Hainan free port to boost flow of people, capital

Since the building of a free trade port is a historical opportunity for Hainan's development, the island province should use the "window period"－the next two to three years－to transition from a pilot free trade zone to a free trade port by expediting free trade in services.

Free trade in services is not only compatible with China's further opening-up policy, but also suited to Hainan's distinct conditions. Hainan is well positioned to use innovative means to boost service trade. Last year, the province's trade in services accounted for 18.1 percent of its total trade volume, 3.4 percentage points higher than the national average, and Hainan can raise it further.

Since the proposed free trade zone will also have a national major strategic service area, Hainan should build up its unique advantages in service trade, and take measures to further expand its service sector.

President Xi Jinping has said that developing the modern service industry is in line with the industrial development of the times and suits Hainan's actual development conditions. That means Hainan should expedite the process of free trade in modern services such as tourism, healthcare, the internet, finance and exhibitions to boost the flow of people, information, technology, capital and goods, which will help the province to not only speed up the formation of a service-dominated industrial structure but also a free port development model that focuses on innovation in service trade.

To resolve the problem of insufficient supply of international products and services, Hainan should introduce the Hong Kong Special Administrative Region's tourism consumption and supply chains, and promote the integration of tourism-related shopping management and market supervision standards between the two regions. This will help build a tourism consumption center with global influence, and transform and upgrade the services related to culture, entertainment, finance, insurance, and logistics.

Without opening up its industrial sector, a region cannot have fast industrial development. The weak industrial base of Hainan restricted its economic development. Even Hainan's exhibition sector－thanks to its delayed opening-up－accounted for 0.34 percent of the country's total in 2017, ranking 26th among the 31 provincial-level regions.

Accelerating free trade in services will help Hainan gain new advantages, which in turn will help it open up wider to the outside world and significantly strengthen its industrial development base. It will also help expedite the building of an industrial structure based on services-related consumption.

Furthermore, in 2017, the added value of Hainan's cultural industry accounted for only 3.18 percent of its GDP, 1 percentage point lower than the national average and nearly 9 percentage points lower than that of Shanghai in 2016. So, in order to raise the competitiveness of its cultural industry, Hainan should hasten the opening-up of its tourism, cultural, sports and entertainment industries. It should also further open up its financial market, expand the scope of business for foreign financial institutions, and support domestic and foreign financial institutions to conduct offshore business, so as to improve its investment and financing environment.

The need for Hainan is to implement an open service sector access policy, formulate its own version of negative list for service trade, and abolish the restrictive investment measures in the existing negative list except those for publications, radio and television and other special areas, and give equal pre-and post-establishment treatment to domestic and foreign entities, in order to fully open up the services market and facilitate innovative development in service trade.

To fully open up its services market, Hainan should also implement tax policies similar to those adopted by Hong Kong, Singapore and other free trade ports. For example, it should impose zero tariffs on healthcare, tourism, cultural and entertainment products, and levy zero value-added tax on transactions between modern service enterprises.

And in order to promote free flow of people, Hainan needs to implement policies to liberalize service trade, such as relaxing visa rules for foreigners working on the island and lowering the residence certificate application threshold.

The author is president of the China Institute for Reform and Development