The Chinese government has officially transformed Hainan Island into a special customs zone valued at US$113 billion, or approximately Rp1,760 trillion, marking the country’s largest free trade experiment to date. Known as the Hainan Free Trade Port (Hainan FTP), the initiative was launched on December 18, 2024, with a customs system operating separately from mainland China.

By cutting tariffs and easing regulations, the policy aims to attract foreign investment while positioning Hainan as a new trading hub beyond Hong Kong amid global economic uncertainty.

The reform significantly expands the share of goods eligible for tariff-free entry, rising from just 21% previously to 74%. In addition, the number of duty-free product categories has more than tripled to over 6,600 items.

Under the new framework, goods processed in Hainan may enter mainland China without tariffs, provided their local value-added content exceeds 30%. The plan also grants foreign entities access to selected service sectors that have traditionally been restricted, while simplifying cross-border investment procedures.

The project is expected to accelerate supply chain integration and strengthen China’s economic ties with Southeast Asian nations, given Hainan’s strategic southern location.

According to Chinese Vice Premier He Lifeng, the port could serve as a crucial gateway ushering in a new phase of China’s economic openness to the global market.

Markets reacted positively to the launch, with equities in both China and Hong Kong rising on Monday amid signs of fresh capital inflows. Analysts view Hainan as a low-risk testing ground for China’s gradual shift toward higher-level economic liberalization.

However, Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted that while the Hainan model offers managed liberalization that supports supply chain reintegration, it still lacks the legal framework and financial openness that have long distinguished Hong Kong.