Electronic products booth at the Haikong Global Duty Free Luxury Goods Center in Haikou, Hainan, July 27, 2025.
On December 18, 2025, the Hainan Free Trade Port reached a historic milestone with the implementation of customs closure across the entire island. But does this “customs closure” mean a “closure of the island”? In reality, this is not physical isolation, but the transformation of the entire island of Hainan into a special customs supervision zone.
A new management system was established, characterized by the opening of the first line, control of the second line and free movement within the island. It is essentially a higher-level and deeper opening-up reform, which reflects China’s unwavering determination and confidence to expand high-level opening-up.
A breakthrough in institutional openness
“The establishment of the customs closure means that Hainan will move out of the traditional framework of internal tariff zones and enter a higher-level, larger-scale and deeper institutional liberalization system,” said Zhao Zhongxiu, president of the University of International Economics and Trade, stressing that this is a major and unprecedented institutional innovation in the history of the development of free trade zones in China.
At the heart of this innovation is the overhaul of the traditional customs supervision system and the establishment of a new configuration. It consists of an open first line, which refers to the establishment, between the Hainan Free Trade Port and foreign countries and regions, of an entry and exit regime providing the highest possible degree of freedom and facilitation, and a second controlled line, which concerns trade between the Hainan Free Trade Port and the rest of the Chinese mainland, with targeted and effective supervision of goods and production factors entering Hainan through the first line.
According to Mr. Zhao, this transformation requires both expanded liberalization and effective control. This will have two major direct effects: first, a sharp reduction in institutional costs for the entry of foreign goods into Hainan, enabling the island to become an advanced transit and distribution platform for global flows of goods; secondly, through strict control of the second line, effective prevention of diffusion risks, so as to concretely protect national tax revenues and ensure market security.
For Ye Fujing, director of the research department of the Chinese Academy of Macroeconomic Research, this model illustrates the transition of Chinese opening-up from the status of follower to that of leader. “In the past, our opening often involved a logic of catching up, while the customs closure of Hainan today embodies a pioneering type of opening,” he underlines. He adds that Hainan’s natural island geographic configuration provides an ideal physical base for this type of institutional innovation. This is not just an improvement in the facilitation of customs procedures, but a systemic and integrated reform, covering tax systems combining freedom from customs duties, low tax rates and simplified taxation, free and facilitated management of cross-border capital flows, as well as digital and intelligent supervision systems. The measures introduced and the depth of the opening far exceed in intensity those of traditional pilot free trade zones.
Dongyu Island, in Qionghai (Hainan), host site of the Bo’ao Forum for Asia, will become a “zero carbon pilot zone” thanks to several development projects.
Making Hainan a testing ground for high-level opening-up
If during more than four decades of opening, China has mainly focused on an opening based on flows, centered on the circulation of goods and factors of production, the implementation of the customs closure of the Hainan Free Trade Port now marks China’s resolute entry into a new phase of institutional opening, focused on the articulation and convergence of rules, regulations, modes of governance and standards.
Mr. Ye believes that Hainan is both the synthesis and the laboratory of China’s opening up to the outside world in the new era. He points out that “high-level opening-up, institutional opening-up, autonomous opening-up and opening-up with emphasis on the service sector” are the key directions in this regard today, and Hainan is a reference model. Whether it is liberalization and facilitation of trade and investment, or pilot experiments such as negative list management of cross-border trade in services in areas such as education and health, Hainan illustrates, through concrete practices, the determination and path chosen by China to autonomously promote high-level opening-up.
Mr. Zhao agrees with this analysis and emphasizes that this series of integrated and major institutional innovations infuse completely new and completely contemporary content into the distinct character of the Hainan Special Economic Zone. This means that in China’s opening-up strategy at a higher level, Hainan bears the heavy responsibility of carrying out institutional stress testing and new system explorations.
Located in Yangpu (Hainan), Bielefeld University of Applied Sciences (Hainan) is the first foreign university to operate independently in China.
New global opportunities offered by Chinese development
What will the implementation of the customs closure bring? Experts largely agree that its positive effects will be multiple and profound.
First of all, it will inject powerful momentum into Hainan’s high-quality development. Mr. Zhao predicts that Hainan will become a major logistics node within global industrial and supply chains. The processing and manufacturing sectors will be able to rely on institutional dividends such as tariff-freedom to explore new growth models, while the establishment of an international tourism and consumption center will accelerate, making consumption truly a new strategic pillar of Hainan’s economy.
Second, it will open up a much larger space for economic and trade cooperation between China and the rest of the world. With its unique geographical location and the institutional advantages of a highly open frontline, Hainan is expected to become a new strategic hub for deepening cooperation between China, ASEAN and the Regional Comprehensive Economic Partnership (RCEP) member countries. A business environment aligned with high-level international economic and trade rules will more quickly attract capital, technology and talent from around the world.
Even more profoundly, the issue lies in its institutional leadership value. Hainan’s customs closure is not only aimed at exploring replicable and generalizable experiences for nationwide reform and opening-up, but also at proactively aligning with high-level international economic and trade rules, or even participating in their future development. “Certain international rules are not yet set in stone. Who will take the initiative to guide them? Who will volunteer to launch them? Hainan is entrusted with precisely this responsibility,” remarks Mr. Zhao.
Finally, spillover effects also deserve attention. The development of Hainan will boost the economy of surrounding regions. More importantly, it will generate ripple effects. The valuable experiences acquired by Hainan in seeking a dynamic balance between openness, freedom and regulatory security can serve as a useful reference for other developing countries, injecting new vitality into global economic governance and illustrating a new path of institutional opening up carrying Chinese wisdom.
Questions and answers on the customs closure of the entire island
Q: What is customs closure? What are we closing?
A: The customs closure does not mean the closure of the island. It consists of transforming the entire island of Hainan into a special customs supervision zone, by implementing a political framework of liberalization and facilitation based on the principle of opening the first line, controlling the second line, and free movement within the island.
Q: After the customs closure, how large will the list of duty-free goods be at the Hainan Free Trade Port?
A: The list of goods benefiting from customs duty exemption will increase from around 1,900 tariff lines currently to almost 6,600, or around 74% of all tariff lines. This represents an increase of approximately 53 percentage points compared to the period before the customs closure.
Q: China has 22 pilot free trade zones (or free trade ports). How is Hainan Free Trade Port different from others?
A: The Hainan Free Trade Port emphasizes institutional opening, autonomous opening and unilateral opening. It aligns with high-level international economic and trade rules, such as the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and the DEPA (Digital Economy Partnership Agreement). Its degree of openness is wider, more intense and of a higher level than that of the other 21 pilot free trade zones.
Q: What impact will the customs closure of the Hainan Free Trade Port have on foreign investors?
A: Firstly, an additional reduction in investment costs. The duty-free and low-tax measures implemented in Hainan effectively reduce the tax burden of enterprises, lower investment costs and increase profitability.
Then, a possible accumulation of political advantages. After the customs closure, the exemption from customs duties at the Hainan Free Trade Port expands and strengthens the existing preferential regimes. Market participants can combine the preferential pricing policies in force with those of the free trade port, and voluntarily choose the most advantageous option.
Finally, an even more open and practical environment. Hainan already has the country’s shortest negative list for foreign investment access. The number of sectors encouraged for foreign investment remains the highest nationally: based on the national catalog, there are added 72 sectors specific to the province of Hainan.
Q: What’s new regarding duty free from the island?
A: Travelers leaving and exiting Hainan can also make purchases at duty free stores. The amount of these purchases is included in the annual limit of 100,000 yuan per person for tax-free purchases.
Q: What does the customs closure mean at the individual level?
A: For consumers and tourists, it is a richer offer of international products at more attractive prices. For entrepreneurs and investors, it is the complete release of political dividends such as exemption from customs duties for processed products with an added value above 30%, opening considerable commercial opportunities. For business creators and job seekers, it is the accelerated arrival of international companies, generating many well-paid jobs and entrepreneurial opportunities with a low entry threshold. And for the island’s residents, it means accelerated access to leading international services in the fields of health, education, culture and leisure, significantly improving the quality of life.
