The State Council of China recently issued the China (Hainan) Free Trade Zone General Plan. This marks the initiation of China’s 12th and largest-scale pilot free trade zone (FTZ). Compared with the other 11 pilot FTZs, the Hainan plan signals much new policy information, with some noteworthy points deserving consideration.

Above all, the plan makes clear the developmental goal of the Hainan pilot FTZ. It explicitly states that by 2020 the pilot FTZ will have made important progress, notably enhanced international openness. The goal is to develop a high-quality zone featuring investment and trade facilitation, a standardized legal environment, sound financial services, secure and efficient supervision, and a first-class ecological environment that all-in-all presents an outstanding leading model.

That is to say, the Hainan pilot FTZ should practice institutional innovation and policy with the aim of a higher level of openness and the presentation of a global leading standard for free trade and investment. It should accumulate experience and test the construction of special functional areas in which most commodities, capital and personnel are free to enter and exit.
The next thing to note about the plan is that breakthroughs have been made in the opening up process. The plan mentions substantially relaxing restrictions on the market access of foreign capital. This new breakthrough has won extensive attention. The plan also prioritizes the creation of a first-class business environment, while staying aligned with international banks’ business environment evaluation systems. Specific goals are also proposed in ten sectors such as business start-ups, construction permit application and property registration. In addition, according to the plan, more active measures will be taken regarding adjusting the government’s function, coordinating planning in different sectors and enhancing public services.

The pilot FTZ covers the whole area of Hainan Island, which is conducive to improving the synergy between policies. The land area of Hainan Island totals 33,210 square kilometers, far more than the sum area of the other 11 pilot FTZs. Therefore, the zone is set to act as a model for institutional innovation and economic development.

Lastly, the Hainan plan does well in carrying out and practicing the central government’s policies, and it possesses an advantage in integrating technological, business and social innovation to solve complex issues. The general plan carries out the ideas in the speech delivered by General Secretary of the CPC Central Committee Xi Jinping at the celebration of the 30th anniversary of the founding of Hainan Province and the Hainan Special Economic Zone, and it integrates the “Guiding Opinions on Supporting Comprehensively Deepening Reform and Opening Up in Hainan” issued by the CPC Central Committee and the State Council. The plan is also formulated based on in-depth study and debate, as it draws on the implementation of the general plans of the other 11 pilot FTZs, including that in Shanghai, and takes into account the distinctive conditions in Hainan.

To fully translate the requirements of the plan into reality, the defects and shortcomings of Hainan itself must be acknowledged, such as insufficient experience, relatively low potential for innovation, a lack of talent and a limited ability to assemble high-end industry. To promote the reform and opening up and development of Hainan pilot FTZ, Hainan must do more. How to resolve these policy problems is the key to realizing the plan.

 

Zhao Jinping is a research fellow and former director of the Research Department of Foreign Economic Relations at the Development Research Center of the State Council of China. This article was edited and translated from Guangming Daily.

​(edited by BAI LE)