China on Thursday formally separated its southern island province of Hainan from the mainland customs system, transforming it into a vast duty-free zone as part of an ambitious bid to attract foreign capital and bolster its credentials for joining a major trans-Pacific trade agreement.
Under the new framework, goods produced in Hainan with at least 30 percent local value added will be allowed to enter the rest of China tariff-free, while foreign firms will gain expanded access to service sectors that remain tightly restricted on the mainland.
Officials hope the move will turn the Belgium-sized island into a new commercial gateway modeled loosely on Hong Kong.
The initiative is a cornerstone of Beijing’s campaign to demonstrate its readiness to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), one of the world’s largest and most demanding free-trade blocs.
High standards of trade openness
The Hainan Free Trade Port is being promoted as a pilot zone to show China can meet high standards on trade openness, investment rules, and market access.
“China aims to build the Hainan Free Trade Port into an important gateway that leads the country’s opening-up into a new era,” state news agency Xinhua said in an editorial, adding that the project could inject momentum into global trade strained by rising protectionism.
The timing reflects economic urgency. Foreign direct investment into China fell 10.4 percent year-on-year in the first three quarters of 2025, official data shows, as policymakers grapple with slowing growth and seek to rebalance the world’s second-largest economy toward consumption and investment rather than heavy stimulus.
Hainan’s economy, worth about $113 billion last year, is comparable to a mid-sized country, though far smaller than Hong Kong’s $407 billion output.
Hong Kong-style island
Analysts say the island could boost tourism, logistics, and manufacturing ties with Southeast Asia, but warn that success is far from guaranteed.
“The benchmark is something similar to Hong Kong,” said Ran Guo of the China-Britain Business Council. “Beyond tourism, the plan should encourage foreign investment and manufacturing, and strengthen Hainan’s role as a logistics hub toward Southeast Asia.”
Others are more cautious. Xu Tianchen of the Economist Intelligence Unit said Hainan offers “managed liberalisation” that could help reintegrate supply chains, but lacks Hong Kong’s legal framework and financial openness. Competition from Southeast Asia and Japan will also be fierce, he added.
Trade diplomats remain skeptical that a single free-trade island will be enough to sway CPTPP members. Accession, they note, requires economy-wide reforms and a track record of compliance—something Beijing has yet to fully demonstrate.
