As the Hainan Free Trade Port continues to develop1, the province is stepping up its efforts to open up its market and pursue more liberal trade policies. Industrial clusters are rapidly taking shape in industrial parks, the foundations of its real economy are being strengthened, and its industrial sector is continuously expanding. Currently, the island has 13 key industrial parks with diversified industrial development. In addition to the Yangpu Economic Development Zone2 cited in the previous article, the island has established industrial parks covering a wide range of industries, including high and newtech sectors such as aerospace technology and software development. It has also set up industrial parks for various service categories, such as a medical tourism pioneering zone and an international education innovation pilot zone.

The Hainan Free Trade Zone is using favourable talent policies and tax incentives to try to provide an ideal environment for companies in different fields from all over the world to expand. Given Hong Kong’s status as a crucial gateway connecting the mainland and the world, along with its own extensive financial and global resources, Hong Kong companies would do well to use their own strengths and the island’s preferential policies, local resources and market channels to expand their business and foster exchanges and collaboration with Hainan, creating a winwin situation for both.

Local resources

Since the publication of the Catalogue of Encouraged Industries in the Hainan Free Trade Port (2020 Edition), which was updated and expanded in 2024 (the 2024 Edition)3, Hainan's four leading industries  tourism, modern service industry, high and newtech industry, and highefficiency tropical agriculture  have grown rapidly. Their valueadded accounted for 62.4% of the province's GDP in 2023, up from 55.5% in 2019.

Indeed, the release of the catalogue has played a significant role in propelling the development of key industries and accelerating the construction of a modern industrial system. Since its implementation (once preferential treatment already granted to micro, small and mediumsized enterprises and high and newtech enterprises is excluded), more than 4,000 business entities have enjoyed a reduced enterprise income tax rate of 15%, bringing the proportion of all enterprises entitled to various preferential policies up to about 33%. More preferential policies are set to be rolled out.

The Catalogue of Encouraged Industries in the Hainan Free Trade Port (2024 Edition), which came into effect on 1 March 2024, specifies that in addition to those categories receiving encouragement under existing national industrial catalogues, Hainan will have 14 more industries receiving such treatment, creating a total of 176 types. These cover a wide range of manufacturing industries, wholesaling and retailing, transportation/warehousing, accommodation and catering, information transmission/software and information technology services, finance and other commercial services4. They are eligible for a reduced enterprise income tax rate of 15%.

Hainan is currently in great need of capital and talent to drive its industrial development. Hong Kong companies not only have a great deal of experience in international business and financial development (which can act as a reference for the Hainan Free Trade Port), they also possess global talent and financial resources in abundance. They should capitalise on resources available in the Hainan Free Trade Zone  such as land for all kinds of industries (key industrial parks) and R&D capability (in seed breeding and deep sea)  as well as its preferential policies to meet the needs of key industries for technologies and commercial services. They should also devise risk management plans to safeguard their business in Hainan, and could even consider seeking access to the wider mainland market via Hainan.

Headquarters economy

In recent years, the Hainan Free Trade Port has tried to promote the development of the headquarters economy, seeking to attract five types of headquarters  regional headquarters of multinational corporations, headquarters of major corporations, integrated headquarters, functional headquarters and highgrowth headquarters. The goal is to foster industrial clusters among the four leading industries and bring in global capital and innovation capability. The Haikou Jiangdong New District  with a planning area of about 418 sq km  is a good case in point. The district is positioned as an innovation zone within the pilot reform and openingup zone, a demonstration area of the national pilot zone for ecological conservation, an experience zone within the international tourism and consumption centre, and an exemplary area of a service zone which will implement China’s major strategies.

To further the influence of Haikou’s headquarters economy and fuel its highquality development, the Haikou Jiangdong New District authorities and the Haikou city headquarters economy office have worked together to establish a joint mechanism designed to encourage eligible enterprises to undergo the accreditation of their headquarters status in Hainan. The hope is that by doing this, a headquarters cluster can be formed in the Hainan Free Trade Port.

Sanya Yazhou Bay Science and Technology City

Cities in Hainan have been developing various key industries based on their local characteristics. For example, Sanya, renowned for its tourism, has established four major industrial parks  Yazhou Bay Science and Technology City,Sanya Central Business District,Haitang Bay National Coastal Recreation Park and Sanya Digital Economy Industrial Park. Abundant industrial land is available in these industrial parks for businesses to build factories. They can also get all kinds of support from the parks, including production support, talent recruitment, incentives for technological application, enterprise listing, R&D, land and project construction.

It is worth noting that Sanya, which is on the 18degree north latitude line known as the golden belt for world tourism and crop species, enjoys a geographic advantage and a good climate. Sanya is an important domestic base for seed breeding in southern China as well as a centre for R&D, production and sales of crops. It is therefore an ideal location for the commercialisation of agricultural R&D outcomes worldwide. Agricultural development is often said to be the driving force behind rapid social development.

Hainan also has the largest ocean area in the country under its jurisdiction and most of the country’s deepsea area lies within Hainan waters. The island therefore commands a unique advantage in developing deepsea technology and marine industries. Around 1,000 marine enterprises are already reportedly up and running in Sanya Yazhou Bay Science and Technology City. The 2024 Hainan government work report has proposed the creation of a “Marine Hainan” in 10 years’ time with marine production output projected to exceed RMB310bn in value.

Wenchang International Aerospace City

Wenchang International Aerospace City is a key industrial park in the Hainan Free Trade Port, where the construction of a number of aerospace industryrelated projects is under way, and an aerospace industry cluster is taking shape. Wenchang International Aerospace City works mainly on aerospace technology, with a focus on satellite launch and ancillary services, highend product R&D and manufacturing, and aerospace big data development and application. In November 2023, the Hainan government and the China National Space Administration (CNSA) jointly established the CNSA Satellite Data and Application International Co-operation Centre,BRICS Centre for Remote Sensing Satellite Constellation Data and Application Centre and the Hainan Satellite Data and Application Research Centre in a bid to build an international cooperation hub for the country's remote sensing data and application service platforms. The nation’s first commercial space launch site no. 1 launch pad was completed at the end of December 2023, while the commercial space launch site no. 2 launch pad was completed in June 2024. The facilities are designed to undertake domestic and overseas rocket launch business, further boosting China's commercial rocket launch capability.

Sanya Demonstration Zone for Hong Kong-Hainan Economic Co-operation

In order to implement the Overall Plan for the Construction of the Hainan Free Trade Port which proposes to “strengthen exchanges and cooperation with Southeast Asian countries, and promote joint development with the GuangdongHong KongMacao Greater Bay Area”, the province will pool the strengths of Hainan and Hong Kong to foster indepth collaboration. In November 2021, the Hainan-Hong Kong Economic Co-operation and Development Advisory Committee was set up, spearheaded by the Hainan Provincial Committee of the Chinese People’s Political Consultative Conference. Subsequently, the Sanya Demonstration Zone for Hong Kong-Hainan Economic Co-operation was established in the Haitang Bay National Coastal Recreation Park, focusing on six modern service industries  gold and jewellery, finance and trade, tourism and culture, professional services, trade services, and highend healthcare. The zone endeavours to facilitate the free flow of Hong Kong goods within the zone, and adopts Hong Kong's highest level of economic and trade rules so as to create mutual benefits and a winwin situation for both places. The emphasis is on the development of an international cultural tourism centre and an international tourism consumption centre with a thriving service sector. The zone aims to be a gathering place for Hong Kong companies and entrepreneurs.

As the next step, the Sanya Demonstration Zone for Hainan-Hong Kong Economic Cooperation plans to roll out pilot projects aimed at encouraging trade enterprises to use the advantage of the Hainan Free Trade Port's location under the dualcirculation strategy to register and launch exhibition businesses, attracting wellknown catering brands to the zone, and setting up a museum cluster and expanding it to cover a cultural relics and artworks auction industry. Efforts will be made to promote the highlevel opening up of the demonstration zone, and conduct stress tests in three areas  “a list of prohibitions and restrictions", the policy of "bonded processing shifting to offshore dutyfree allowance" and the "priority opening up of the professional services market". There are also plans to regularise economic and trade exchanges between Hong Kong and Sanya, and organise regular policy promotion and investment promotion visits to Hong Kong to highlight Sanya's positive attitude towards opening up and collaborating with Hong Kong.