HAIKOU, China — With tariffs rising around the world and President Donald Trump promising to end decades of globalization, Chinese leadership has been touting a tropical island as proof that the country is heading in the opposite direction.
The island of Hainan — a province of China off the country’s southern coast that is 50 times larger than Singapore — last month eliminated tariffs on most imports, reduced corporate and individual taxes and declared itself the world’s largest “free trade port.” China has said the island is an emblem of its willingness to engage in two-way trade with the world.
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Xi Jinping, China’s top leader, called Hainan “a significant gateway leading to China’s opening up in the new era.”
As portrayed by Beijing, Hainan’s experiment with tariff-free trade harkens back to the spirit of China’s early reform era after Mao Zedong’s death in 1976. The Communist Party abandoned socialist dogma and began testing bold free-market policies in certain areas. Those that worked were expanded to other regions.
China’s position in global trade is very different now. The country has become the world’s unrivaled manufacturing power and second-largest economy. Xi has repeatedly advocated self-reliance and worked to ensure that China never depends on anything foreign.
He has shown little interest in changing the high tariffs and export-oriented policies that helped give China a massive $1 trillion trade surplus last year.
“There is no sign that Hainan is a harbinger of a broader, more systematic opening of the national economy,” said Richard McGregor, senior fellow for East Asia at the Lowy Institute, an Australian think tank.
“At a time of record trade surpluses,” he added, Hainan’s new role as a free-trade entrepôt “has a strong whiff of bait-and-switch in political and public relations terms.”
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Most foreign goods can now freely enter Hainan, whose 10 million people represent less than 1% of China’s total population. But these imports cannot leave the island for other parts of the country unless strict conditions are met.
The combination of policies aims to prevent tariff-free imports destined for Hainan from leaking to other regions of the country, where high tariffs remain in effect.
Products imported into Hainan cannot be sent to other parts of China without paying tariffs unless they have been processed in a way that increases their value by at least 30%.
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At Haikou New Port, a giant passenger and cargo terminal in the provincial capital, ships sail day and night to the neighboring province of Guangdong. But what was once a domestic transport hub has become, in practice, an international border.
The Chinese customs service controls the flow of goods leaving Hainan to the rest of China, inspecting trucks for any tariff-free goods being smuggled into the rest of the country.
Although highly restricted, the possibility of accessing the Chinese market beyond Hainan is already attracting some foreign companies that would otherwise face high tariffs to sell to Guangdong or other Chinese provinces.
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Nesredin Hussein, a coffee trader from Ethiopia, recently rented a warehouse near Haikou to store beans imported to the island tariff-free. He plans to buy roasting equipment so he can process coffee brought to Hainan tariff-free and then ship it to other parts of China for sale without paying tariffs or taxes.
“For me, this is a very good opportunity,” he said, considering China’s voracious appetite for coffee, noting that it would otherwise have to pay up to 30% in tariffs and other taxes on any beans imported directly into mainland China. “Here the tax rate is zero,” he said, after a visit with his wife and three children to the Hainan branch of Harrow School, an elite British boarding school.
Less convinced is Kamthon Wangudom, a businessman of Chinese origin from Thailand who, invited to Hainan in December to visit a village where his ancestors lived, was first taken to an exhibition center promoting the island’s investment opportunities.
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He said his Bangkok-based renewable energy company had previously invested in Taiwan, Japan and the Philippines, but had avoided China because it was “too big and too complicated.” He is skeptical that the new tariff regime will change much.
Hainan likes to compare itself to Hawaii for its palm-lined beaches and resorts; like Hawaii, it is also dotted with military installations. Among them is a giant naval base near the southern resort city of Sanya, which has grown rapidly as China asserted its claims to the South China Sea.
Xi visited Hainan in November to promote tax-free policies. But his main objective was to inspect the naval base and participate in the incorporation of a new aircraft carrier. Xi has made clear that Hainan’s strategic importance means security interests must prevail over economic ambitions.
Hainan has a history of grand plans that often disappoint, starting with its designation in 1988 as China’s last and largest Special Economic Zone, at a time of boom in cooperation with foreign companies that has receded rapidly since Xi came to power in 2012.
Unable to match the extraordinary economic growth of rival special zones like Shenzhen, alongside Hong Kong, Hainan was for years largely seen as a sunny but secondary competitor.
It developed its tourism industry, including medical tourism, and built new highways and high-speed rail lines. In the 1990s, it was the scene of a real estate collapse, the first in China under communism.
Xi first announced plans to transform Hainan into a free trade mecca in 2018. The project began with the opening of huge tax-free shopping malls in Haikou and Sanya.
That attracted Chinese tourists seeking discounted foreign luxury brands, but failed to turn around the economic fortunes of an island still scarred by the impact of the property collapse.
The current development of the Hainan free port “faces harsh reality checks”, according to a study by the Asia Competitiveness Institute of the National University of Singapore.
Hainan is much less successful than other Chinese Special Economic Zones and attracts relatively little foreign direct investment, the report said.
For others, however, Hainan’s importance lies in its role as a testing ground for innovative policies that do not shake up the status quo.
The free trade port experiment will allow China to test new approaches in areas such as finance, education and taxes, said Lauren Johnston, founder of New South Economics, a consultancy in Melbourne, Australia, “while protecting the status quo on the continent.”
c.2026 The New York Times Company
