China's Hainan FTP Launches Island-Wide Customs Clearance, Expanding Zero-Tariff Coverage to 6,600 Goods

On 18 December 2025, China officially commenced island-wide customs clearance operations for the Hainan Free Trade Port, marking a landmark step in the country's continued efforts to expand high-level opening-up and advance the development of an open world economy.

The release of policy dividends has drawn strong market attention. The most notable change is a sharp increase in the proportion of tariff-free goods, rising from 21% to 74%. Following the closure, the number of zero-tariff goods will expand to approximately 6,600 tariff lines, covering virtually all production equipment and raw materials. This is expected to reduce import tax costs for equipment-importing enterprises by around 20%.

With the closure, the entire island of Hainan has been designated as a special customs supervision zone, operating under a liberalised and facilitative policy framework characterised by 'first-line' liberalisation, 'second-line' control, and island-wide freedom. Under this system, the 'first line' refers to the boundary between the Hainan Free Trade Port and countries or regions outside China's customs territory, where free and convenient entry and exit measures are implemented. The 'second line' refers to the boundary between Hainan and the Chinese mainland, where precise controls are applied to goods and items liberalised at the first line.

From an economic perspective, the zero-tariff policy underscores Hainan's role as a model, driving force, and exemplar in China's reform and opening-up process. Following the closure, further policy benefits are expected to be unlocked. Market focus has continued to centre on cost reductions for enterprises, with the expanded scope of zero-tariff goods seen as a key factor.

According to Cai Qiang, Director of Hainan's Department of Finance, the post-closure expansion of the zero-tariff goods list to around 6,600 tariff lines will cover almost all production equipment and raw materials, significantly lowering costs for enterprises. The processing value-added tax exemption policy has also been upgraded, including the removal of the revenue share requirement for encouraged industries, an expanded scope of imported materials, and the inclusion of locally produced goods in Hainan when calculating the value-added portion. These measures further reduce the threshold for enterprises to benefit from the policy.

As of 10 December, a total of 7,080 entities across Hainan had submitted pre-applications to import goods under the zero-tariff policy, with 5,011 approved. Province-wide, 136 enterprises are piloting the processing value-added duty exemption policy, of which 54 have commenced actual operations.

By September this year, imports under the Hainan Free Trade Port's three zero-tariff lists reached RMB 27.06 billion, generating tax reductions of RMB 5.09 billion. The processing value-added policy supported cumulative domestic sales of RMB 11.08 billion, with RMB 860 million in duties exempted.

In terms of income tax incentives, Hainan applies a 15% income tax rate to enterprises in encouraged industries and eligible individuals. The catalogue of encouraged industries has expanded to more than 1,100 entries, covering sectors such as biomedicine and offshore wind power.

Looking ahead, Wang Yiwu, Director of the Hainan Institute of Modern Management, said that following the closure, Hainan must prioritise several key tasks. These include building on past development achievements and advancing steadily and in stages; recognising that as a pioneering initiative in China's reform and opening-up, the Hainan Free Trade Port is breaking new ground without established precedents, and that successfully navigating this initial phase will help clarify future pathways; and accurately identifying breakthrough points to ensure effective implementation of the first step.

On the impact of the closure on daily life, Wang noted that the ultimate goal of building the Hainan Free Trade Port is to create 'a happy home for the people', transforming Hainan into a happy, beautiful, ecologically sound, and prosperous pearl of the South China Sea. He said that residents hold high expectations for the Free Trade Port and expressed hope that continued reform and opening-up would bring a stronger sense of gain, happiness, security, and fairness, while allowing Hainan to build further on the foundation of its special economic zone and international tourism island.

On 17 December, Feng Fei, Secretary of the Hainan Provincial Party Committee, wrote that Hainan will continue to emancipate the mind, pioneer innovation, overcome difficulties, and advance steadily, striving to build the Hainan Free Trade Port into a key gateway for China's new era of opening up. 

'Hainan is China's Hainan, and in the future, it will inevitably become the world's Hainan.'