In 1998, when Hainan Island was established as a province and special economic zone, it was given more freedom to experiment with capitalist ways than any other region in China. With such a licence, the plan was that it could quickly develop into a second Hong Kong.
A decade on, Hainan has failed to match other SEZs in attracting foreign investment. Its SEZ status has lost its lustre, its privileges no longer being so special. Central government concern that western provinces lagged behind the east in their development has meant that Hainan has lost the priority it once enjoyed. As a tourist resort, it has far to go to become popular internationally.
But in April China's youngest province returned to the limelight. Local officials used its 10th anniversary to attract vice-premiers and foreign dignitaries, to remind the central government of its needs and the world of its potential.
Hainan is trying to draw a line under its previous speculative excesses. It now pins its future on its natural resources ?offshore natural gas reserves, tropical agriculture and ocean * resources, and tourist attractions. `One province, two regions' is the local government's latest catch phrase ?the two regions being an advanced industrial economy focused on its western coast and a tropical island economy based on agriculture and tourism, in the east and south.
While there has been a genuine transformation of the island's infrastructure, most obvious to visitors are the symbols of its wilder interpretations of market reform. The capital city of Haikou is littered with the shells of abandoned property developments.
Nearly half of Hainan's domestic and foreign investment in the past decade took place between 1992 and 1994, and most into the property sector. Since the bubble burst in 1993, numerous villas and offices have remained empty. Prices have tumbled from up to Yn 10,000 a square metre in 1993 to a maximum Yn1,500 today. Gross domestic product increased by 40 per cent in 1992 and 20.9 per cent in 1993. By 1995 it grew by just 4.3 per cent.
"If there had been no macro-control, the result would have been unthinkable," says Mr Zhai Peiji, vice director of the planning bureau. There is now 3.5m sq metres of empty real estate, he adds. The boom and bust cycle left Hainan's financial sector perilously exposed and only central bank intervention averted a major crisis. Twenty eight trust and investment companies have now been merged with Hainan Development Bank.
Economic development is only just beginning to pick up since the economy was reined in. Last year GDP grew by 6.7 per
The food and beverage sector is another priority. Three major factories processing tropical fruits are in production. Hainan Island accounts for 42 per cent of China's tropical regions. "We have a lot of uncultivated land, a lot of sunshine and plenty of rain. Hainan is a unique greenhouse for China," says Zhai. Developing tropical agriculture has been elevated to the highest priority.
Out-of-season produce is being ?sold across China and is even finding its way to Europe, with its flowers sold in Amsterdam during the winter.
Hainan's trade has increased from US$180m in 1988 to US$2.2bn in 1997, according to Mr Lai Wing Wei, director of the province's Commerce and Trade Department. Eight years ago only 20 per cent of this originated in Hainan, the rest using the island to enjoy its SEZ trade privileges. Now local exports account for 50 per cent of the total, predominantly natural gas and agricultural products.
The tourist industry
Probably most surprising has been the development of Hainan's tourist industry, the island becoming the favourite winter playground for China's new rich. This is a captive market as few Chinese can obtain passports to travel outside the country and Hainan is the only tropical destination available to them. In 1988 just half a million tourists came to Hainan; last year this had increased to 7.9 million.
Mainland tourists are drawn by the warm climate, clean environment and beautiful beaches. Island officials have also turned an eye to the blatant sex industry, regarded by many male visitors as another attraction.
Although there are now several four- and five-star hotels, the island is not yet competing with Southeast Asian destinations. Its resorts may meet the needs of mainland visitors, but few have the character, colour or sophistication of their Asian neighbours. It is even difficult to find a postcard of the island. Promotional efforts are remarkably unimpressive.
But major international hotel chains, including Westin and Holiday Inn, are building resorts that will help lift the island's profile in the coming years. Gloria International's Gloria Resort is already open on Yalong Bay, a 23 km beach and the best on the island.
There has been a real transformation in Hainan's infrastructure, which now ranks among the best in China and forms a solid foundation for further development. Before becoming a province, Hainan was a neglected outpost of Guangdong, with a poor infrastructure and economy.
Today Haikou is a pleasant, modern city. Unlike other cities in China, it is clean and not choked with traffic and pollution. Its wide boulevards, lined with coconut trees, allow for easy transportation around the city.
An eastern expressway now links Haikou in the north to Sanya in the south. A western expressway has already reached Yangpu and will be extended to the southern coast within the next year. A central route is also under construction. Sanya has its own international airport and Haikou Meilan Airport will be opened later this year to replace the current downtown Haikou facility.
The island is one of the few places in China to boast a surplus of electricity, with an installed generating capacity of 1.618m kilowatts. In Haikou there are now 67 telephones for every 100 people; new lines can be installed in a day.
Port capacity has been extended to seven million tonnes a year, with Yangpu handling 1.2m tonnes a year, now being increased to more than two million tonnes. A 1.8m cubic metre water reservoir has also been built.
Its infrastructure will be further boosted by plans to link Hainan by rail to Guangdong, invested by the Railways Ministry and both provinces. Carriages will be transported by ferry across the 18 nautical mile strait separating Hainan from the mainland. The rail network on the island is now being extended by 180km, to run from north to south.
The province has relied on people from mainland cities for skilled labour and management. But local education is being improved to meet the needs of the joint venture between China National Offshore Oil Corporation (CNOOC) and Atlantic Richfield is preparing to drill a second well, in the Dongfang 1-1 gas field. A new field south-west of the island, called the Number 1 Ledong Gas Field, has recently been found.
Natural gas is being used for a new state-owned fertiliser plant in Dongfang, now producing 520,000 tonnes of urea and 300,000 tonnes of ammonia a year. Dongfang is also the chosen location for the island's latest foreign.investment coup. This spring, BASF Aktiengesellschaft and DuPont announced that they had selected this city for their US$1 bn integrated nylon technology plant to produce and sell nylon intermediates in Asia. Hainan was chosen because of the availability of natural gas, to be used as both a fuel and raw material. The plant should be completed by 2002.
CNOOC has agreed to pipe gas to Yangpu Economic Development Zone, where a subsidiary is to build two more chemical plants, reviving the fortunes of this zone.
The largest industrial foreign investment in Hainan to date is the AgipPetroli of Italy and Hong Kong-based Haikou (Ko-Fung) Refinery. The two equal partners are investing US$l.6bn in a new oil refinery at Lingao. The refinery will be completed in three years, with an annual capacity of six million tonnes of transport fuel.
The government is also giving priority to the information sector, developing an information network and high-technology industry. Investment officials also believe the clean environment lends itself to the development of a biotechnology industry.
modernising economy. Tertiary institutions cater for 13,000 students compared with 9,000 in 1988. Ten years ago children attending the number 27 primary school in Haikou did not even have desks or chairs. Now they have the use of modern computer and language laboratories. This year alone, 480,000 sq metres of new classrooms are being built.
The Hainan government plans to invest US$10.8bn in further developing the islandduring the Ninth Five-Year Plan. Of this, US$5.7bn is targeted for industry, agriculture and tourism. This money will be raised from government loans, direct foreign investment and international financing.
"Hainan is now ready for large scale development," says Zhai. The government hopes that this time growth will be more than a speculative bubble.