China Suddenly Builds New 'Hong Kong' Near Indonesia Worth Rp1.76 Quadrillion

The Chinese government has officially transformed Hainan Island into a special customs zone valued at US$113 billion (approximately Rp1.76 trillion), as its largest free trade experiment ever conducted. The ambitious project named the Hainan Free Trade Port was launched on 18 December 2024, separating its customs system from the mainland territory.

Through tariff reductions and the easing of various regulations, this step aims to attract foreign investment while positioning Hainan as an alternative new business centre in the region, rivaling Hong Kong’s role amid global economic uncertainties.

The policy significantly increases the number of goods eligible for tariff-free entry, from around 21% to 74%. Not only that, the category of duty-free goods has been expanded more than threefold, now covering more than 6,600 types of products.

Under the new policy framework, goods processed in Hainan can enter mainland China without tariffs if the local value added exceeds 30%. The plan also opens access for foreign entities to certain services previously restricted on the mainland, as well as simplifying cross-border investment procedures.

This project is expected to accelerate supply chain integration and strengthen China’s economic relations with countries in Southeast Asia, which lie directly south of the island.

The launch of the Hainan FTP was immediately welcomed positively by the market, with shares in China and Hong Kong recording gains on Monday amid signs of new capital inflows. Analysts view Hainan as a “low-risk testing ground” for China’s transition towards high-level economic openness.

“The Hainan model essentially offers managed liberalisation that will be very good for reintegrating supply chains, but this model lacks the legal system and financial openness that Hong Kong can boast,” said Xu Tianchen, senior economist at the Economist Intelligence Unit, to Reuters late last year.