Hainan Province Free Trade Zone Offers Window Into China’s Future

China’s great reform of 1978 was made possible through the creation of special economic zones (SEZs) throughout the nation. By the mid 1980s China had created 20 such zones. Within each special economic zone, regulations such as taxation were drastically cut while these zones also welcomed foreign direct investment on highly attractive terms. The zones also served as China’s first foray into the free trade that increasingly defines Chinese mentality to a modern multilateral approach to globalisation with Chinese characteristics. Finally, because China’s special economic zones were and remain bedrocks of export driven commerce, these zones helped to transform China into the world’s industrial powerhouse that it is today.

Just as sure as the SEZs of the Deng era helped to transform all of China into the industrial and innovation powerhouse it is today, the creation of a new free trade zone (FTZ) in the southern island province of Hainan will help to transition China into its next economic phase a a nation that opens its national doors to a world of trade, capital exchange, technical exchange and human connectivity.

The current development on the Hainan FTZ looks to turn the island into a zone with virtually no trade barriers. Hainan will soon become a place where the world can come and sell its good to China while those interested in the latest Chinese innovations can take advantage of a totally open trading system. According to an official report form Xinhua,

“In developing the Hainan FTZ, a major step that demonstrates China’s resolution to further open up and promote economic globalization, the island will be granted more autonomy to reform, and speed up the fostering of a law-based, international, and convenient business environment as well as a fair, open, unified, and efficient market environment, according to the plan issued by the State Council.

Hainan should be positioned as a pilot zone for comprehensively deepening reform and opening up, a display of the country’s ecological civilization, an international tourism and consumption center and a zone offering services and support for the country’s major strategies, according to the plan.

Efforts should be made to pursue a more proactive strategy of opening up, accelerate the establishment of new institutions of the open economy, make new ground in pursuing opening up on all fronts, and build Hainan into a key gateway to the Pacific and Indian Oceans”.

As China looks to cultivate free trade agreements with multiple nations and in so doing helping to harmonise the ease of moving goods in multiple directions within the context of the Belt and Road initiative, China seeks not only to embrace free trade but to promote it as a means of accelerating economic growth among its partner nations by allowing them to both buy and sell their goods to important global markets in a less bureaucratically restrictive environment.  As freer capital inflow and outflow arrangements will also be possible in the new Hainan FTZ, China will present the world a preview of future decades when an inevitably freely floating Renminbi will become ever more favoured as an international reverse currency and as a currency of international trade.

While China is opening up its entire geographical space to freer trade, by following the time tested method of setting up special zones to test both domestic attitudes and international attitudes towards the next phase in China’s economic development, Beijing continues to embrace a gradualist strategy that allows for the growing pains inherent in any new economic change to mature in a self-contained environment that can be easily monitored and legislatively amended depending on what challenges arise. It was this method that helped the SEZs of the 1980s transform the entire nation and thus when the Hainan FTZ is fully operational in 2020, this too can be seen as a blueprint for future trading relations between all of China and its global partners.

The classic adage ‘show, don’t tell’, naturally applies to the Hainan FTZ. While theoretical arguments can win minds, seeing theory spring to action can win real life adherents whose attraction to a new geo-economic mentality is best apprehended by seeing how such a system functions in daily life. In this sense, while Hainan will be a showcase of China’s latest innovations, its special free trading system will be a demonstrable example of the kind of future China seeks for itself and graciously recommends for partners who may be indecisive about their own future in an ever more inter-connected world.

Therefore, for those interested in how China will function as a moderately prosperous society, Hainan should be on the map as this is the new foundation of the open era in China’s relations with its partners.

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