this policy is extended only until the end of 2027. For eligible individuals, the Hainan Free Trade Port offers a preferential 15% personal income tax rate as well. In September 2025, Hainan’s Department of Finance and four other departments released specific measures for implementing the personal income tax policy, further clarifying its applicable scope and operational procedures.

To enjoy these benefits, companies must have real offices, staff, and business operations in Hainan—a shell company registered on paper doesn’t qualify for any of these policy breaks. Under the 2025 policy update, the requirement that beneficiary companies derive a majority of their revenue from encouraged industries has been removed, lowering the threshold for enjoying tax incentives and offering businesses even greater operational flexibility.

After full island-wide special customs operations goes into effect, goods imported into the Hainan Free Trade Port—provided they are not on the taxable goods list—will be exempt from import duties. This zero-tariff policy dramatically reduces the cost of importing raw materials and equipment, with even more pronounced cost advantages for companies in encouraged sectors such as biomedicine, high-end food processing, and medical devices that rely heavily on imports.

Yet any massive reform is inevitably accompanied by some growing pains. As Hainan becomes a “policy hotspot,” its “magnet effect” on surrounding regions—and even the entire country—is also starting to become apparent.

Who’s feeling the pressure?

The first and foremost to bear the brunt is the traditional manufacturing sector in mainland China. These enterprises are now facing a highly unfair competition. Businesses in Hainan enjoy dual advantages of tax breaks and lower import costs, inevitably attracting capital, talent, and high-end industries to cluster there at an accelerating pace. In contrast, similar mainland enterprises may find themselves under pressure from losing clients and having their market shares eaten away—much like the siphoning effect experienced in cities such as Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou.

For companies flocking to Hainan, policy dividends may seem like a sweet incentive, but overreliance could turn them into poison. The corporate income tax incentives are set to expire in 2027, and whether they will be extended remains uncertain. After all, policy benefits always have an end. If companies only focus on enjoying the policies over these few years and neglect investing in their core competitiveness, it will be obvious who is "swimming naked" when the tide goes out.

At the same time, don’t assume that regulation will be relaxed. What Hainan seeks is openness, not to become a tax haven. Companies attempting to exploit loopholes through fake registrations or transfer pricing will face unprecedented compliance risks and mounting regulatory pressure.

The Hainan Island-wide Special Customs Operations Will Redraw China’s Foreign Trade Landscape

When the gates of the Hainan Free Trade Port are thrown fully open, its impact will go far beyond one island. It will be like a powerful tectonic shift, subtly reshaping the trade map of China and even the Asia-Pacific region. Old shipping routes are evolving, new hubs are emerging, and a fierce battle over trade resources and discourse power has already begun.

In the past, when we talked about international trade, cities like Shanghai, Shenzhen, and Ningbo-Zhoushan would immediately come to mind. But today, you can no longer ignore Hainan.

After the island-wide special customs operations of the Hainan Free Trade Port comes into effect, a liberalization and facilitation system with "zero tariffs" as its hallmark will be implemented for goods trade, while a system featuring both "admission and operation" will be introduced for services trade. This marks Hainan Free Trade Port as one of the most open regions in China, offering unprecedented conveniences for import-export companies and traders.

The "zero tariff" policy now covers approximately 74% of product tariff lines, a substantial increase from the previous 21%. This means the vast majority of imported goods will not incur import tariffs when entering Hainan, thereby directly reducing import costs for businesses. This cost advantage is particularly significant for processing and manufacturing enterprises that rely on imported raw materials, as well as importers of high-end consumer goods.

The official island-wide special customs operations and operation of Hainan Free Trade Port provides strong policy support for the development of cross-border e-commerce. Policies facilitating the secure and orderly flow of data bolster cross-border e-commerce growth, while the construction of new international shipping and aviation hubs along the Western Land-Sea Corridor is rapidly building a modern, integrated transport system.

The launch and operation of a multi-functional free trade account system will provide convenience for cross-border capital flows in trade and investment. Cross-border e-commerce enterprises can leverage these advantages by establishing their headquarters in Hainan, utilizing the zero tariff policy and streamlined cross-border fund flows to conduct more efficient international business.

After transitioning to closed-port operation, Hainan’s position as an international logistics hub will be further strengthened. The Hainan Free Trade Port will implement even more open market access policies, strengthen property rights protection, and ensure fair competition, thereby providing a favorable business environment for international logistics companies to invest in Hainan.

With the improvement of infrastructure, such as the completion of the island-circling tourism highway, Hainan’s comprehensive transportation system has become even more robust. This supports the development of local logistics enterprises and creates favorable conditions for domestic and international logistics companies to operate in Hainan. Import and export enterprises can make better use of Hainan’s logistics network for more efficient international cargo transportation.

For a long time, pioneers like the Shanghai Free Trade Zone have held a leading position in China’s opening-up landscape. However, Hainan, with its combination of "zero tariffs, low tax rates, and a simple tax system," is emerging as a more enticing investment destination. The competition is genuine—so much so that even economically strong provinces like Jiangsu are actively seeking “collaborative innovation” with Hainan. Behind this are both needs for cooperation and anxiety about competition. Businesses are "voting with their feet" and capital is searching for value centers; the rise of Hainan has pushed interregional resource competition into a white-hot stage.

The preferential policies in Hainan may attract investment and talent from the mainland to Hainan. There are even more open policies regarding high-end industry professionals’ residency and stay, a preferential individual income tax rate of 15%, and other incentives that will draw large numbers of top talents to Hainan. Mainland provinces now face pressure from talent outflow and diversion of investment, especially in high-end industries and modern services.

Hainan-based enterprises can import raw materials and equipment at lower costs, putting mainland companies at a disadvantage in price competition. High-end industries and modern service sectors may concentrate in Hainan at an accelerated pace, increasing the risk of industrial transfer away from the mainland.

Imagine this: while your competitors in Hainan are benefiting from a 15% income tax rate and paying zero tariffs on imported raw materials, you're left bearing higher taxes and costs on the mainland. How are you supposed to compete in this battle?

The Challenge to Old Thrones

The rise of Hainan is putting unprecedented pressure on traditional free trade hubs like Singapore, Dubai, and Hong Kong. A fierce competition for regional hub status is about to unfold.

Take Singapore, the veteran financial and trade center of Asia: its 17% corporate income tax rate and well-established legal system now face the dual challenge of Hainan’s 15% tax rate and access to the vast Chinese market.

However, in Singapore, newly established companies can enjoy up to 75% tax relief in their first three years, and the first 100,000 Singapore dollars of taxable income is completely exempt. This combination of “low tax rates + strong incentives” has made Singapore a magnet for multinational corporations. The lesson for Hainan is that simple tax cuts may strain public finances, but a model of “standard tax rates + targeted incentives” can both safeguard fiscal revenue and efficiently support key industries.

Singapore adopts a liberal trade policy, with most goods exempt from tariffs, and has built an efficient customs supervision system. The speed of customs clearance is remarkable, thanks to a regulatory philosophy of “trust as the baseline, spot checks as the safeguard.” Hainan can take a leaf out of Singapore’s book with a regulatory approach of “maximum freedom, minimum intervention.” Hainan’s current strategy of “opening up at the first line, strict control at the second line” already reflects this spirit, but there’s still room to catch up with Singapore in terms of customs efficiency and digital supervision.

Singapore’s success is also grounded in a robust legal framework and a highly transparent policy environment. Foreign-invested enterprises receive national treatment, registration procedures are straightforward, and there’s freedom of currency flow. While preferential policies are important, the key lies in building a stable, transparent, and predictable institutional environment. What businesses fear most is not a lack of incentives, but frequent policy shifts and inconsistent implementation.

Dubai—the renowned Middle Eastern hub famous for tax-free shopping and entrepôt trade—will also have to face the diversion of international consumer traffic by Hainan’s offshore duty-free policy. Meanwhile, Hong Kong, a paragon of free and open services, must also rethink its unique advantages in the face of Hainan’s model of both “easy market entry and business operations.”

But this competition is not a zero-sum game. It may be a "besieged fortress" or even a "breakthrough," compelling all the traditional hubs to accelerate innovation and elevate their service offerings. Otherwise, they risk being marginalized in the evolving global trade landscape.

Of course, as a “new player,” Hainan will also face turbulent geopolitical undercurrents as it seeks its place in this high-stakes arena.

The shadow of strategic competition between China and the US could at any moment present obstacles to Hainan’s economic and trade cooperation with the world. Regional flashpoints such as the South China Sea and the Taiwan Strait may also become unpredictable variables for its foreign trade and investment. The risk of a global economic recession looms over all open economies like a dark cloud.

Adding to the complexity, Hainan must walk a tightrope between openness and security. In the realm of taxation, it must demonstrate to the world that it is a hotbed for investment, not a tax haven. When it comes to data flows, Hainan must balance national security with international standards—an act of equilibrium that is anything but simple.

A Message for the Future

The spotlight of history is shining on Hainan Island—a new point on the world map is rising.

The island-wide special customs operations of customs in Hainan is a beacon lit by China amid the fog of de-globalization. It represents an internal economic revolution, boldly reshaping the country’s industrial structure and consumer landscape. At the same time, it is a strategic move by China, attempting to open a new pathway on the old chessboard of global trade.

Whether you are a business leader, a young person looking for career direction, or an ordinary consumer, it’s crucial to recognize the direction of the tides, find your own position, and seize your moment of opportunity.

Of course, the road ahead will not be smooth. Geopolitical turbulence, intensifying regional competition, and the inevitable fading of policy dividends all represent headwinds that Hainan must face directly. But the real test lies in whether it can chart a steady and distinctive path along the precarious edge between openness and security.

History has already turned this page. What lies ahead will test China’s strategic resolve, the adaptability of businesses, and the courage of every one of us living through these changes to embrace the unknown.

Hainan’s story is just beginning, and the world is waiting.