Caixin
Jan 06, 2021 04:20 AM
ECONOMY

China Writes Hainan Free Trade Port Plan Into Law

The Phoenix Island International Cruise Terminal in Sanya, South China’s Hainan Province
The Phoenix Island International Cruise Terminal in Sanya, South China’s Hainan Province

China drafted a law formalizing the free trade port status of Hainan following a pilot program testing a unique national policy of zero tariffs, low tax rates and a simplified tax system. The measure will make the southern island province China’s largest free trade area.

The draft legislation, which has been reviewed by the National People’s Congress, is open for public comment until Jan. 29. The proposal is in line with a master plan announced in June 2020 for transforming the entire province, about twice as big as the San Francisco Bay Area, into a globally influential free trade port.

Hainan Province, best known for its sandy beaches and resort-lined coast, acts as the front line for China’s integration with Southeast Asian countries. China’s Vice Premier Han Zheng called for more progress Dec. 23 in constructing the Hainan free trade port. Attention should be directed to major industries and platforms to boost the real economy and promote the high-quality development of Hainan, the vice premier said.

Under the first phrase of the master plan now being written into law, certain imported goods will be exempt from tariffs. In the second phrase after 2025, all goods not included on a restriction list will be subject to no tariffs.

The draft reiterates favorable corporate tax and individual income tax policies in Hainan but doesn’t make specific provisions for tax rates. According to the master plan, enterprises registered in Hainan and engaged in substantive business activities in encouraged industry sectors will be taxed at a reduced corporation tax rate of 15% by 2025, compared with the normal rate of 25%. After 2025, this policy will be expanded to all industry sectors.

The draft clarifies a negative list for foreign investment access in the island, specifying sectors in which foreign investment will be barred. It also stipulates that investment facilitation measures will focus on process supervision and gradually implement a foreign investment access system based on the principle that “everything which is not forbidden is allowed.”

On Dec. 31, the National Development and Reform Commission and the Ministry of Commerce released a new negative list of foreign investment access in the Hainan free trade port for implementation Feb. 1. The new list further relaxes restrictions on foreign investment in the island, allowing overseas funds into sectors such as mining, online trading, and market and social research. In the future, the negative list for the Hainan free trade port is expected to be further reduced.

The draft also calls for establishing a cross-border fund flow management system that meets the needs of high-level trade and investment liberalization and facilitation and promises to open up the capital account by stages, gradually making the foreign debts of nonfinancial enterprises fully convertible.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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