Hainan Free Trade Port Initiates Island-Wide Special Customs Operations

A New Era for Hainan Free Trade Port

On December 18, 2025, China's Hainan Free Trade Port (FTP) officially began island-wide special customs operations, marking a significant milestone in the nation's commitment to high-standard opening-up. This strategic initiative transforms the entire island province of Hainan into a special customs supervision zone, aiming to establish it as a globally influential free trade port by the middle of the century.

The launch is a key institutional arrangement outlined in the overall plan for the building of the Hainan FTP, which was released by central authorities in 2020. Chinese President Xi Jinping first announced the decision to support Hainan's development into a pilot free trade zone in April 2018. The chosen date, December 18, also holds historical significance, coinciding with the anniversary of a landmark Communist Party of China (CPC) meeting in 1978 that initiated China's reform and opening-up era.

Innovative 'Two-Line' Customs Supervision System

The new customs system operates under a special supervision model described as 'freer access at the first line, regulated access at the second line, and free flows within the island'.

• 'First line': Refers to the boundary between Hainan and overseas markets. Goods not explicitly prohibited or restricted can move in and out with minimal customs procedures and largely tariff-free.
• 'Second line': Refers to the customs boundary between Hainan and the Chinese mainland. Goods entering the mainland from Hainan are subject to standard import regulations, primarily for taxation and compliance.
• 'Within the island': Ensures the free flow of goods, capital, personnel, and data within Hainan itself.

This framework is designed to facilitate trade and investment liberalization, positioning Hainan as a crucial gateway connecting China with global markets, particularly Southeast Asia.

Expanded Zero-Tariff Policies and Tax Incentives

A cornerstone of the new operations is the significant expansion of zero-tariff coverage. The proportion of zero-tariff products in the Hainan FTP has surged from 21 percent to 74 percent of total import/export items. The number of tariff-free items has increased from approximately 1,900 to between 6,600 and 6,637, encompassing nearly all production equipment and raw materials.

These exemptions apply to import tariffs, import Value-Added Tax (VAT), and consumption tax, potentially saving enterprises substantial costs. Additionally, a '30 percent value-added' policy allows goods processed in Hainan, with at least 30 percent value added, to enter the Chinese mainland tariff-free.

Further incentives include:

• A reduced 15 percent corporate income tax rate for encouraged industries registered and substantively operating in the Hainan FTP.
• An individual income tax exemption for the portion exceeding 15 percent for eligible high-end and in-demand talents.

These measures aim to attract high-quality global resources, boost market vitality, and foster innovation-driven development.

Strategic Vision and Global Impact

The island-wide special customs operations are a critical step towards China's goal of transforming Hainan into a high-level free trade port with global influence by the middle of the century. Chinese Vice Premier He Lifeng stated at the launch ceremony in Haikou that this move should serve as an opportunity to deepen reforms, advance high-quality development, and build the Hainan FTP into a leading gateway for China's opening-up in the new era.

The Hainan FTP is poised to become a hub for various sectors, including tourism, modern services, and high-tech industries. Companies like L'Oréal and Charoen Pokphand (CP) Group have expressed optimism about the opportunities presented by these new policies, citing potential cost reductions and enhanced market access. The port's strategic location at the crossroads of the Pacific and Indian oceans, coupled with China's vast domestic market, positions Hainan as a vital link in global supply chains and a bridge between China and ASEAN markets.