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The Regulatory Regime for Hainan FTP has been Relaxed


I. Gigantic port project – Hainan FTP
II. Hainan FTP 2035: World leading commercial heavyweight?
III. Background of the expansion of Hainan FTP
IV. Which bans have specifically been relaxed or lifted?
V. Conclusion: Hainan FTP – a new trade (sleeping) giant is awakening

I. Gigantic port project – Hainan FTP

The Chinese Ministry of Finance and the National Defense Research Committee have published

“Special Administrative Measures (Negative List) for Foreign Investment Access to Hainan Free Trade Port (2020)” (海南 自由 贸易 港 外商 投资 准入 特别 管理 措施 (负面 清单) (2020 年 版)

for access of foreign investment in the Hainan FTP at the end of last year. The new negative list for foreign investment in the Hainan FTP has been in effect since February 1, 2021. It still contains 27 of its former 30 points.

Hainan Island is a key link on the 21st Century Maritime Silk Road, with direct access to international shipping routes of the South China Sea. Large companies like the US company Johnson & Johnson have relied on Hainan for decades. The new port is intended to compete with major ports like those in Hong Kong and Shanghai as gateways to the world’s largest consumer market. Launched in 2018, Hainan FTP is designed to be the largest free trade area in China (more than 35,000 square kilometers).

In June 2020, the NDRC and MOFCOM have announced these special administrative measures for the first time in order to create a basis for the new and now valid negative list. Since then, there have been many Chinese businesses heading to Hainan. Today, it can be said with certainty that Hainan FTP is one of the most foreign investment-friendly areas in China.

II. Hainan FTP 2035: World leading commercial heavyweight?

Breaking down the negative list is just one of many measures that China is using to try to create a new trade mecca off its coast. Accompanying measures include first and foremost: Customs and tax relief. The southern Hainan island is supposed to be transformed into a globally significant free trade port by establishing an enabling business climate for foreign investment.

As already mentioned, regulations have also been loosened with still 27 articles on the negative list. We assess an easing of access to manufacturing and the lifting of the provisions prohibiting foreign investment in the exploration, mining and processing of rare earths, tungsten and radioactive minerals as very interesting. Should Beijing’s very successful strategy continue to work out, we will definitely hear about Hainan as a new global trading center later.

III. Background of the expansion of Hainan FTP

Beijing’s plan, which has proven hugely successful over the past few decades, will remain more or less unchanged in 2021. Foreign investments are specifically promoted in those sectors of the Chinese economy in which the country may still have some catching up to do in terms of technology. In addition to that, foreign investments in Central and Western China are supported.

In July 2017, China started a nationwide use of negative lists regarding market access for foreign investors. According to this, only those foreign investments which are noted on such a list are restricted or legal prohibited. Such investments must be approved by the competent trade authority. Approval applications often had to be submitted before a foreign investment could be made. Since 2020, it has mostly been sufficient to submit documents afterwards.

The negative list of the Hainan FTP belongs to the set of negative lists for the 18 Free Trade Zones. But what have been the specific easements since February 2021?

IV. Which bans have specifically been relaxed or lifted?

The telecommunications sector is to be further developed as restrictions on online data processing and transaction processing businesses have been lifted. Companies that deal with the digitization of the economy also enjoy additional benefits.

There is also relief for foreign investments in the legal advice market (non-procedural) in order to satisfy the need for foreign legal advice. The automotive industry will be freed from the obligation of local investors to participate, tourism and education will be opened further.

Unfortunately, prohibition Number 12 of the negative list still exists (“禁止 投资 互联网 新闻 信息 服务 、 网络 出版 服务 、 网络 视听 节目 服务 、 互联网 文化 经 营 (音乐 音乐 除外) 、 互联网 公众 发布 信息 服务 (上述 服务 中 , 中国 入世 承诺 中 已开放 的 内容 除外)。). According to this, foreign investments in internet news information services or online publication offerings are prohibited. An open trade center of global rank will have to improve here.

There is also still a ban on foreign investments in the development and application of biotechnology relating to human stem cells, genetic diagnosis and the associated treatment technologies (ban number 15, “禁止 投资 人体 干 细胞 、 基因 诊断 与 治疗 技术 开发 和 应用”). Especially in the context of the pandemic, this is a prohibition that should have been lifted too. In practice, we see potential for conflict with the new Chinese biosecurity law, which was recently been the subject of two of our contributions.

V. Conclusion: Hainan FTP – a new trade (sleeping) giant is awakening

The trend of recent years to reduce the restrictions and bans on foreign investments is continued by the new Free Trade Zone negative list 2020. Any further liberalization of market access in China is to be welcomed in any case from the perspective of world trade. Hainan FTP is also a testing ground for tax and custom policies that could be adopted in other China Free Trade Zones in the future. This opens up new opportunities for foreign investments. We can only hope that this development will continue unchanged in the future.

The foreign investment business in China is changing. Above all, rising wages also lead to increased interest from foreign investors in China’s high-end manufacturing. The new negative list appears as a tailor-made solution to take this into account. This new signal of opening up China to the world will also strengthen the confidence of foreign investors in the Middle Kingdom and fuel supply chains in China for structural optimization.

Are you interested in the opportunities that Hainan FTP is currently offering for US or German companies? Get in touch with us!


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