Today’s Focus: High-profile border closure and low-key article deletion, is Hainan Free Trade Port really free? Why do experts say it will soon be abandoned?
Recently, the Hainan Free Trade Port officially launched the operation of “entire island border closure.” The Chinese Communist Party officials have boasted that Hainan will become a gateway to openness to the outside world. However, this move has sparked controversy, even leading mainland media to cast doubts, though their articles were quickly deleted. Furthermore, despite being dubbed a free trade port, Hainan’s actual conditions do not live up to the label. Therefore, experts believe that without independent legal system and freedoms, the Hainan Free Trade Port will soon come to a standstill.
The Chinese Communist Party officials declared that on December 18, 2025, the entire island of Hainan was closed off for border control. From then on, the over 30,000 square kilometers of Hainan Island would transform into a specially regulated customs area.
In response, the Chinese Foreign Ministry spokesperson Lin Jian stated on the 23rd that they believed Hainan Free Trade Port would become China’s important gateway to high-level openness to the outside world.
However, both mainland and Hong Kong media, along with other external observers, are pessimistic about the prospects of Hainan’s Free Trade Port, questioning whether the so-called “free trade” is genuinely free.
Mainland media outlet “Nanfeng Window” pointed out in its coverage that even though it claims to be open, why does the official announcement use the term “border closure”? This choice of words easily leads to misunderstandings, with even experts attending academic conferences questioning if it should be called “border opening” instead.
Previously, the Chinese Communist Party officials explained that in Hainan Free Trade Port, they implemented a “first-line open, second-line managed, internal island freedom” policy. This means that Hainan Island is established as a special “customs area.” Outwardly, Hainan functions as the “first line,” opening up with zero tariffs to the world; inwardly, it is the “second line,” setting up control measures to prevent smuggling between Hainan and mainland China, imposing taxation or regulation on goods opened in the first line; “internal island freedom” refers to the free and convenient movement of goods, funds, personnel, and other elements within Hainan Island under policy support, with the overall goal of achieving higher levels of openness rather than closure.
However, can the Chinese authorities’ plans be smoothly implemented?
“Nanfeng Window” highlights that Hainan primarily coordinates capital and information, unlike Hong Kong or Macau, which have actual checkpoints for interaction with mainland China. Concerning the highly anticipated “duty-free shopping” policy, although adjustments have been made regarding purchase qualifications, product categories, and instant purchase and pick-up, the adjustments are limited in scope. Additionally, in a bid to combat “reselling through agents,” restrictions on immediate purchase and pick-up for island travelers are stringent, with limits on the amount that can be picked up on the island, leading to dissatisfaction among many travelers.
The article also questions whether Hainan truly offers the promised freedom of a free trade port. Can IP addresses in Hainan freely access all websites on the internet after the border closure?
Not everyone in Hainan has unrestricted access to the internet. The report indicates that Hainan currently operates on a “whitelist” system, only open to enterprises and high-level personnel within technology parks. Joining the “whitelist” involves a process, with applicants submitting their requests to the management department for approval, receiving an account upon review, logging into that account, and then browsing internet information.
This approach aims to control ideological risks so that “information and data flow in an orderly manner, equivalent to ‘authorized online access for commercial customers’ under real-name registration, and is not open to all people in Hainan.” This practice is consistent with the “partially open external network” model in Shanghai’s Pudong New Area and Hongqiao Business District.
Notably, in terms of capital flow, Hainan’s freedom is not entirely realized and only flows semi-freely, with “easy inflow and difficult outflow.” This is because Hainan has set up specialized EF accounts (multifunctional free trade accounts), with a “high-speed cross-border fund channel” allowing overseas funds unlimited and rapidly entering Hainan with no approval restrictions. However, this channel is a one-way street. When users intend to transfer funds from their EF accounts to domestic bank accounts in China, i.e., transferring from the “first line” to the “second line,” they face strict controls.
Additionally, other complications mentioned in the report include concerns about “cross-sea channels” and a “two-locality system.”
The questions raised in the “Nanfeng Window” article did not receive explanations from the Chinese authorities but were promptly removed instead. Phoenix Net reposted the article, but it was taken down on the 24th.
On December 22, Hong Kong’s “Ming Pao” also expressed concerns about the future of Hainan Free Trade Port. The article highlighted that based on data released by Hainan officials, actual foreign investment in Hainan has declined for two consecutive years, demonstrating the significant challenges the region faces in attracting foreign investment.
Furthermore, over the past two years, various economic indicators in Hainan, including economic growth targets, fixed asset investments, tax-exempt amounts for outlying islands, and the number of consumer groups, have sharply decreased. Quoting comments from Chen Bo, a distinguished researcher at Hainan University and Liaoning University, the report suggested that based on the data, Hainan is unlikely to achieve its growth targets this year. The unfavorable domestic economic environment, along with international trade tensions, contribute to the dim outlook. Chen believes that for Hainan, aspiring to attract global resources, “this environment is not favorable.” He highlighted that Hainan lacks sufficient openness in policies and specific measures. Despite some adjustments in duty exemption policies for domestic processing and value-added trade, the coverage and scale are limited. In terms of tourism, even the long-discussed horse racing cannot be opened in Hainan. If even the most straightforward and conducive policies are hesitated upon, then more extensive and bolder policies will likely face challenges.
So, does China really need to establish a free trade zone in Hainan?
In light of this, a special correspondent from Dajiyuan analyzed that back in the 1980s, at the beginning of the so-called “reform and opening up,” the Chinese Communist Party established numerous economic zones. Since 2013, starting with Shanghai’s Waigaoqiao Trade Facilitation Zone as the core, the CCP has built 22 free trade zones nationwide. According to official statements, these free trade zones, emphasizing institutional innovation and high-level openness, initiate trials in trade facilitation, investment liberalization, financial openness, and other aspects.
However, as of now, many of these free trade zones have stagnated in development, drawing widespread criticism.
Given this, why does the Chinese authorities still want to establish a free trade port in Hainan? How is it different from other Chinese free trade zones?
The most significant difference lies in the area. Previous free trade zones were essentially in specific areas of a city, relatively small regions. This time, the CCP designated the entire Hainan province as a free trade port. The scale is quite substantial; various media outlets such as China News, South Finance, and Red Star News, reporting on the operation of the Hainan Free Trade Port’s island-wide border closure, emphasized its vast area compared to Hong Kong, being “30 times larger” to “40 times larger,” highlighting the expansive size.
Additionally, in English reports by official media like Xinhua, the Hainan trade port is described as “the world’s largest free trade port in terms of area.”
However, other than size, Hainan’s trade port lacks any advantages over previous Chinese free trade zones established by the CCP. For instance, during the early days of the “reform and opening up,” Deng Xiaoping’s first project, a Japanese steel mill, was located in Shanghai. This decision was based on Shanghai’s advanced industrial infrastructure and supply chain, coupled with convenient imports of coal and iron ore from Australia and seamless interactions with Japanese personnel and goods. These advantages are absent in Hainan’s case.
Some argue that the authorities want to develop Hainan as an alternative financial center to Hong Kong, but compared to the more developed Shanghai or economically vibrant Guangdong, Hainan lacks any significant edge.
In reality, post the 1997 Hong Kong handover, the only genuinely independent free trade zone remaining under CCP rule was Hong Kong, surpassing all the advantages envisioned for the Chinese designed free trade zones.
With CCP’s tightening grip on Hong Kong leading to its loss of an independent judiciary and plummeting international status alongside losing recognition in the global arena post-imposition of the National Security Law, the former international financial hub has seen its prominence vanish.
If the CCP needs free trade zones, maintaining Hong Kong’s previous status would have been the simplest and most effective solution.
However, back then, the CCP did not require free trade zones as the entirety of mainland China could directly engage in trade with foreign countries, eliminating the necessity for Hong Kong as a re-export hub. This rationale partly explains the coercive measures taken against Hong Kong – the CCP no longer needed Hong Kong as a free trade zone.
Given these circumstances, the CCP does not need to establish so many free trade zones domestically and absolutely doesn’t need to set up a zone in a province now, but they have gone ahead with it in Hainan.
So, why is the CCP simultaneously suppressing genuinely free trade zones like Hong Kong while establishing pseudo zones like in Hainan?
It’s not that the CCP doesn’t need free trade zones; it’s that the CCP cannot tolerate free trade zones like Hong Kong.
The so-called free trade zones represent free trade, yet whether in Hainan or other regions of China, genuine freedom doesn’t exist. Despite encompassing the entire province, Hainan remains under the same political and economic control of the CCP. In essence, Hainan lacks independent legal systems and freedoms separate from the CCP’s framework.
Indeed, the account cites, back in the days, Hong Kong had an independent judiciary, unrestricted internet access, and the freedom for local people to express their views publicly—qualities that the CCP found intolerable, even with all its advantages, leading to its annihilation under the National Security Law.
From this perspective, even if the CCP establishes a free trade zone in Hainan, there won’t be any systemic reforms; consequently, Hainan isn’t a trial point for political system reforms. In other words, Hainan isn’t a genuine free trade zone but a pseudo one.
Some believe that the authorities aim to transform Hainan into another Shenzhen Special Economic Zone. However, it’s crucial to remember that Shenzhen’s Special Economic Zone was conceived under different contexts—China was wholly under the planned economy back then, clueless about integrating market economies and foreign investments until Shenzhen became a testing ground before nationwide promotion. Thus, Shenzhen played a lead role in economic system reforms during China’s economic transformation. But as the entire country adopted a partial market economy under a socialist system, reforms lost their direction. The areas that required economic system reforms had been amended. In other words, reforms hit a dead-end, veering towards political system reforms, an undesirable path for the CCP.
For Xi Jinping, maintaining the existing economic system poses substantial risks. Private economies, in his view, pose a threat to the CCP’s socialist system; thus, squeezing private sectors further to give way to more state-owned economies, known as “state advances and private retreats,” is critical. Against this backdrop, the establishment of free trade zones without altering the political system becomes a poor imitation of Shenzhen’s Special Economic Zone. It’s worth noting, if the CCP truly believed that free trade zones are beneficial for economic and technological development, establishing nationwide free trade zones would be the logical course. However, the CCP only requires nominal free trade, underscoring why Hainan’s free trade port won’t succeed fundamentally.
Tan Xie, a professor at the University of South Carolina’s Moore School of Business, expressed to Dajiyuan that the Hainan Free Trade Port is one of Xi Jinping’s vanity projects, lacking the fundamental legal and political environment conducive to free economic development. The initial investments in Hainan are at risk of being wasted with China’s economic downturn, making the free trade zone’s bubble ready to burst at any time.
In conclusion, with Xi Jinping’s track record of all unfinished projects, including “One Belt, One Road” and the Xiongan New Area, why introduce new unfinished projects? This is because Xi’s close associates find it challenging to seize or share the already distributed wealth from entrenched elites. To access funding, they need to embark on novel projects continuously, serving as the real purpose behind these unfinished projects.