China Inaugurates Island-Wide Special Customs Operations for Hainan Free Trade Port

Hainan Free Trade Port Commences Island-Wide Customs Operations

China officially launched island-wide special customs operations in its southern island province of Hainan on December 18, 2025, marking a significant milestone in the development of the Hainan Free Trade Port (FTP). This move establishes Hainan as a distinct customs supervision zone, implementing a new customs regime designed to substantially cut costs for overseas trade and expand zero-tariff imports.

The Hainan FTP, covering the entire island, is China's largest special economic zone, comparable in size to Belgium. The initiative is a key component of China's broader strategy to deepen economic reform and experiment with high-level opening-up policies.

New Customs Regime and Zero-Tariff Expansion

The newly implemented customs regime operates under a 'first-line liberalization, second-line control' model, also described as 'freer access at the first line, regulated access at the second line, free flow within the island.' This framework means that goods flowing between Hainan and overseas countries and regions are largely exempt from customs procedures. Conversely, the movement of goods from Hainan to the Chinese mainland is regulated as domestic trade, subject to tailored oversight.

A core feature of the new regime is the significant expansion of zero-tariff policies. The proportion of tariff lines eligible for zero tariffs has increased from approximately 21 percent to 74 percent, encompassing around 6,600 out of 8,000 items. This exemption primarily covers raw materials, production equipment, and numerous consumer goods destined for Hainan's own use. Furthermore, goods processed in Hainan with at least 30 percent value added locally can enter mainland China duty-free, encouraging local manufacturing and value-added activities.

Economic Incentives and Strategic Vision

The Hainan Free Trade Port offers a suite of economic incentives designed to attract both domestic and international investment and talent. These include preferential tax policies such as a reduced corporate income tax rate of 15 percent for enterprises in encouraged industries, significantly lower than the standard 25 percent on the mainland. High-end and urgently needed talents working in the FTP also benefit from a personal income tax cap of 15 percent.

The Master Plan for the Construction of the Hainan Free Trade Port, unveiled in June 2020, aims to establish a free trade port system by 2025, achieve maturity by 2035, and become a globally influential high-level free trade port by the middle of the century. The port is envisioned as a testing ground for regulatory innovations and a strategic gateway for China's new era of opening to the outside world, facilitating the freer flow of goods, capital, people, and data.

Initial Impact and Future Outlook

Since the launch of island-wide customs operations on December 18, 2025, initial data indicates a positive impact. As of December 31, 2025, the value of 'zero-tariff' imported goods in the Hainan FTP reached 420 million yuan ($60.05 million). Goods sold domestically after value-added processing, exempt from tariffs, exceeded 47.23 million yuan. The period also saw the registration of 3,265 new foreign-invested enterprises between December 18 and December 31, 2025. Furthermore, offshore duty-free shopping in Hainan surpassed 2 billion yuan, attracting over 300,000 shoppers.

These early figures underscore the potential of the Hainan Free Trade Port to become a vital hub for international trade and investment, reinforcing China's commitment to an open economy amidst global economic shifts.