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On 18 December 2025, Hainan Free Trade Port (FTP) launched its full-island special customs supervision operations. This represents a significant shift in China's approach to institutional opening and creates new opportunities for businesses operating across the Asia-Pacific region.
The new regime applies the model of first-line liberalisation, second-line control and island-wide facilitation. Duty-free treatment has expanded from approximately 1,900 to 6,600 tariff items, now covering around 74% of all tariff codes. This change materially alters the cost dynamics for international trade and cross-border investment activities conducted through Hainan.
The most significant operational change is the value-added processing mechanism. Products that achieve 30% or more value-added processing in Hainan can enter mainland China duty-free. For businesses, this means lower import and manufacturing costs, improved supply-chain efficiency and the potential to use Hainan as a regional distribution and processing hub. Operationally, the system is supported by eight first-line ports and ten second-line ports operating under a negative list approach to the movement of goods, capital, people and data.
This article outlines the key operational changes and sector-specific opportunities arising from this shift, providing a roadmap for businesses looking to integrate Hainan into their regional strategies.
Hainan's strategic positioning
Hainan's dual identity, geographically proximate to Southeast Asia yet institutionally distinct from the mainland's customs border, creates a unique platform for companies seeking both China market access and regional agility.
The combination of zero tariffs, low headline tax rates and simplified customs procedures fosters an environment where production, logistics and commercial activities encounter fewer frictions. This aligns seamlessly with China's dual-circulation strategy: enterprises can manufacture in Hainan, serve the domestic market via the value-added duty-free channel and re-export to ASEAN without compromising tariff efficiency.
Since 2020, Hainan has seen sustained growth in foreign investment and international trade. The acceleration of trade routes and logistics capacity reinforces the island's trajectory as a hub for export-oriented industries.
Sector-level transformations and opportunities
The impact of the special customs supervision regime varies by sector, with differing operational and regulatory implications.
Pharmaceuticals and healthcare
The Boao Lecheng International Medical Tourism Pilot Zone highlights Hainan's sector-specific policy advantages. Eligible medical institutions may import approved pharmaceuticals and medical devices exempt from import duties and VAT, lowering procurement costs. For foreign pharmaceutical and medical technology companies, Lecheng offers a regulated setting for the clinical use of innovative products, pilot implementation and early-stage engagement with the mainland China market.
Food processing and tropical agriculture
The extension of value-added duty-free policies across the province has strengthened Hainan's position as a processing base for high-tariff agricultural inputs. Haikou Customs' Value-Added Processing Pilot Declaration System has reduced approval timelines from several months to under three weeks. This supports a replicable import, processing and re-export or domestic entry model that improves cost competitiveness for food processors and agri-businesses.
Emerging industries and advanced manufacturing
The zero-tariff regime for production equipment has supported investment in offshore wind power, new energy technologies and advanced manufacturing. Lower capital costs for machinery contribute to the development of industrial clusters. Service-oriented sectors, including tourism, professional services and digital trade, have also benefited from improved connectivity.
Tax incentives and operational requirements
A cornerstone of Hainan's competitiveness is the preferential 15% corporate income tax (CIT) rate for enterprises engaged in encouraged industries. To qualify, companies must meet the following conditions:
- At least 60% of revenue derived from encouraged activities
- Substantive operations in Hainan, including a physical office presence
- Employment of locally registered staff with social security contributions paid in Hainan
- Use of local bank accounts for operational purposes
Eligible high-end talent may also benefit from a 15% individual income tax cap, subject to a minimum residence period of 183 days per tax year with flexibility for professional travel.
These requirements are designed to ensure that incentives support genuine business activity rather than nominal establishment. The Encouraged Industries Catalogue currently includes over 1,100 categories ranging from biotechnology to aerospace, providing broad scope for foreign participation.
Regional and international implications
From a regional perspective, Hainan complements China's engagement with RCEP economies and supports China plus one supply chain strategies. Rather than relocating activity away from China, companies can position Hainan as an intermediate node to achieve:
- Duty-efficient access to the mainland market through second-line entry
- Preferential treatment for re-exports under RCEP and the China-ASEAN Free Trade Agreement
- Reduced operating costs through local tax incentives
Trade between Hainan and RCEP partners reached CNY 102.98 billion in 2024, underlining the island's growing role in regional trade flows. Compliance remains critical. Goods that do not meet the 30% value-added threshold continue to be subject to standard import duties when entering the mainland.
Looking ahead
Hainan's island-wide special customs supervision regime represents one of the most advanced frameworks in Asia for combining trade facilitation, fiscal incentives and industrial upgrading.
For multinational companies, the primary opportunity lies in designing operational structures that integrate compliance from the outset. When manufacturing or service activities are aligned with Hainan's value-added and substance requirements, the island can function not only as a logistics base but as a strategic platform for cost management and regional competitiveness.
For further discussion on how Hainan may fit within your regional structure, please contact Acclime.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
