China to open new trade hub in South China Sea

In June 2020, China’s central government announced its economic masterplan to develop the south China island of Hainan into a Free Trade Port (FTP), according to a report by GAIN. The advertised zero-tariffs for imported products processed inside the FTP may lead to future opportunities for imports of fresh produce. The plan’s overarching goal is by 2050 to make Hainan – China’s smallest province with a population of about 10 million – into another major economic-growth hub in South China to complement neighbouring Guangzhou, Shenzhen, and Hong Kong. In order to realise this ambitious vision, the government plans to introduce the appropriate mix of infrastructure and policy conditions to stimulate trade and investment, especially in high-tech, tourism, and other service industries.

Although not specifically mentioned in the masterplan, Hainan authorities are interested in developing the island’s food processing industry as part of this broader economic initiative. In particular, the local government is looking to attract the needed investment to expand and diversify the island’s relatively small food processing industry, most of which is currently focused on seafood and fruit processing. One of the advertised selling points that the government hopes will attract investment and trade is lower tax rates and zero-tariffs before 2025. Imported agricultural (and other) products that undergo a 30-percent value addition in Hainan food processing facilities can enter mainland China duty free, though still subject to the value-added and consumption taxes.  In contrast, imported agricultural products, such as seafood, that are processed in other free trade zones or bonded areas elsewhere in China are usually re-exported since these products are still subject to the same tariffs that apply to direct imports.