China's Hainan Free Trade Port (FTP) will officially begin island-wide independent customs operations on December 18, 2025, marking a major milestone in the country's push for higher-level openness, according to a press conference on the development of the port held by the State Council Information Office on July 23.

The move will introduce sweeping trade and tax liberalization policies designed to boost investment, trade and industrial development on the tropical island.

CGTN on July 23 interviewed Yu Hong, a senior research fellow at the East Asian Institute of the National University of Singapore, to discuss the institutional innovations reflected in the island-wide independent customs operations of the port, how Hainan balances openness and risk prevention with its institutional design, its efforts to stabilize foreign trade through port efficiency and customs facilitation, and how the province is building a more transparent, efficient, and fair legalized business environment to attract high-quality international enterprises. The conversations have been lightly edited for clarity and conciseness.

Yu said the development of Hainan FTP will promote Hainan's deeper integration into the world trade and economic system and will also demonstrate China's firm commitment to opening up its domestic market to the world with concrete actions. Hainan has the potential to become an important gateway for that purpose.

CGTN: What institutional innovations are reflected in the island-wide independent customs operations of the Hainan FTP?

Yu Hong: The core of Hainan FTP's independent customs operation lies in its core design of "first-line liberalization, second-line control, and freedom on the island," making Hainan Island a special customs supervision area. "First-line liberalization" (between overseas and Hainan): Overseas goods entering Hainan are exempt from tariffs (except for the negative list). Cross-border investment and personnel entry and exit are highly facilitated. The "second line" controls (between Hainan and the Chinese mainland), requiring Hainan goods entering the mainland to be taxed according to imports (but goods with a processing value of more than 30 percent can be exempted). Freedom within the island: Realize the free movement of goods, capital and people within Hainan Island without additional restrictions.

The independent customs operation at the Hainan FTP not only requires the convenient operation of hardware facilities but, more importantly, the efficient cooperation of soft connectivity. This requires breakthroughs in regulatory mechanisms, including customs clearance, inspection and quarantine, taxation, border inspection and release, financial supervision and capital flows, as well as data management and cross-border flows.

Since 2018, the local authorities in Hainan and relevant central ministries and commissions, with the support of the Chinese central government, have carried out and implemented a series of mechanism innovations and breakthroughs to facilitate the independent customs operation of the Hainan FTP.

For example, the National People's Congress formulated and implemented the Hainan Free Trade Port Law, which gave Hainan local authorities greater autonomy to promote the development of the free trade port. Key measures include implementing full traceability of customs smart supervision through big data and blockchain technologies and expanding the list of countries entering Hainan without a visa. Imports of "zero tariff" goods will be subject to negative list management, replacing the existing positive list of "zero tariff" goods with a catalogue of imported taxable goods, as the "List of Prohibited and Restricted Import and Export Goods and Items of Hainan FTP" was announced.

CGTN: How does Hainan's institutional design balance openness and risk prevention?

Yu Hong: Enhancing the competitiveness of the long-term development of the Hainan FTP rests on creating a fair and transparent business environment. Through institutional innovation, the investment and business environment will improve and further open up.

The Hainan FTP should take greater steps in institutional innovation. For example, consider using the "sandbox supervision" model to take the lead in the fields of medical care, finance, shipping and data flow. Simplify the negative list for foreign investment access and promote the implementation of "non-prohibition and entry" so as to further improve Hainan's business and investment environment.

The government needs to be committed to creating a high-quality business environment.

Since there is no precedent in the endeavor, China needs to implement an innovative and complex regulatory system to promote the development and island-wide independent customs operation of the Hainan FTP, which can strike the right balance between opening up with effective risk prevention and control in order to ensure national security.

"First-line liberalization and second-line control" needs to balance openness and security, and the Hainan FTP is facing a great test in the coordinated operation of customs, finance, data and other regulatory systems. Therefore, considerable energy has already been expended on the relevant independent customs stress test in the early stage.

In terms of capital flows, the Hainan FTP needs to establish a capital flow supervision mechanism with the Chinese mainland to prevent the transmission of risks such as arbitrage or money laundering.

In addition, in terms of data flow, the focus remains on how to achieve the free flow of cross-border data in specific fields such as shipping under the premise of ensuring national security.

After the island-wide independent customs operations, on the one hand, the Hainan FTP needs to expand the duty-free facilitation measures for outlying islands, and on the other hand, it needs to strengthen "second-line" supervision to mitigate the risk of smuggling between Hainan and the mainland, such as how to block duty-free goods from entering the mainland market through "purchasing agents."

Within the regional scope of the established free trade port, the areas where the market competition mechanism should play a role are handed over to the market, and the areas that the government must supervise are well managed, especially in the fields of customs and inspection and quarantine.

The free trade port may be an area where different market rules apply, but it is also an area where the rule of law applies. The institutional arrangements and operation models of the Hainan FTP must be in accordance with international standards and strive to create transparent, efficient, stable and predictable institutional arrangements.

CGTN: How does the Hainan FTP specifically boost trade cooperation between China and Belt and Road Initiative (BRI) partner countries?

Yu Hong: In the face of uncertainty in global trade caused by geopolitical shifts, the Hainan FTP, on the one hand, needs to actively improve customs cargo clearance facilitation measures to improve port operation efficiency and cargo handling capacity. On the other hand, it should promote the free flow of goods, information and capital in the free trade port and facilitate business exchanges.

The construction of a free trade port in Hainan can strengthen economic, trade and investment ties with BRI partner countries, especially ASEAN countries, enhance the level of opening up to the outside world and expand foreign trade.

The FTP's strategic geographical position could elevate it to the role of a trade hub connecting China and Southeast Asia.

The construction of a free trade port in Hainan presents the opportunity of a pilot site for a version 3.0 of the free trade area between China and ASEAN and even more opportunities for foreign investment in sectors such as trade in services, the digital economy and finance.

Hainan is an outlying island where the flow of people and logistics entering and exiting a free trade port could be effectively supervised. The eight existing ports open to the outside world on the island will be used as "first-line" ports; set up and operate 10 "second-tier ports," such as Haikou New Seaport and Haikou South Port, and take a variety of convenient passage measures for goods entering the mainland.

CGTN: How is Hainan building a more transparent, efficient and fair legalized business environment to attract high-quality international enterprises?

Yu Hong: The development of the Hainan FTP is facing the lack of competitiveness by local enterprises, and the introduction of foreign capital is mainly "policy arbitrage," with the proportion of real foreign investment low. High-end talent (in sectors such as finance, shipping and the digital economy) is in short supply, and the attractiveness of living facilities such as education and medical care is not as strong as in other parts of China.

The implementation of the "negative list" system for foreign investment access is a key part of the HFTP development, and Hainan needs to formulate and implement a bolder "negative list" system to greatly relax restrictions on foreign investment.

It is considered necessary to formulate a Hainan version of the "negative list," and it is also necessary to make this list truly implemented. By creating the most convenient and free area for domestic trade in services, Hainan will build a high-quality business environment to attract foreign investment to Hainan to the greatest extent.

Policies are needed to support and encourage overseas enterprises to invest in Hainan, such as incentives for overseas companies to attract foreign investment.

Hainan can learn from and introduce international advanced management and operation models and innovate Hainan's investment promotion and improve investment efficiency through market-oriented mechanisms.

Hainan can learn from Singapore's experience and explore that specific path for building the Hainan FTP, its operating mechanism and functions, regulatory model structure, policy measures and regulatory laws and regulations.

Human resources are an indispensable part of Hainan's free trade port ecosystem, and Hainan can attract a steady stream of high-quality talent by cooperating with international education and training institutions to establish a complete human resource training plan and talent courses suitable for the advancement of the port.

CGTN: Compared to the Greater Bay Area and the Shanghai Free Trade Zone, what unique advantages does Hainan offer multinational corporations?

Yu Hong: The construction of a free trade port brings new opportunities and new hope to Hainan, which is also a new development opportunity for China.

Free trade ports are special areas that are freer and more open than bonded zones or pilot free trade zones. A major problem facing China's respective trade zones is the low degree of openness and the fact that there are still many restrictions on foreign investment.

In addition, China's existing free trade zones enjoy different degrees of special preferential policies in the fields of taxation, finance, free trade and personnel flow, but the front line of customs supervision in the zone has not been completely liberalized, and there are many restrictions on the flow of goods, financial openness and freedom of trade in the zone, and its advantages are not outstanding. This is where Hainan FTP can set itself apart from domestic free trade zones.

Hainan FTP should give full play to these advantages, expand opening up, expand foreign trade links and attract foreign investment.

（Source: CGTN)