China Unveils $113 Billion Free-Trade Trial on Hainan
China separated a Belgium-sized island, with an economy comparable to that of a mid-ranked country, from the mainland for customs processing as part of an effort to join a major trans-Pacific trade agreement and to build a new commercial hub modeled loosely on Hong Kong. Officials hope that turning the southern province of Hainan into a duty-free zone will draw foreign investment, allowing goods with at least 30 percent local value-added to enter the world’s second-largest economy tariff-free. Foreign companies will also gain access to service sectors that remain restricted on the mainland, a move designed to test deeper market openness.
China is simultaneously seeking to strengthen its free-trade credentials to convince members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that it can meet the bloc’s demanding standards for trade and investment liberalization. Pilot initiatives such as the Hainan Free Trade Port are central to this strategy. Speaking at the port, Vice Premier He Lifeng urged officials to “build Hainan Free Trade Port into a vital gateway leading China’s new era of opening up to the world.” The project was described as a “major strategic decision” by the Communist Party, reflecting domestic and global pressures, including U.S. tariffs that have pushed Beijing to diversify its $19 trillion economy and reinforce its role in global supply chains.
China’s leadership has also prioritized reversing a downturn in investment next year, aiming to move away from heavy reliance on stimulus toward a dual focus on consumption and investment. This approach is intended to stabilize short-term growth while laying the groundwork for difficult structural reforms needed for long-term rebalancing. Official figures show foreign direct investment into China fell 10.4 percent year-on-year in the first three quarters of 2025. Economists suggest that if liberalization in Hainan proves effective, policymakers could be encouraged to expose a broader share of the economy to market forces.
Analysts often compare the ambition for Hainan to Hong Kong’s model, though with notable caveats. Ran Guo said the plan could boost tourism, attract foreign manufacturing, and strengthen Hainan’s role as a logistics and trading hub toward Southeast Asia. Official data shows Hainan’s GDP reached $113 billion last year, ranking it about 70th globally, far smaller than Hong Kong’s $407 billion economy. Economist Xu Tianchen noted that while Hainan offers managed liberalization that could help reintegrate supply chains, it lacks Hong Kong’s legal and financial openness and faces competition from Southeast Asia and Japan. Trade negotiators remain skeptical that CPTPP members will view the project as sufficient, emphasizing that accession requires nationwide reforms and a proven record of compliance, something China has yet to fully demonstrate.
