China has drawn a new customs line around Hainan, turning the sun-soaked island into a testing ground for how far the country is willing to open its economy. The move is meant to remake the province into a Hong Kong–style business hub—and to strengthen Beijing’s case for joining one of the world’s biggest free-trade clubs.
About the size of Belgium and with an economy that rivals those of some smaller nations, Hainan is now operating as a duty-free zone. For China, it’s one of the most eye-catching experiments in economic liberalisation in years.
A duty-free island with big dreams
Under the new rules, goods made in Hainan can enter the rest of China without tariffs as long as at least 30 per cent of their value is added locally. Foreign companies will also find more doors open, especially in service industries that are still tightly controlled on the mainland.
Officials hope the changes will make the island more attractive to global investors—and prove that China can play by the rules of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a 12-country trade pact spanning the Asia-Pacific.
Speaking at the launch, Vice Premier He Lifeng struck an ambitious note, urging local authorities to turn Hainan into “a vital gateway” for China’s next phase of opening up. The project, he said, carries significance well beyond the island’s beaches and resorts.
A strategic response to a tougher world
Behind the optimism lies a sense of urgency. At home, the pressure is mounting too. Foreign investment into China fell by more than 10 per cent in the first three quarters of 2025, a worrying signal for policymakers trying to steady growth and restore confidence.
If the experiment works, economists say it could give Beijing the confidence to loosen controls elsewhere. “The reference point is something like Hong Kong,” said Ran Guo of the China-Britain Business Council, noting that Hainan could become a magnet for tourism, manufacturing and foreign capital while serving as a key link between China and Southeast Asia.
Big potential, real doubts
Still, success is far from guaranteed. Hainan’s economy, valued at about $113 billion last year, is growing but remains a fraction of Hong Kong’s $407 billion output. More importantly, analysts question whether the island can replicate the legal protections and financial openness that underpin Hong Kong’s status.
“The model is about controlled opening, and that can help reconnect supply chains,” said Xu Tianchen of the Economist Intelligence Unit. “But it doesn’t yet have the institutions that made Hong Kong work, and competition from Southeast Asia and Japan will be intense.”
There’s also skepticism abroad. Some trade negotiators doubt that a single pilot zone—even one as large as Hainan—will convince CPTPP members that China is ready to open its entire economy. As one Western diplomat put it, what matters is nationwide change and a proven record of compliance, especially at a time of renewed regional tensions.
For now, Hainan is a calculated bet — a high-profile island experiment that could signal a new chapter in China’s economic opening—or highlight just how hard that next step will be.
