context: The recent closure of the Hainan Free Trade Port expands zero-tariff coverage, relaxes restrictions on selected items and streamlines customs clearance at key ports. Beijing is prioritising processing inputs and value-added goods to back industrial upgrading in Hainan. Its distinctive economic model is expected to drive growth and bolster the PRC’s reputation as a reliable, forward-looking partner. However, challenges lie ahead as the PRC balances opening up with political, economic and social stability.
Liao Min 廖岷 Ministry of Finance deputy minister and Xie Nan 谢楠 Oliver Wyman partner shared insights on the Hainan FTP (Free Trade Port) closure
- zero-tariff scope expansion
- imported zero-tariff goods move from a positive list to a negative list
- i.e. the Hainan free trade port import taxable goods catalogue issued in July 2025
- only listed items face tax, all other imports get zero tariffs
- zero-tariff coverage expands from around 1,900 to about 6,600 tariff lines
- accounting for roughly 74 percent of all tariff lines
- coverage rises by nearly 53 percentage points before closure
- focusing on mainly raw materials and semi-finished goods
- over 2,000 tariff lines remain taxable
- including agricultural products, aquatic products and consumer goods like alcohol, snacks, bags, perfumes and cosmetics
- over 2,000 tariff lines remain taxable
- firms producing goods in Hainan with processing value-added of at least 30 percent can ship goods to the mainland exempt from tariffs
- benefits are skewed towards firms engaging in onshore processing rather than individual consumers
- encourage firms to import raw materials, conducts local processing and then sells to the Mainland
- benefits are skewed towards firms engaging in onshore processing rather than individual consumers
- the scope of duty-free products in Hainan will continue to expand
- coverage may extend to consumer goods
- many duty-free retailers in Hainan are preparing for further liberalisation
- imported zero-tariff goods move from a positive list to a negative list
- offshore duty-free policy
- allows travellers leaving Hainan but not exiting the PRC to purchase goods exempt from tariffs, import VAT and consumption tax
- includes limits on eligible shoppers, product categories, purchase quotas and pickup methods
- different from the ‘zero-tariff’ policy
- only licensed operators can sell offshore duty-free goods
- adds pet supplies and portable musical instruments as duty-free goods
- expanding categories to 47
- duty-free operators may source six categories of domestic goods
- e.g. scarves, apparel, footwear and headwear, coffee, ceramic products and tea
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- treated as exports and eligible for VAT and consumption tax exemptions
- Hainan residents with travel records leaving the island can make unlimited same-day pickup purchases within the year
- this is seen as a preview of the future extension of zero-tariff policies to consumer goods
- in the first week after implementation, offshore duty-free sales rose 34.86 percent y-o-y
- there are still uncertainty over the policy surrounding consumer goods
- concerns about proxy shopping abuses led the Hainan government to drop a policy offering duty-free shopping to local residents in a range of consumer goods like infant formula and baby products in 2021
- the Hainan government is studying the possibility to implement a positive list for duty-free consumer goods shopping for local residents