Decoding Hainan's Customs Closure: Analysis of Six Core Issues

I. Analysis of the Reform Efforts in Hainan Free Trade Port (1) Comparison of Implementation Policies The closure policy of Hainan is a key experiment in China's new round of reform and opening up. Its institutional design depth and policy coverage breadth not only exceed the early reforms of Shanghai Pudong and Shenzhen but also differ from the mature free port model of the Hong Kong Special Administrative Region in core positioning and policy logic, forming a unique characteristic of "comprehensive institutional breakthroughs." Through a comparison of the core policy differences among the four regions, it can be seen that Pudong and Shenzhen adopt a reform path of "deep cultivation in specific fields + phased expansion," Hong Kong focuses on "continuation of long-term free port rules," while Hainan achieves a comprehensive upgrade of "full coverage + institutional integration + internal and external linkage." 1. Uniqueness of Institutional Breakthroughs The policy system of "zero tariffs, low tax rates, and simplified tax system" established by Hainan significantly reduces the operational costs of enterprises by expanding the scope of tax incentives and optimizing financial regulatory models. Compared to the 15% corporate income tax incentives for key industries in the Shanghai Free Trade Zone and Shenzhen Demonstration Zone, Hainan further expands the applicable industries and geographical scope of tax incentives, directly lowering operational costs for enterprises. In the field of cross-border capital flows, Hainan implements a financial regulatory model of "opening up the first line and controlling the second line," allowing eligible enterprises to engage in cross-border securities investment, cross-border asset management, and other businesses. On October 27, 2020, the Hainan Provincial Local Financial Supervision Administration, Hainan Provincial Market Supervision Administration, the People's Bank of China Haikou Central Branch, and the China Securities Regulatory Commission Hainan Supervision Bureau jointly issued the "Interim Measures for Qualified Foreign Limited Partners (QFLP) Domestic Equity Investment in Hainan Province," making Hainan a QFLP pilot area. On March 1, 2023, the Hainan Provincial Local Financial Supervision Administration, in conjunction with the Hainan Branch of the State Administration of Foreign Exchange and the Provincial Market Supervision Administration, issued the "Pilot Measures for QFLP Balance Management in Hainan Province," exploring QFLP balance management to further facilitate foreign investment in Hainan Free Trade Port. In April 2024, the "Management Measures for Multi-functional Free Trade Accounts in Hainan Free Trade Port" were released, clarifying the business scope, fund transfer rules, and business supervision requirements, and requiring that multi-functional free trade accounts in Hainan Free Trade Port adhere to the overall principle of "opening up the first line, managing the second line according to cross-border management, and allowing limited penetration of same-name accounts across the second line." On January 23, 2025, the Hainan Branch of the State Administration of Foreign Exchange issued the "Pilot Management Regulations for Multinational Corporations' Integrated Fund Pool Business," which integrates the policy advantages of existing RMB fund pools and foreign exchange fund pools, while moderately raising the entry threshold, providing multinational corporations with more freedom and convenience in the operation of domestic and foreign currency funds, and releasing greater policy dividends. In August 2025, the "Implementation Rules for the Pilot Business of Cross-border Asset Management in Hainan Free Trade Port" will take effect, clarifying that the pilot covers various financial instruments such as wealth management products, private equity asset management products, public funds, and insurance asset management products, allowing eligible foreign institutions and individual investors to participate in investments through the free trade account system 2. Differentiated Advantages of Misaligned Competition Compared to the financial openness of Shanghai Pudong, Hainan Free Trade Port places greater emphasis on "serving the real economy" through financial innovation. Hainan has established a financial policy system oriented towards the liberalization and facilitation of cross-border trade and investment, relying on mechanisms such as multi-functional free trade accounts (EF accounts) and cross-border capital centralized operation centers (CTC) to promote rapid development in areas such as information transmission, software, and information technology services. Hainan has taken the lead in piloting a unified bank account system for both domestic and foreign currencies, shortening the time for enterprises to open accounts and improving the efficiency of capital flow for enterprises. In contrast to Shenzhen's support policies for technological innovation, Hainan avoids competition with Shenzhen in industrial positioning and instead focuses on the "tourism + consumption" sector, accelerating the construction of an international tourism consumption center through institutional openness and strengthening its duty-free advantages. The tourism industry is accelerating its internationalization through institutional openness, with the newly issued "Hainan Free Trade Port Tourism Regulations" establishing a special chapter on "Tourism Openness and Internationalization," relaxing restrictions on foreign-funded travel agencies, supporting the establishment of foreign-invested cultural performance groups with Chinese control, optimizing the treatment process for overseas patients, and innovatively implementing the country's most favorable visa-free policy (covering personnel from 85 countries). In 2024, Hainan is expected to receive 97.2 million domestic and foreign tourists, with inbound tourists doubling year-on-year. At the same time, the duty-free quota for outlying islands is set at 100,000 yuan per person per year, combined with policies such as cross-border consumption credit pilot programs, Hainan aims to create a globally influential duty-free shopping destination. Hainan is also deepening the integration of the "tourism +" industry, promoting innovative development in cruise and yacht tourism to meet personalized and immersive experience demands, further activating the functions of the international tourism consumption center. (2) Key Reform Quantitative Analysis 1. Zero Tariff Commodity Coverage "Zero tariff" is an important feature of international free trade ports and a prominent policy of Hainan Free Trade Port's closure operation, which helps reduce costs for enterprises in importing raw materials and customs clearance time, promoting more free and convenient trade. Before the island's closure, Hainan Free Trade Port successively implemented three "zero tariff" policies for imported raw materials, means of transportation and yachts, and self-use production equipment, adhering to high-level openness and continuously expanding the effects of free trade port policies. Among them, Haikou Customs released data on December 1, stating that in the five years since the implementation of the "zero tariff" policy for raw materials in Hainan Free Trade Port, the policy's benefits have continued to expand, and the dividends have accelerated. As of now, the customs has handled "zero tariff" imports of raw materials worth 11.9 billion yuan, with tax reductions exceeding 1.6 billion yuan. As of September this year, the import value under the "zero tariff" policy for means of transportation and yachts reached 9.834 billion yuan, with tax reductions of 2.585 billion yuan, benefiting 388 enterprises, covering the entire island. After the closure, the number of "zero tariff" tax items will increase from the current 1,900 to 6,600, with the proportion of covered commodities rising from about 21% to 74%, an increase of nearly 53 percentage points compared to before the closure, with tax items significantly expanding to areas such as consumer goods and industrial raw materials. 2. Processing Value-Added Policy Expansion The processing value-added policy has expanded from the initial grain and oil, and meat processing to high value-added industries such as pharmaceuticals, coffee, and jewelry, promoting the "bonded + manufacturing" integration model. As of October 2025, a total of 129 pilot enterprises have been approved for the duty-free policy for processing value-added goods sold domestically in the Hainan Free Trade Port, with a domestic sales value of approximately 11.096 billion yuan and a duty exemption of about 860 million yuan. The covered industries have expanded from the initial grain and meat industries within the customs special supervision zones to the current processing fields of pharmaceuticals, coffee, and jewelry outside the zones. It is expected that after the closure of the port, the policy will likely expand the scope of industries, optimize the value-added calculation methods, and further reduce compliance costs for enterprises. II. Industry Impact and Expansion Prospects of the "Zero Tariff" Policy (1) Adjustment of the Coverage of the "Zero Tariff" Policy The "zero tariff" goods in Hainan cover 74% of tax categories, while the 26% of taxable categories not included mainly consist of certain luxury goods and high-end consumer goods, resource products, and regulated items, based on multiple considerations such as industrial protection and national security. According to the "Import and Export Tariff of the People's Republic of China (2025)" and the "List of Taxable Imported Goods in Hainan Free Trade Port," we can summarize approximately 74% of the "zero tariff" goods tax categories and the remaining 26% of taxable categories in the imported goods of Hainan Free Trade Port. Due to the large number of specific tax items and the complexity of detailed classifications, the summary is mainly based on a general analysis of the major categories in the tariff schedule. The 74% of "zero tariff" goods tax categories mainly include live animals, animal and plant products, food and beverages, mineral raw materials, chemical products, plastic and rubber products, leather and fur products, textile raw materials and textile products, metals and their products, electromechanical products, vehicles and their parts, optical, photographic and cinematographic goods, miscellaneous products, etc. The remaining 26% of taxable categories not included in the "zero tariff" items are mainly based on considerations of protecting domestic industries, preventing resource waste and environmental pollution, national security, trade balance, and foreign policy, with major categories including specific consumer goods (such as tobacco products, alcoholic beverages, etc.), luxury goods and high-end consumer goods (such as high-end watches, jewelry, branded bags, etc.), resource products (such as certain mineral resources, energy products, etc.), regulated items (such as weapons and ammunition, narcotics, toxic chemicals, etc.), and specific industrial products (such as certain high-tech products, key components, etc.). (2) Industry Impact of the "Zero Tariff" Policy The "zero tariff" policy classifies beneficiary levels based on industry import dependence and cost sensitivity, with the most significant cost reduction effects observed in high-end equipment manufacturing, biomedicine, and other industries. The zero tariff policy of Hainan Free Trade Port will significantly reduce import costs and enhance the competitiveness of domestic enterprises. After the formal implementation of the "zero tariff" negative list policy, beneficiary industries can be divided into three levels based on the direct reduction of import costs due to tariff exemptions and the indirect impact of industrial chain transmission effects on downstream industries. The first-level beneficiary industries have high sensitivity to tariffs, and the "zero tariff" policy significantly reduces enterprise costs. Industry characteristics include a high dependence on imported raw materials, components, or equipment, with tariffs accounting for more than 5% of production costs, and the proportion of tax items directly covered by the policy exceeding 80%, with low substitutability. Typical industries include high-end equipment manufacturing, biomedicine and medical devices, and the new energy vehicle industry chain. The second-level beneficiary industries have moderate import dependence, with tariffs accounting for 3%-5% of costs, or benefit through industrial chain transmission, with the proportion of tax items covered by the policy being 50%-80%, and some substitutes available. Typical industries include new chemical materials, precision electronic components, and marine engineering equipment. The third-level industries have low import dependence, with tariffs accounting for less than 3% of costs, primarily benefiting indirectly from the policy, with the proportion of tax items covered being less than 50%, or having a large number of duty-free substitutes. Typical industries include traditional consumer goods manufacturing and construction materials. The extent of cost reduction for enterprises affected by the policy can comprehensively consider the direct cost reduction from tariff adjustments, the indirect cost reduction influenced by the industrial chain transmission coefficient, and the policy overlay effect. Taking biopharmaceutical manufacturing enterprises as an example, due to enjoying a 15% corporate income tax reduction and the cost decrease brought by the benefits of the "zero tariff" policy, the overall cost is expected to reach 15%-20%. However, the specific extent of cost reduction and beneficiary companies need to be judged based on actual circumstances. Enterprises and individuals who fail to legally and compliantly enjoy the policy may face certain legal risks; therefore, enterprises should deeply understand the applicable conditions of preferential policies such as "zero tariff" and "processing value-added duty exemption" (e.g., enterprise qualifications, goods lists, usage restrictions) to ensure that their business activities comply with policy requirements. (3) The Expansion Prospects of the "Zero Tariff" Policy In summary, the expansion of "zero tariff" is not only an increase in the number of tax items but also a "three-dimensional upgrade" through the expansion of subjects, relaxation of systems, and regional collaboration, promoting the deep penetration of policy dividends into the real economy. With the implementation of policies after the closure, it is expected to accelerate the formation of a closed loop in the "raw materials - processing - consumption" chain, injecting new momentum into high-end manufacturing, biomedicine, and duty-free consumption industries. The expansion prospects of the "zero tariff" policy in Hainan Free Trade Port show a significant trend of systematic deepening and a substantial widening of coverage. The expansion of the "zero tariff" commodity list to approximately 6,600 tax items is not limited to the quantity of goods but also simplifies management processes through a negative list management model, allowing enterprises to utilize policy dividends more flexibly. After the expansion of the "zero tariff" policy and the adjustment of processing value-added policies, the cost reduction and efficiency enhancement effects will be further amplified. Moreover, the applicable subjects of the policy are also simultaneously expanded. After the closure, the beneficiaries of the "zero tariff" extend from the original registered enterprises to public institutions within Hainan Free Trade Port and qualified private non-enterprise units in science and technology and education Significantly broaden the scope of policy radiation. The synergy between expansion policies and regional strategies is continuously strengthening. Hainan is promoting the integration of "zero tariffs" and international rules such as the RCEP agreement, leveraging its geographical advantage as a hub between ASEAN and the Chinese market to enhance complementary cooperation in regional industrial chains. For example, the pharmaceutical industry is accelerating the introduction of internationally advanced drugs and medical devices through the dual benefits of "special approval + zero tariffs" in Boao Lecheng, with future expansions covering more high value-added products. In addition, convenient measures such as the indefinite free storage of "zero tariff" goods on the island will further reduce enterprise warehousing and logistics costs, enhancing trade freedom. From a development trend perspective, Hainan will continue to benchmark against the advanced standards of world-class free trade ports, and the expansion process of the "zero tariff" commodity list will not stop here. III. Analysis of Industrial Migration Potential "Tax cost difference + cross-border efficiency difference" is the core driver for enterprises to migrate to Hainan, and with the backing of national strategies, Hainan will become an important destination for high-end industrial migration. The corporate income tax in Hainan has been reduced to 15%, and the personal income tax for high-end talents is capped at 15%, significantly lowering the overall tax burden compared to the mainland. In terms of cross-border convenience, Hainan's free trade port relies on the policy framework of "first line liberalization, second line control, and free movement within the island" to reshape the regional economic landscape and release multi-level industrial opportunities. "First line liberalization" compresses import procedures by over 70%, while "free movement within the island" allows for frictionless flow of funds and goods, enhancing supply chain response speed. After the closure, the proportion of "zero tariff" commodity tax items jumped from 21% to 74%, and combined with policies such as duty-free processing value-added and multifunctional free trade accounts, it will significantly reduce enterprises' cross-border trade and operational costs, becoming the core driving force for attracting industrial migration. In addition, the backing of national strategies enhances long-term confidence, and policy stability also attracts leading enterprises to strategically layout. On October 17, the 2025 China Industrial Transfer Development Docking Event (Hainan) was held in Haikou, resulting in the concentrated signing of 110 projects on the same day, injecting strong industrial momentum into the construction of Hainan's free trade port. (1) Analysis of Migration Potential Industries Under Policy Dividends 1. High-end Manufacturing and Processing Trade: Capacity Transfer Under Cost Restructuring The processing and manufacturing industry in Hainan has a weak original industrial foundation, but the closure policy has solved the cost pain points of the processing and manufacturing supply chain, allowing import-dependent high-end manufacturing enterprises to gain significant competitive advantages through zero tariffs and duty-free processing value-added policies. In addition to "zero tariffs" on raw materials, goods with processing value-added exceeding 30% can be exempt from tariffs when leaving the island, giving import-dependent high-end manufacturing enterprises a significant cost advantage. For example, in the high-end equipment manufacturing sector, a number of key projects such as marine equipment and clean energy equipment have been landed during the industrial transfer docking event on October 17, 2025, where ship and yacht repair enterprises have accelerated their gathering due to bonded repair policies (imported parts are tax-exempt, and outbound repairs require no deposit). The biopharmaceutical industry benefits from the dual overlay of "Lecheng policy + free trade port," attracting innovative pharmaceutical companies to establish R&D and production bases. At the 2023 China International Import Expo, Boao Lecheng negotiated and signed agreements with more than 30 well-known domestic and foreign pharmaceutical and medical device companies, and the Hainan Lecheng Real World Research Institute signed a strategic cooperation agreement with Pfizer China Relying on the opportunities brought by the pilot policies in the Hainan Free Trade Port, after the customs closure operation, high-quality biopharmaceutical companies have greater motivation to promote innovative products in Hainan. For example, in June 2025, Roche Diagnostics' fully automated mass spectrometry solution officially received approval from the Hainan Provincial Drug Administration as a clinically needed medical device, landing at Ruijin Hainan Hospital (Hainan Boao Research Hospital), affiliated with Shanghai Jiao Tong University School of Medicine. Currently, there are 176 countries and regions investing in Hainan, establishing partnerships with 41 free trade zones (ports). 2. Air Logistics and Airport Economy: The Core Hub of Cross-Border Facilitation After the customs closure, Hainan Airport serves as a core node for cross-border personnel and logistics, and its "air hub + airport economy" model will unleash tremendous potential. Policies grant preferential treatments such as exemption from security deposits for aircraft maintenance and bonded parts, attracting international airlines to establish maintenance bases. As an airport economy and air hub, Hainan Airport plays an important role in cross-border transportation, with outstanding growth potential. The company has achieved a win-win situation in aviation and airport economy revenues through optimized route expansion and service upgrade strategies, with promising future growth. Leveraging logistics advantages, cold chain logistics and cross-border e-commerce industries are also emerging. Leading companies like SF Express and JD.com are planning to establish regional distribution centers and supply chain headquarters in Hainan, efficiently connecting the mainland market using the "second-line management" model. In the commercial aerospace sector, Wenchang Space City, relying on the dual positioning of "Free Trade Port + Aerospace Base," attracts satellite manufacturing and launch service companies. During the China Industrial Transfer Development Docking Event (Hainan), Wenchang signed 9 projects in the aerospace field, with a total investment of 1.6 billion yuan, helping to build a collaborative commercial aerospace industry ecosystem of "rocket chain - satellite chain - data chain." 3. Digital Economy and Future Industries: Incremental Space Empowered by Policies Hainan has listed the digital economy as a key development area after the customs closure, focusing on innovative scenarios such as blockchain and cross-border data flow. After the customs closure, the pilot for safe management of cross-border data transmission has expanded, creating opportunities for cloud services and international data center (IDC) companies. On March 12, 2025, Hainan Huatie and Zhiyu Technology Co., Ltd. officially signed a strategic cooperation agreement, delivering the first batch of DeepSeek large model integrated machines to Zhiyu Technology. Zhiyu Technology is a high-tech enterprise and specialized new enterprise under Hainan Holdings, the actual controller of Hainan Huatie. In this cooperation, both parties will leverage Hainan Province's unique advantages in policies and location to jointly expand the promotion of DeepSeek large model integrated machines in government affairs and other fields centered around Hainan Province, promoting the application of DeepSeek large model integrated machines in government affairs, healthcare, manufacturing, urban development, and other areas; fully expanding cooperation in intelligent computing, network equipment operation and maintenance, and regional intelligent computing center operations, jointly advancing the development of Hainan Province's intelligent computing industry chain. This resource integration and business collaboration within the same system provide a replicable enterprise cooperation model for the development of Hainan's digital economy and solidify the market foundation for the efficient implementation of industrial policies after the customs closure (2) The Evolution of the Migration Wave and Scale Forecast The evolution and scale forecast of the industrial migration wave in Hainan Free Trade Port must be examined against the dual backdrop of the timeline for customs closure operations and the global industrial chain restructuring. Currently, during the cultivation period leading up to the customs closure by the end of 2025, policy pilots and infrastructure optimization have laid the foundation for large-scale migration. The processing value-added duty-free policy has undergone four years of optimization, expanding its coverage from grain and oil, jade to pharmaceuticals, jewelry, petrochemicals, etc. By reducing the value-added threshold by 30% through the "combined statistical industrial chain value-added" mechanism, it encourages enterprises to utilize imported raw materials for deep processing. As of October this year, Hainan Province has approved a total of 129 processing value-added duty-free pilot enterprises, with an internal sales value of approximately 11.096 billion yuan and a duty exemption of about 860 million yuan, verifying the feasibility of the "policy dividend - capacity migration - revenue leap" pathway. Although this stage is mainly characterized by single-point breakthroughs, the maturity of the policy framework has accelerated the decision-making pace of enterprises, building momentum for an explosion in the early stages of customs closure. After the full island customs closure operation starts in December 2025, the regulatory framework of "first line open, second line controlled, free within the island" will trigger the first wave of migration peaks for resource-oriented and institution-dependent industries. Resource-oriented industries, such as aviation maintenance and bonded processing, will form clusters in shipping hubs like Yangpu in Danzhou, relying on zero-tariff raw materials and processing value-added internal sales policies; institution-dependent industries will benefit from cross-border data flow and financial opening. By the end of 2023, Dun & Bradstreet successfully passed the data exit security assessment by the National Cyberspace Administration, becoming the first enterprise in Hainan Province to pass this assessment. To date, over 150,000 Chinese enterprises have utilized Dun & Bradstreet coding services to achieve seamless connections with global buyers; the offshore duty-free upgrade to a "global duty-free shopping center" has attracted luxury brand regional headquarters to settle in. On September 25, 2020, the renowned Swiss international luxury goods retailer Richemont Group officially entered the Asia-Pacific market through a "cloud signing" method and established its China regional headquarters in Hainan, becoming the first international luxury retail group to set up its China regional headquarters in Hainan Free Trade Port. On April 13, 2023, during the third China Consumer Products Expo, beauty giant Estée Lauder Group signed a cooperation agreement with the Hainan International Economic Development Bureau and the Haikou Comprehensive Bonded Zone Management Committee, announcing the establishment of Estée Lauder Travel Retail Services (Hainan) Co., Ltd. as the main body of the travel retail headquarters in China, bringing the Estée Lauder travel retail Asia-Pacific logistics center and China regional headquarters to Hainan. In the medium to long term (after 2028-2030), industrial migration will shift from policy-driven to cluster innovation-driven, with a significant increase in the proportion of high value-added manufacturing and technology industries. This transformation relies on two core conditions: first, deep integration of the industrial chain, with high-end equipment and new materials industries clustering in Haikou High-tech Zone, Chengmai Digital Base, etc. For example, Haikou integrates 5 billion yuan in investment to build a full chain of "automobile manufacturing - consumption - logistics," while Chengmai focuses on promoting the upgrade of open hubs through the digital economy; second, the expansion of offshore functions, with private enterprises relying on Hainan to establish cross-border capital pools and R&D centers. A report by the All-China Federation of Industry and Commerce shows that Hainan has become a key node for the internationalization of private enterprises The deep impact of the migration wave lies in the reconstruction of the Asia-Pacific value chain division system. Hainan reshapes the regional supply chain through the dual channels of "processing and value-added domestic sales" and "duty-free transshipment trade," and further becomes a testing ground for aligning with international rules through institutional openness. Standards such as ESG registration and supply chain evaluation may force domestic enterprises to upgrade their compliance capabilities. This reconstruction essentially upgrades Hainan from a "policy lowland" to a "functional highland," promoting China's transition from a "world factory" to an "innovation hub" within the Asia-Pacific value chain. However, there is a need to be vigilant about the risks of homogenized competition diverting manufacturing enterprises, and the effectiveness of policy implementation may also diminish due to insufficient regulatory coordination. It is recommended to strengthen the irreplaceability of the local value chain by establishing a "Hainan self-produced" certification system and to incorporate green technology into new processing and value-added pilot projects to expand the scope of stress testing. IV. Comparison of Differences in Free Trade Accounts In August 2023, the People's Bank of China Hainan Branch announced the "Management Measures for Multi-functional Free Trade (Electronic Fence) Accounts in Hainan Free Trade Port (Draft for Comments)," introducing the new term "EF account," where EF stands for Electronic Fence. On the same day, the People's Bank of China Guangdong Branch also announced the EF account management measures applicable to the Hengqin Guangdong-Macao Deep Cooperation Zone. In April 2024, the "Management Measures for Multi-functional Free Trade Accounts in Hainan Free Trade Port" will be released, and the multi-functional free trade account in Hainan Free Trade Port will officially go live on May 6, 2024. Against the backdrop of customs closure operations, the establishment of the EF account system is an upgrade of the financial opening infrastructure and a core support for realizing the institutional design of "opening up the first line and controlling the second line." (1) Differences Between EF Accounts and Traditional FT Accounts FT accounts, or free trade accounts, are an account system first introduced in the Shanghai Free Trade Zone in 2014. In April 2015, the Shanghai headquarters of the People's Bank of China announced the launch of foreign currency services for free trade accounts, achieving integration of domestic and foreign currencies within the accounts; in September 2018, the free trade account was replicated and promoted to Hainan Free Trade Zone; in November 2019, it was further replicated and promoted to Tianjin and Guangdong Free Trade Zones. Currently, there are 21 free trade zones nationwide, including Shanghai, Guangdong, Tianjin, and Fujian. It is a bank account system that integrates domestic and foreign currencies and allows free conversion within the accounts. It operates independently of the traditional account system, implementing separate account management, and is an important institutional arrangement by the People's Bank of China to explore capital account convertibility, expand financial openness, and prevent financial risks. Its account system design is flexible and covers various types, including domestic individual free trade accounts (FTI), overseas individual free trade accounts (FTF), domestic institutional free trade accounts (FTE), overseas institutional free trade accounts (FTN), and interbank institutional free trade accounts (FTU), with all types of accounts prohibited from conducting cash transactions. EF accounts are an upgraded version of FT accounts, launched in April 2024 in the Hengqin Guangdong-Macao Deep Cooperation Zone and Hainan Free Trade Port, currently limited to banks in these two regions. This account provides more comprehensive cross-border financial services, including fund settlement, foreign exchange, and investment financing, for eligible operating entities based on the FT account The types of EF accounts are classified based on the applicable entities. For individuals, there is the offshore individual multifunctional free trade account (EFF), primarily aimed at non-resident individuals who study, work, and live in the cooperation zone. Currently, this is generally limited to individuals from Hong Kong and Macau, as well as high-end and urgently needed foreign talents. For institutions, there are the multifunctional free trade accounts for institutions within Hong Kong (or the region) (EFE), offshore multifunctional free trade accounts (EFN), and interbank multifunctional free trade accounts (EFU). Each type of institutional account has corresponding requirements regarding registration duration, compliance records, etc. Compared to traditional FT accounts, EF accounts are subject to restrictions on registration location, registered capital, and registration time when opening accounts. The two types of accounts cannot be held simultaneously. If an entity has already opened an FT account and meets the conditions for opening an EF account, it must cancel the original FT account and switch to opening an EF account. At the same time, the advantages of EF accounts in capital item business are more prominent. EFE accounts can conduct business other than securities investment with offshore accounts without being subject to limits and approvals related to foreign debt, all-encompassing cross-border financing, and offshore lending. There is no need for prior registration, filing, or opening special accounts, which greatly simplifies the business process, reducing the time from T+n to T+0. EF accounts support integrated settlement in both domestic and foreign currencies, allowing enterprises to flexibly choose offshore or onshore exchange rates for currency conversion, thus reducing exchange losses. In summary, EF accounts, centered around the regional industrial characteristics of the free trade port and cooperation zone, provide preferential policies and convenient measures for the flow of funds in the upstream and downstream supply chains of industries within the region, better aligning with regional economic development needs. Currently, the main business scenarios for fund transfers using EF accounts in Hainan Free Trade Port include cross-border trade settlement, spot and forward currency conversion, working capital loans, offshore lending, overseas investment, and foreign investment. On November 28, 2025, the Shanghai headquarters of the People's Bank of China officially released the "Implementation Measures for the Functional Upgrade of Free Trade Accounts in the Shanghai Free Trade Pilot Zone (Trial)," which will take effect on December 5. This means that the FT account system will undergo a comprehensive upgrade, reducing the differences between it and EF accounts. The "Implementation Measures" clarify that upgraded accounts can achieve direct fund transfers between "first-line" accounts and offshore accounts, as well as relevant accounts opened by offshore institutions within the country. Pilot enterprises conducting capital item business other than securities investment will not be subject to limits and approvals related to foreign debt, all-encompassing cross-border financing, and offshore lending, and there is no need to go to the foreign exchange management department for prior business registration, filing, or opening special accounts. Integrated operation in both domestic and foreign currencies will allow cross-border fund transfers to be shortened from the original T+3 to T+0. This means that after the new policy is implemented, the differences between upgraded FT accounts and EF accounts will be reduced. (2) Differences between Hainan EF Accounts and Offshore Free Trade Port Financial Accounts The core differences between the EF accounts in Hainan Free Trade Port and the financial accounts in Hong Kong and Dubai Free Trade Ports mainly lie in the design logic of cross-border investment and financing functions, the policy framework for capital flow efficiency, and the synergy with tariff policies. The EF account is based on the "electronic enclosure" to construct a sub-accounting system, adopting a regulatory model of "free transfer across the first line, treated as cross-border management across the second line." Funds can be freely transferred between EF accounts and overseas accounts (including OSA and NRA accounts) in accordance with the law, supporting integrated settlement in both domestic and foreign currencies and the application of offshore exchange rates. As of the end of September 2025, over 600 EF accounts have been opened province-wide, with a transaction volume exceeding 200 billion RMB, covering 76 countries and regions. In contrast, Hong Kong, as a fully open financial center, has an account system without the concept of "first line/second line," offering greater freedom for cross-border capital flow compared to EF accounts, but with relatively weaker regulatory strength and a lack of direct linkage with tariff policies. Although the Dubai Free Trade Port allows for free exchange and flow of capital, the account functions are more focused on trade facilitation, with insufficient innovation in deep integration with capital markets. In terms of cross-border investment and financing functions, the EF account provides enterprises with a unique "domestic and foreign" financial environment. Enterprises can directly conduct overseas financing through EF accounts without prior foreign exchange approval, and the financing funds can be used for physical investments within the free trade port or for cross-border settlements. For example, enterprises in Hong Kong can actively choose to open EF accounts in Hainan for exchange rate risk management due to "regional advantages." In comparison, Hong Kong accounts support a broader range of global capital market operations in investment activities, especially allowing for free trading of stocks and derivatives. However, the Hainan EF account is gradually broadening cross-border investment channels by linking with the "dual Q" (QFLP/QDLP) pilot programs, providing financial institutions with convenient pathways to participate in international securities investment. Although Dubai accounts allow foreign capital to be freely established and capital to be remitted, their penetration into the domestic capital market is shallow, and the investment and financing tools are relatively singular. In terms of fund transfer efficiency, the EF account achieves "high-speed circulation" relying on the sub-accounting system, especially with real-time arrival for transfers across the first line. Hong Kong accounts, with their mature international clearing network, have higher timeliness, but EF accounts are more flexible in "cross-second line" fund allocation, treated as cross-border management but with simplified processes, allowing Hainan enterprises to transfer funds to domestic accounts with the same name without additional declaration. Although Dubai accounts have no exchange restrictions, their clearing infrastructure relies on international banks for transfer, and efficiency is constrained by the level of correspondent banks. The linkage with the zero-tariff policy constitutes a prominent advantage of the EF account. The EF account isolates capital risks through the "electronic enclosure," directly serving the free trade port's goal of "zero tariffs and low tax rates" for trade liberalization. When enterprises use EF accounts to settle payments for duty-free imported goods, they can simultaneously complete foreign exchange derivative hedging, achieving seamless integration of tariff and financial policies. In contrast, Hong Kong and Dubai, as free ports, have tariff policies that benefit all accounts, lacking a specially designed mechanism for linking financial accounts and missing targeted policy overlay effects V. Analysis of Consumption Driven by Closure Operations (1) Details of Hainan's Visa-Free Policy Currently, Hainan's visa-free policy for citizens of 59 countries overlaps with the bilateral comprehensive mutual visa exemption policy and the unilateral visa exemption policy applicable nationwide, allowing citizens from 86 countries holding ordinary passports to enter Hainan visa-free. The policies are applied in the order of bilateral comprehensive mutual visa exemption policy, unilateral visa exemption policy, and Hainan's visa-free entry policy for citizens of 59 countries. 1. Bilateral Mutual Visa Exemption and Unilateral Visa Exemption (Total 75 Countries) As of now, China has signed bilateral mutual visa exemption agreements with 29 countries and has unilaterally opened visa-free entry to 46 countries. Citizens holding ordinary passports from these 75 countries can enter all open ports in China, including Hainan, without a visa. The 29 countries with bilateral mutual visa exemption are: Albania, United Arab Emirates, Azerbaijan, Antigua and Barbuda, Barbados, Bahamas, Belarus, Bosnia and Herzegovina, Dominica, Ecuador, Fiji, Grenada, Georgia, Kazakhstan, Qatar, Maldives, Malaysia, Mauritius, Serbia, Seychelles, San Marino, Suriname, Solomon Islands, Samoa, Thailand, Tonga, Singapore, Armenia, and Uzbekistan. The reasons for visa-free entry and the duration of stay in China are stipulated in the "Agreement on Mutual Visa Exemption for Holders of Ordinary Passports" between the two countries. The 46 countries with unilateral visa exemption are: Andorra, Australia, Austria, Belgium, Brunei, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Liechtenstein, Ireland, Italy, Japan, South Korea, Latvia, Luxembourg, Malta, Monaco, Montenegro, Netherlands, New Zealand, North Macedonia, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland, Brazil, Argentina, Chile, Peru, Uruguay, Saudi Arabia, Oman, Kuwait, and Bahrain. The reasons for visa-free entry include business, tourism, family visits, exchanges, and transit. The duration of stay in China is generally not more than 30 days. Currently, Hainan has opened direct flights to Thailand, Singapore, the United Arab Emirates, Australia, New Zealand, Japan, South Korea, Malaysia, Saudi Arabia, and Kazakhstan. Citizens from these 10 countries can fly directly to Hainan without a visa. 2. Visa-Free Entry Applicable Only to Hainan's 59 Countries (Total 11 Countries) Starting from February 9, 2024, citizens from 59 countries can enter Hainan Province through all open ports (Haikou Meilan International Airport, Sanya Phoenix International Airport, Qionghai Boao International Airport, Yangpu Port, Haikou Port, Qinglan Port, Basuo Port, Sanya Port) for reasons such as tourism, trade, visits, family reunions, medical treatment, exhibitions, and sports competitions, without a visa, for a stay not exceeding 30 days. **Among the 59 countries with visa-free entry to Hainan, there are 11 countries that are not included in the bilateral mutual visa exemption and unilateral visa exemption scope, applicable only to Hainan's visa exemption, namely: Canada, Czech Republic, Indonesia, Lithuania, Mexico, Philippines, Russia, Sweden, United States, United Kingdom, and Ukraine. Among them, Hainan has opened direct flights with Russia, the United Kingdom, and Indonesia, allowing citizens from these three countries to enter Hainan visa-free by flying directly from their countries: citizens from the remaining 8 countries can transit through non-mainland Chinese cities with direct flights to Hainan, such as Hong Kong, Macau, Singapore, and Bangkok, to enter Hainan visa-free ** (2) Increase in Overseas Tourists and Consumption Boost In 2024, Hainan's inbound tourism data is looking promising. According to the "2024 Hainan Tourism Market Analysis Report" from Tongcheng Travel, in the first three quarters of 2024, the booking popularity of international flights to and from Hainan on the Tongcheng Travel platform increased by over 200% year-on-year. Among them, inbound travelers to Haikou and Sanya mainly come from Hong Kong, Macau, Vietnam, Singapore, Malaysia, Indonesia, Russia, Japan, South Korea, Cambodia, and other regions. Against the backdrop of the continuous advancement of Hainan's free trade port construction, the inbound tourism market is undergoing structural changes. Firstly, the duty-free consumption system has become the core engine driving overseas consumption. The Sanya duty-free market has formed a threefold stimulation mechanism of "platform discounts + brand enhancements + government subsidies." In the first month of the new duty-free policy implementation, the sales of four duty-free shops in the city reached 1.63 billion yuan, a year-on-year increase of 24.3%, setting a new monthly growth record for the year and boosting the annual cumulative growth rate by 1.9 percentage points. The number of visitors, shoppers, and average spending per customer increased by 9.8%, 7.0%, and 15%, respectively. Cultural and tourism activities have a significant driving effect on duty-free consumption, with year-end cultural and tourism events such as the ELLE Fashion Gala, celebrity concerts, and international sports events attracting a large number of tourists, continuously driving duty-free consumption. Under the dual drive of policies and the market, Sanya's agglomeration effect as a core area of the international tourism consumption center is becoming increasingly prominent, also warming up and building a strong atmosphere for the full island closure operation of Hainan's free trade port. Secondly, policy innovation injects new momentum into tourism consumption. The "Hainan Free Trade Port Tourism Regulations" officially took effect on December 1, clarifying measures to relax foreign investment access and promote business integration through legislative means. The regulations specifically set up a chapter on "Tourism Openness and Internationalization," proposing to gradually remove restrictions on foreign investment in the tourism industry regarding access qualifications and investment ratios. In terms of consumption formats, it encourages the development of nighttime tourism products and allows for the establishment of 24-hour operating venues in key tourist areas, promoting the upgrade of the tourism product system to high quality and diversification. The full island closure operation launched on December 18 will open up broader development space for the tourism industry and help convert policy dividends into stable institutional advantages. From the perspective of consumption structure, overseas tourists' spending in Hainan has shifted from traditional sightseeing and shopping to diversified experiences. The emergence of cultural and tourism integration projects such as the Sanya Ring Road Cycling Race and the VAC New Year's Electronic Music Festival is shaping a more attractive international tourism consumption scene. This transformation aligns with the direction of deep integration development proposed by Hainan's Department of Tourism, Culture, Radio, Film, and Sports, which emphasizes "Tourism + Culture + Sports + Health," driving consumption in Hainan. 6. Hainan's Settlement Policy and Population Migration As an important component of the national economy, the real estate market has always been a focus of attention from all sectors of society. Particularly, as an important tourist destination and international free trade port in China, the regulation of the real estate market in Hainan is especially crucial On August 15, 2025, Hainan issued the "Notice on Further Optimizing and Adjusting Relevant Regulatory Policies," which involves multiple dimensions such as revitalizing existing assets, fiscal and financial support, canceling the standards for ordinary and non-ordinary residential properties, and increasing housing security for talent. On the demand side, there are two prominent changes in the document: First, the standards for ordinary and non-ordinary residential properties in Hainan Province have been canceled, and it is clarified that after the cancellation of these standards, the relevant land value-added tax and housing transaction deed tax will be implemented according to national policies and relevant provincial policies. This is expected to have a certain impact on developers acquiring land and homebuyers, as the transaction costs for non-ordinary residential properties and land investment costs will become clearer, directly benefiting the demand group for improved housing. Second, support for multi-child families purchasing homes is provided; when applying for commercial loans to purchase commodity housing, the number of units owned by the family will be reduced by one for the purpose of recognition, and banking financial institutions will implement housing credit policies according to the reduced number of units, which will help release the reasonable housing demand of multi-child families. At the same time, to meet the housing needs of introduced talent, Hainan clarifies that introduced talent can enjoy the special housing purchase subsidy policies launched by various cities and counties and can continue to apply for housing purchase subsidies for introduced talent; housing rental subsidies will be provided for those renting guaranteed rental housing. On the supply side, the new policy proposes to support the revitalization of existing real estate land and properties. First, it will increase the support for policy tools such as special bonds and the appreciation of provident fund, proposing support policies for acquiring existing commodity housing for use as guaranteed housing, public rental housing, and guaranteed rental housing, such as appropriately relaxing the acquisition area standards for purchasing existing commodity housing for use as guaranteed rental housing. Second, it will further revitalize existing commercial service land and commercial office properties, supporting the transformation of commercial service land for the development of encouraged industries, and legally and procedurally adjusting it to land for affordable housing, rental housing, etc. Third, it encourages cities and counties with high commodity housing inventory periods to prioritize the use of housing vouchers for resettlement or "purchase instead of construction" methods during urban renewal implementation. As of now, Hainan Province has no purchase restrictions on property rights hotels and hotel-style apartments (commercial nature), and Chengmai, Dongfang, Wenchang, Ledong, and Ding'an have fully canceled purchase and sale restrictions, with no limitations on household registration, age, education, and number of units; Haikou City announced that all individuals who settle in Hainan Province will enjoy the same housing purchase treatment as local residents from the date of settlement; corresponding real estate optimization adjustment policies have also been introduced in Wuzhishan, Baoting, and other cities and counties in the central ecological core area of Hainan, where commodity housing previously limited to local residents for purchase has been optimized and adjusted to "sales targeted at provincial household registration resident families." Hainan's household registration is divided into two categories: ordinary household registration and talent household registration, providing low-threshold and high-efficiency household registration channels for long-term residents and various talents. With the deepening of Hainan's free trade port construction, more and more people are paying attention to the policies for settling in Hainan. As the only provincial-level free trade port in the country, Hainan has continuously optimized its household registration policies in recent years, providing diversified household registration channels for various talents and ordinary residents. Currently, Hainan's household registration includes ordinary household registration and talent household registration. The ordinary household registration policy is a low-threshold long-term residence channel aimed at non-local residents living in Hainan for a long time without educational qualifications or professional titles. Those with residence proof (which must be exchanged after registering in the community for 6 months), meeting social security requirements, and providing proof of legal residence (either renting or purchasing) can apply for household registration; talent household registration is a high-value-added fast-track policy, specifically divided into educational talents, professional title and skill talents, and innovation and entrepreneurship talents. Except for enterprise investment household registration, other talents must sign a labor contract with a local Hainan enterprise for more than three years Compared to Shanghai, Shenzhen, and Hong Kong, the core advantages of Hainan Free Trade Port's talent settlement policy lie in its lower thresholds, stronger tax incentives, more flexible value recognition mechanisms, and cross-border facilitation. In terms of educational requirements, Hainan only requires a college degree, while Shanghai requires a bachelor's degree (with some exceptions for college degrees), Shenzhen requires a bachelor's degree with age restrictions, and Hong Kong requires passing the "Quality Migrant Admission Scheme/Specialist Scheme." Notably, Hainan has established a "market value alternative to education" mechanism, allowing individuals with an annual income of ≥300,000 and tax payments of ≥50,000, aged below 60, to settle as high-income talent without additional educational or skill certifications. This covers groups not addressed by other regions. In terms of taxation, Hainan Free Trade Port offers globally competitive personal income tax incentives, capping the actual tax burden for all Chinese high-end talent at 15%, and exempting foreign income from taxation for three consecutive years, while Shanghai and Shenzhen only provide subsidies limited to specific groups. In terms of support, Hainan implements a "zero-cost collective household" policy, allowing individuals without property to settle in community public households, and grants foreign talent a "two-in-one" approval for work permits and residence, as well as cross-border facilitation for professionals from Hong Kong and Macau. These policies form a combination of "low threshold access + offshore privileges + tax burden safety net," significantly differing from the industry-oriented restrictions of Shanghai and Shenzhen or the elite selection system of Hong Kong. Since 2022, Hainan has held large-scale "Four Cities Joint Recruitment" events outside the province for four consecutive years, promoting the "Million Talents Enter Hainan Action Plan (2018-2025)." After the conclusion of this plan at the end of the year, the "Million Talents Revitalize Hainan" plan will be implemented over the next five years, aiming to add another 1 million talents to Hainan, providing strong talent support for the construction of the free trade port. Hainan has introduced a series of talent-related policies, establishing a "1+N" talent policy system: "1" refers to the "Several Policy Measures for Comprehensive Introduction, Cultivation, and Utilization of Talent in Hainan Free Trade Port"; "N" includes the "Hainan Province Support for Talent Development 'Authorization and Deregulation' List (2024)" and the "Implementation Measures for the Use of High-level Talent Turnover Pool at the Provincial Level in Hainan (Trial)." The "Regulations on Promoting Talent Development in Hainan Free Trade Port" will be released on May 30, 2025, covering multiple measures related to talent introduction, cultivation, evaluation, incentives, and service guarantees. For foreign workers coming to Hainan, the province introduced the "Interim Measures for the Management and Service of Work Permits for Foreigners in Hainan" at the end of 2019, categorizing foreigners working in Hainan into three categories: foreign high-end talent (Category A), foreign professional talent (Category B), and other foreign personnel (Category C), implementing classified services and management. Foreign high-end talent (Category A) refers to "highly skilled and urgently needed" foreigners such as scientists, leading technology talents, international entrepreneurs, and specialized talents needed for the province's economic and social development, with no age restrictions; foreign professional talent (Category B) refers to foreigners who are urgently needed for the province's economic and social development, possessing a bachelor's degree or professional qualification certificates, also with no age restrictions Other foreign personnel (Category C) refers to various skilled practical personnel who meet the labor market demand according to national policy regulations, combined with the needs of the provincial free trade zone (port) construction, and are not older than 65 years. Foreign talents coming to work in Hainan Free Trade Port should apply for work permits and work-type residence permits in accordance with relevant regulations. Employers or entrusted specialized agencies must register an account in the "Foreigners Working in China Management Service System," submit the permit application online, and print the "Foreigners Work Permit Notification" after approval. Foreigners can apply for a Z visa, F visa, or R visa at the embassies and consulates of the People's Republic of China abroad with the "Foreigners Work Permit Notification" and other required materials. Within 15 days of entering the country with a valid visa, employers must apply online for the "Foreigners Work Permit" and collect the documents from the local foreigner work management department. Within 30 days of entering the country with a valid visa, foreigners must go to the public security bureau's exit and entry administration office at the employer's location to handle work-type residence permits. Moreover, the level of social security in Hainan continues to improve. Currently, several educational indicators, such as the gross enrollment rate in preschool education, exceed the national average. A total of 88 well-known domestic and foreign schools have been introduced in basic education, cultivating 170,000 quality degrees, and the average life expectancy has reached 80.5 years. "Good schools at your doorstep" and "minor illnesses do not require going to the city, major illnesses do not leave the island" are becoming a reality. The impact of the closure policy on Hainan's population structure is mainly reflected in three aspects: accelerated talent inflow, deepened urbanization process, and improved population quality. The release of policy dividends promotes industrial upgrading, forming a talent agglomeration effect. According to data from the Provincial Development and Reform Commission, the total added value of the four leading industries is expected to reach 523.21 billion yuan in 2024, accounting for 67% of the provincial GDP, an increase of 13.9 percentage points compared to 2020. In the first half of 2025, the proportion of GDP accounted for by these industries is expected to further increase to 68.6%, providing employment carriers for high-quality talents. Emerging industries such as aerospace and marine economy are rising, and the "zero tariff" policy extends the industrial chain, further enhancing talent attraction. The urbanization process has significantly accelerated due to the closure policy. Infrastructure and public service resources are concentrated in central cities such as Haikou and Sanya. Data from the first half of 2025 shows that the urban population ratio has increased by 2.3 percentage points year-on-year. The trend of rural population migrating to urban areas is evident, driving the expansion of the workforce in the tertiary industry, with the service sector accounting for over 45% of the employed population. Talent introduction policies continue to optimize the population quality structure. Think tanks such as Shanghai University of Finance and Economics are deeply involved in the construction of the free trade port, enhancing the reserve of high-end talents through cooperation in cutting-edge fields such as financial big models and offshore finance. The potential of modern agriculture and marine economy is being released, and cutting-edge industries such as biomanufacturing attract professional talent inflow, forming a positive cycle of "industrial upgrading - talent agglomeration - structural optimization." Hainan's urbanization rate achieved an increase of 2.81 percentage points from 2020 to 2024, reaching 63.08% During the same period, the urban population increased by 511,500, reaching 6.6108 million. According to the "14th Five-Year Plan for New Urbanization in Hainan Province (Public Version)" issued in 2022, by 2025, the urbanization rate of Hainan's permanent population will reach 65%, with 750,000 new urban jobs created, 50,000 high-level talents introduced, and 450,000 rural laborers transferred. By 2035, the urbanization rate will reach 75%. Based on Hainan's customs closure policy and the latest population data, combined with variables such as relaxed household registration, visa-free expansion, and industrial dividends, various scenarios can be quantitatively assessed for population growth from 2026 to 2030. By the end of 2024, Hainan's permanent population is expected to be 10.4831 million, with a natural growth rate of 3.06‰. In an optimistic scenario, if the policies related to customs closure are fully implemented and industries rapidly cluster, the population growth rate will trend towards the peak of 2023, with an annual increase in household registrations of 60,000 to 80,000 people; in a pessimistic scenario, external economic downturns and living cost pressures will suppress population migration, resulting in an annual increase in household registrations of 20,000 to 30,000 people. In 2024, Hainan's tourism economy is expected to develop steadily, with the province receiving 97.2078 million tourists, a year-on-year increase of 8%, setting a new historical high; total tourist spending will exceed 200 billion yuan, reaching 204.014 billion yuan, a year-on-year increase of 12.5%. In 2023, Hainan Province received 90.0062 million domestic and international tourists, with total tourism revenue of 181.309 billion yuan, representing year-on-year increases of 49.9% and 71.9%, respectively, and compared to 2019, increases of 8.3% and 71.4%. This indicates that Hainan's tourism development has recovered and surpassed pre-pandemic levels. In an optimistic scenario, the expansion of visa-free countries and increased international flights will significantly boost the number of consumers coming to the port, driving a cumulative tourist growth rate of 35%-40% over five years; in a pessimistic scenario, due to international geopolitical conflicts or intensified diversion to Hong Kong, the cumulative tourist growth rate over five years will reach 10%-12%. Risk Warning and Disclaimer The market has risks, and investment requires caution. 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