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Eastern promise: China’s bid to build an island port to rival Dubai

Posted on April 12, 2023

The hospital had everything you would expect in a state-of-the-art facility, with the latest diagnostic and rehabilitation equipment and fleets of uniformed medical staff. But in one large atrium, patients were sitting at tables engaged in traditional Chinese calligraphy and conducting tea ceremonies.

A vast, hangar-like space nearby was lined on one side with hair and cosmetic salons that looked on to a full-scale fashion runway, complete with supersized video screens. This hospital in the Bao Lecheng International Medical Tourism Zone in the southern Chinese province of Hainan treats patients who pay an annual membership fee starting at over RMB90,000 (€12,070) and rising to RMB36 million (€4.83 million).

“We don’t offer surgery for cancer or outpatient surgery. We are more focused on diagnosis, chronic disease management and rehabilitation. We also focus on overall health and wellness,” a spokeswoman said.

The fashion runway is part of an offering for women who want to improve their personal image and self-confidence as well as their health, aimed particularly at young mothers and older women “who devoted all their lives to you, to everyone” while neglecting themselves.

The Medical Tourism Zone is part of the Hainan Free Trade Port, an ambitious project to build a rival to Singapore and Dubai on this tropical island in the South China Sea by 2035. As China seeks to kick-start its economy back into action after three years of zero-Covid, the hope in Beijing is that Hainan could be as big a game-changer for Xi Jinping as the opening up of the southern city of Shenzhen was for Deng Xiaoping 40 years ago.

“After Shenzhen and Shanghai, this will be the third most important event in China’s reform and opening-up history,” said Wang Daxue, an official with the Hainan government.

Xi visited Hainan last August and he has made the free trade port his personal project, calling for an acceleration of the first phase of the plan, to make the island China’s most open economic region by 2025. The project has taken on an enhanced importance as a symbol of China’s commitment to opening up economically, and as evidence that the country welcomes foreign investment and treats foreign companies well.

Three years of zero-Covid policies that plunged entire cities into lengthy lockdowns crippled parts of China’s service economy and damaged the manufacturing sector. The concentration of ever-greater power in the hands of the Communist Party and the targeting of high-flying entrepreneurs in recent years have chilled the atmosphere for foreign investors.

More recently, moves by the United States to cut China off from advanced microchip technology have heightened geopolitical tensions and fuelled speculation about economic decoupling. And criticism in western countries of China’s human rights record and its diplomatic support for Russia since the start of the Ukraine war have increased the reputational risk for countries investing in China.

At the China Development Forum in Beijing this week, China’s premier Li Qiang told international chief executives, economists and commentators that the country would remain open no matter what.

“We will align with international economic and trade rules that are of very high standards, expand our opening-up in a steady and systematic way, and strive to create a first-class business environment that is market-oriented, rule-of-law- based and internationalised,” he said. “No matter how the international situation changes, China will unswervingly keep expanding our opening-up.”

At the heart of the plan for Hainan is to make it a distinct administrative trading area within China with a model that has echoes of the Northern Ireland protocol. Goods coming into Hainan from outside China will not face customs checks or tariffs on the way in or out unless they are moving on to mainland China, so the trade border will be between Hainan and the mainland.

The idea is to use zero tariffs and low taxes to make Hainan a trading base for foreign enterprises, particularly those from southeast Asia. The promise is for Hainan to offer free trade, free flows of investment and cross-border capital, transportation and exit and entry for people.

A number of measures are already in place, including a 15 per cent corporate tax rate and income tax capped at the same rate for certain categories of workers. Foreign nationals can visit the island without a visa and stay for up to 30 days, making it more attractive for tourists and business visitors.

In 2021, foreign investment totalled $3.52 billion (€3.19 billion), up 16 per cent on the previous year and nearly 2,000 new, foreign-funded enterprises that opened on the island, almost double the number in 2020.

Much of the bureaucracy around establishing a business has been scrapped or simplified so that it is easier to start a company in Hainan than anywhere else in China. And although the free flow of data is officially an aspiration for the future, the Internet in Hainan is already unblocked, as it is in Hong Kong, unlike in mainland China where the so-called Great Firewall blocks many foreign websites.

There are problems, notably the difficulty in attracting qualified workers to the island, despite the low tax rate. Although it is pleasantly balmy in winter, much of the island is unbearably hot in summer and, for many workers, Hainan is simply too far from home.

There is a risk, too, that foreign investors may be reluctant to commit to Hainan in future if it does not have the kind of legal protections offered to businesses in rival ports such as Singapore, Dubai or Hong Kong. Foreign companies in China complain that since Xi came to power a decade ago, reforms which offered some autonomy to the judicial system in China have been eroded as the Communist Party has tightened its grip.

A high-speed train links Haikou, the capital in the north of the island, with the southern city of Sanya, covering 300km in 90 minutes. Sanya has long been a favourite destination for tourists from mainland China, attracted by its beaches and the warm winter weather.

A further attraction has risen up on the outskirts of the city in the shape of the largest duty-free shop in the world, a tax-free city packed with luxury goods stores. On a recent Friday afternoon, the queue for expensive bags from Coach snaked around a couple of corners, while Louis Vuitton, Christian Louboutin and Balenciaga were doing a brisk trade.

The saving from duty and sales tax is about 15 per cent, but Chinese citizens must show they have a flight ticket out of Sanya in not less than six hours. After they buy an item, it is kept at the airport for pick-up, a measure to prevent unauthorised resale.

About 90 kilometres inland and 1,837 metres above sea level, Wuzhishan is in the heart of Hainan’s tropical rainforest in one of only five national parks in China. Zhu Honglin, the 44 year-old local party secretary, reels off figures about the purity of the air and declaring that Wuzhishan has the best eco-environment in China.

“The development of Hainan Free Trade Port cannot leave Wuzhishan behind because while world-renowned ports like Hong Kong, Singapore and Dubai are cities, Hainan is an island. We are developing the whole island as a free trade port. It’s the highest form of economic and social development,” he said.

“The largest three rivers in Hainan originate here. If the eco-environment was ruined here, all these rivers would be polluted. But without clear, safe water, how can we say we are building a free trade port?”

Wuzhishan only officially emerged from poverty in 2020 and much of the local economy is based on growing tea and cigar leaves. New agricultural methods have increased the yield and revenue for tea growers and there is a push to bring the local black tea, which was once sold in London shops, back to the international market.

“Hainan is at the same latitude as Cuba, and we have a favourable climate and earth for producing cigar leaves. High quality cigar leaves are an important source of income for our residents,” Zhu said.

When Xi visited the area last year, he said that “if you haven’t been to Wuzhishan, you haven’t been to Hainan”, and tourist numbers shot up earlier this year. Zhu said the city is talking to hotel groups including Marriott, but all new hotels will be outside the national park, and will be built and designed for sustainability.

Already, electric vehicles dominate and public transport links are being improved as Wuzhishan tries to grow its tourism revenues without damaging its environment. Zhu said they are seeking inspiration in Ireland, particularly on the west coast, although Hainan is twinned with Wicklow.

“We would like to learn from the free trade zone at Shannon. We would like to learn from the Irish. You can see we have perfect green paths here. It’s the perfect place to tour the mountains on a bicycle,” he said.


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