China Suddenly Builds a New 'Hong Kong' Near Indonesia Worth Rp1,760 trillion

The Chinese government has officially transformed Hainan Island into a special customs zone valued at US$113 billion (equivalent to Rp1,760 trillion) as its largest free trade experiment. The ambitious project, named the Hainan Free Trade Port (Hainan FTP), was launched on 18 December 2024 by separating its customs operations from the mainland.

Through tariff cuts and regulatory loosening, this step aims to attract foreign investment while positioning Hainan as a new alternative to Hong Kong amid global economic challenges.

This strategic move increases the share of goods eligible for duty-free entry from previously 21% to 74%. In addition, duty-free categories have been expanded more than threefold to cover over 6,600 categories of goods.

Under the new policy framework, goods processed in Hainan can enter mainland China tariff-free if their local value-added exceeds 30%. The plan also opens access for foreign entities to certain services previously restricted on the mainland, and simplifies cross-border investment procedures.

The project is expected to accelerate supply-chain integration and strengthen China’s economic ties with Southeast Asian countries, located directly to the south of the island.

“This port could be a vital gateway leading a new era of openness for China to the world,” said Chinese Vice Premier He Lifeng.

The launch of Hainan FTP was greeted positively by the market, with shares in China and Hong Kong rising on Monday amid signs of fresh capital inflows. Analysts view Hainan as a ‘low-risk testing ground’ for China’s transition to higher openness in its economy.

“The Hainan model essentially offers managed liberalisation that will be very valuable for reintegrating supply chains, but this model does not possess the legal system and financial openness that Hong Kong can boast,” said Xu Tianchen, a senior economist at the Economist Intelligence Unit, to Reuters late last year.

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