Measures to transform the island-province of Hainan into a free zone in several stages (until 2050) were unveiled on 1 June. The research office 智谷趋势 (Zhigu Qushi) takes up these measures and asks the question “Will Hainan be able to replace Hong Kong? “The Chinese media, including the very official Global Times, have taken up these reflections.
The debates have always stirred the minds of those who wondered about the potential of Shanghai or Shenzhen to take Hong Kong’s place. The new policy puts the spotlight on the island in the south of China and its population of nearly 10 million, better known for its tourist appeal. The study tackles the issue from several points of view.
0% customs taxes
1. 0% customs taxes
The free port status allows Hong Kong to import a large part of goods without paying taxes (main exceptions, alcohol, vehicles, petroleum products and tobacco) and to benefit from the nickname of consumer paradise. There are already a few free zones in China, but consumers benefit little from them; on the other hand, companies benefit from tax reductions. Even if all the details are not yet known, it is estimated that Hainan will be able to enjoy the same advantages as its neighbour, which will stimulate local consumption.
In addition, the quota for duty-free overseas purchases of 30,000 yuan in China will increase to 100,000 yuan in Hainan for each person.
Reduced tax rate
2. Reduced rate taxation
Hong Kong has capped taxation on gross income at 15% and 16.5% on company profits. In China, the tax on profits is generally 25% (15% for certain sectors and regions). In Hainan, the tax will be 15%.
A center for investments
3. The guidelines would like Hainan to become a centre for investment. 60% of foreign investment in China goes through Hong Kong. Indeed, thanks to the good reputation of the financial centre, the rule of law and long practice, Hong Kong has a great capacity to raise capital. It should be pointed out that so-called foreign investments are in fact Chinese investments that want to take advantage of certain foreign investment statuses.
International Trade Centre
4. Hong Kong enjoys a prime maritime and land position backed by “mainland” China. Hainan Island will not be able to compete in transit trade in the short term. Hong Kong’s land link is a clear advantage.
Hong Kong’s success has always been admired in China. A legitimate desire has been accompanied by a desire to achieve more in China, Shanghai or Shenzhen. For the time being, Hong Kong is staying ahead of the game and should not be worried about Hainan.
3 May 2020