Hainan closes its borders to open a new pattern of economic internal circulation

Starting December 18, 2024, Hainan officially launched the “closed-off” policy, marking a profound shift in China’s economic strategy. Hainan’s closure is not about shutting doors; on the contrary, it aims to create a super free trade zone with “domestic inside, outside outside,” fundamentally rewriting China’s position in the global trade map.

How Free Port Policies Reshape the Global Trade Landscape

The core mechanism of Hainan’s closure is simple yet far-reaching: foreign goods entering Hainan face significantly reduced customs barriers, allowing smooth circulation. However, to enter other mainland provinces, normal import procedures must be followed. This institutional innovation effectively turns Hainan into a “free port” operating on domestic land.

The first impact is likely on Japan and South Korea’s duty-free retail ecosystems. Over the past decade, millions of Chinese consumers have traveled abroad to Tokyo and Seoul duty-free shops to purchase luxury goods and cosmetics. Now, with the advancement of Hainan’s closure, major global luxury brands are shifting their strategies—accelerating the opening of stores in Hainan and moving high-end product sales directly into the Chinese market. This reflects a fundamental adjustment in the global retail pattern—consumer return flows are becoming an inevitable trend.

Opportunities in Hainan’s Industry Chain Innovation

Hainan’s closure also represents a complete revolution in business models. The most critical regulation is “30% value-added processing exempt from tariffs.” When companies set up factories in Hainan, imported raw materials and equipment are fully duty-free. After processing, if the product’s value increases by more than 30%, it can be exported to the mainland duty-free. This directly unlocks the potential of high-end manufacturing, greatly increasing profit margins for enterprises.

The expansion of the duty-free product catalog best illustrates Hainan’s ambitions: from over 1,900 items previously to 6,637 now, covering about 74% of imported goods on the market, including imported cars, luxury watches, and designer bags. Capital actions reflect market expectations—this April, Hainan’s investment promotion conference attracted signing agreements worth 233.6 billion yuan, with global investors voting with their feet and showing strong confidence in Hainan’s future.

Consumer Rights and Market Reconfiguration

For ordinary consumers, the changes brought by Hainan’s closure are the most direct and beneficial. The significant expansion of the duty-free product catalog has completely altered the domestic consumption landscape by lowering prices of imported goods. This pursuit of maximum value-for-money has already begun to take root domestically—on discount e-commerce platforms like Vipshop, brands like Coach and Burberry regularly sell at two- or three-fold discounts. Hainan’s policy logic is similar: both aim to attract consumer return flows, allowing consumers to enjoy international duty-free benefits within the country.

Data during the National Day holiday vividly demonstrates market enthusiasm: per capita spending on off-island duty-free shopping in Hainan exceeded 7,685 yuan, a 10% year-on-year increase. This fully proves consumers’ actual purchasing power and acceptance of the new model.

Deep Intentions Behind the Internal Circulation Strategy

Indeed, if you only see the convenience of shopping, you underestimate the true depth of Hainan’s closure policy. It is not just about creating a shopping paradise; it is a key piece in the country’s “internal circulation” strategy. The fundamental goal is to intercept the hundreds of billions of dollars of overseas consumption each year and transform this consumption momentum into a new engine for domestic economic growth through institutional innovation.

This economic transformation has already begun. Hainan’s closure is reshaping global perceptions of China’s market and changing how consumers imagine their lifestyles. A deep restructuring involving consumption, industry, and trade patterns is slowly unfolding on this island.