April 27, 2018

Earlier this month, Chinese President Xi Jinping announced the decision to turn Hainan province into a pilot free trade zone and gradually promote the establishment of a free trade port with Chinese characteristics, at a gathering celebrating the 30th anniversary of the founding of the province and the Hainan Special Economic Zone. The next day, the Central Committee of the Communist Party of China and the State Council released guidelines on supporting the southernmost province of China to deepen reform and opening up.

With this move, China is aiming to create a new architecture for reform and opening-up. In actuality, it is high time to turn the island province of Hainan into a free trade zone given its geographic edge and preferential policy design.

Located on the frontier facing the member countries of the Association of Southeast Asian Nations (ASEAN), the province has assumed the arduous task of accelerating China-ASEAN economic integration. As early as 2013, Xi underscored that Hainan had an advantage in that it is the closest province to ASEAN member states and therefore should become a test field for reform and opening-up. In recent years, Hainan has maintained intimate ties with Southeast Asian nations, with frequent trade and people-to-people exchanges.

The degree to which Hainan is expected to open to the outside world is unprecedented. According to policy design, it will become a crucial hinterland opening up to the Pacific Ocean and the Indian Ocean. In addition, the free trade zone and port also serve as a strategic link on the 21st Century Maritime Silk Route Economic Belt and hence plays an important role in ratcheting up regional integration by developing the hi-tech industry and the modern service sector.

Nonetheless, despite its geographical, climate and ecological edges, Hainan has been suffering from relatively backward development in its economy, infrastructure and education, which remains unaddressed over the past three decades. It is fair to say that its current strength is far from what is qualified to be called a free trade zone and port or an international tourism center. More actions must be taken in deepening the reform across this pilot zone.

A shortage of talent has long been a bottleneck blighting the province’s development. Talent is a prerequisite for the establishment of a free trade zone and port. Back in 1988 when Hainan was granted provincial status, an influx of talented young people flocked there to realize their ambitions. However, over the decades, its counterparts like Shenzhen and Xiamen have captured the greater share of the talent; it seems that Hainan has gradually lost its attraction in multiple arenas. Therefore, to develop Hainan into an important force in gearing up regional integration, the province must give the foremost priority to talent introduction and cultivation.

Another area awaiting further improvement is infrastructure. There's no denying that Hainan's status as a relatively independent geological unit is conducive to its reform, but it also hinders its prosperity. To create a field for deepened reform and opening-up, convenient facilities are indispensable. The province needs to engage in more infrastructure construction connecting the Chinese mainland with Southeast Asia, the Pacific Ocean and the Indian Ocean.

Innovation is key to guiding the development of Hainan as a free trade zone and port as well as a strategic policy for China to continue leading regional cooperation and global economic growth. From the reform of the economic system to the layout of emerging industries, innovation and exploration constitute a significant impetus. Hainan should speed up innovation in technology, service and governance to create a world-class working and business environment.

It's expected that the province will, through seeking more business opportunities and dynamics from cooperation with countries along the 21st Century Maritime Silk Route Economic Belt, contribute a "Hainan plan" to elevating the level of regional cooperation.

Chen Xiangmiao is a Research Fellow at the National Institute for South China Sea Studies. 

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