Hainan island (34,000 square km), lies in the South China Sea off the south west coast of Guangdong province. For centuries the island has been an economic backwater, and one of China's poorest areas. However, its fortunes changed in April 1988, when it was made a province in its own right and was designated a Special Economic Zone (SEZ). Hainan's population numbers over 6.6 million, of whom approximately 410,000 live in the capital, Haikou.
The island is China's only tropical province, and is a major producer of rubber, bananas, coffee, coconuts and tea. Aquatic products, including prawns, oysters, crabs, fish and seaweed, are also important revenue earners. Apart from the industrial enterprises which have been established since 1988, Hainan relies increasingly on income from tourism. The island also has mineral deposits, and possibly substantial resources of oil and natural gas both on and off-shore. The island's GDP increased by 16 per cent in real terms in 1991, one of the highest growth rates in China.
Hainan aims to use the foreign and domestic investment its SEZ status has attracted to boost its level of economic development and surpass the nation's average growth levels by the year 2000. Since 1988, over 5,000 companies and industrial enterprises have been set up in Hainan by central government and other Chinese provinces. Many technicians and skilled workers from the mainland have migrated to the island as a result.
By virtue of its SEZ status, the province has the authority to implement trade policies which are less restrictive than most other parts of China (for example, Hainan's exports are for the most part exempt From licensing regulations, and few imports require central government approval.)
Schemes to stimulate development have been proceeding apace. In December 1992, a foundation-laying ceremony was held to mark the start of construction for Hainan's only bonded zone. The Haikou Bonded Zone, is located in the south western part of the Jinpan Industrial Development Area, and covers an area of 1.93 square km. In the same month, the Hainan State Land Resources Development Corporation (HSLRDC) was established. It is sponsored by the State Land Administration and has a registered capital of RMB 20m. The HSLRDC will help to develop the island's land resources, real estate and tourism.
Foreign economic relations
In 1991, the island's exports rose by 42 per cent over the previous year, to US$670m. January to June 1992 also saw a 49 per cent increase over the same period in 1991. Hong Kong is the leading market for Hainan's exports and takes 80 per cent of the total- by value, followed by Japan, Sri Lanka, Thailand and Germany. The main exports are jade ornaments, tin ore, leather working, gloves, steel, silk, rayon, seafood and agricultural products.
In 1991, Hainan's imports increased by 66 per cent over the previous year, to US$723m. Hong Kong supplied 68 per cent of this total. Singapore, Peru, Japan and Malaysia are also major suppliers. The main goods by value are feedstuffs, televisions, sound equipment, medicines, synthetic fibre and plywood.
By April 1992, 1,700 direct foreign investment projects had been approved, involving contracted foreign capital of nearly US$1bn. 1992 saw a major rise in the number of projects and the amount of overseas investment in Hainan. Hongg Kong continues to lead the way, with about two-thirds of all projects, followed by Japan, Taiwan and the United States. The main focus of foreign investment is tourism, hotels, agriculture, manufacturing, aquaculture and property development. One of the first foreign banks to be established in Hainan is the British-based Standard Chartered Bank, with a branch in Haikou. In 1992, it offered a loan of US$50m to the Xinghai Industrial Corporation, to manufacture polyamide fibre.
In 1993, the government of Hainan invited foreign and domestic investors to bid for 57 key projects. Forty projects are foreign-funded, and seventeen of them are expected to start construction this year. The largest operation is the Haikou Synthetic Oil Refinery, which will have an annual capacity to process six million tonnes of crude oil, and which will receive US$630m worth of foreign investment. Huahang Real Estate Co Ltd is investing US$40m in the infrastructure of the Huahang Comprehensive Development Zone. The Hainan Hualiang Cement Co Ltd will invest US$20m in the Baisha Cement Plant. Others include a polyester chip plant (US$33.55m), a polyamide fibre tyre cord fabrics plant (US$32.8m), and the first phase of the Dongfang Zhenzhu Tourist Centre (US$18.28m).
In order to attract foreign investment, the provincial government of Hainan has established six Economic Development Zones, at Haikou (the capital),Sanya, Yangpu, Basuo, Qinglan andpGuilinyang. The authorities are especially keen to attract export-oriented industrial and agricultural projects.
In May 1992, Mao Zhijun, Hainan's deputy governor, radically liberalised the terms for foreign enterprises wishing to set up projects in the Yangpu area, in Hainan's Dan county. The forty preferential measures included the following _ new rights:
Land development policy: Companies may lease up to 30 square km for a maximum of seventy years.
Investment and business policy: Leases are permitted to transact international-trade and to carry out trans-shipments in the zone, between points overseas.
Financial policy: Upon approval, foreign and joint venture banks can be established in the zone. Companies may float bonds and issue shares. Foreign-funded enterprises are free to bring their own funds into China, or use foreign exchange, and to export their profits after tax.
Import and export policy: Exports are free from licence controls. The import of equipment, capital construction materials and vehicles for use in the development area, does not require import permits.
Tax policy: Products for export are exempt from customs duty, and ? except for crude oil and a few other products?exempt from VAT.
Personnel entry policy: Foreign personnel may directly enter and leave the Yangpu area.
Investment protection policy: The rights and interests of enterprises are protected by state laws. Free recruitment of staff from within China and abroad, according to regulations. Firms may fix the wages and perquisites of staff without reference to Chinese authorities.
In May 1992, Hainan province signed a contract with a consortium led by Kumagai Gumi (Hong Kong) (founded largely by Japanese capital), to lease a 30 square km site at Yangpu port. Kumagai holds a 30 per cent share. Other members include Rin$o Trading (20 per cent), The Industrial and Commercial Bank of China and Hainan Province Trust & Investment Co (16 per cent), and the Bank of China Haikou Trust & Consultancy Co (14 per cent). This was the largest tract of land in China ever to be leased to a foreign company. It is predicted that a total of US$16.8bn will be needed over the next 15 years to transform Yangpu into a free trade zone (China's first), operated according to international rules and standards. The aim is to set up a free port similar to Hong Kong
The consortium plans initially to invest US$3bn on infrastructure. Kumagai has already teamed up with the China International Trust & Investment Corporation (CITIC) to build a US$2bn power plant on the site. The project will also include a three-star hotel, costing US$300m, which will open in March 1994. The zone will eventually house 400,000 residents as well as a number of trade-oriented projects. Foreign companies in the zone will be allowed a high degree of freedom of action. According to Yu Chingpo, Kumagai's managing director, the group has already sold one-third of the land it has leased, to mainland buyers, for US$1 bn.
There have been important improvements to the island's infrastructure in recent years. Hainan now has an electricity generation capacity of 815,400 kw, making it self-sufficient in electric power.
The island has 15,000km of roads. The eastern section (measuring 272km) of an expressway encircling the island is under construction. The new road will link up Hainan's three existing major highways that join Haikou with Sanya, Tongza and Dongfang. However, this is unlikely to bring dramatic relief. A vehicle purchasing boom in the 1980s has left Hainan with one of China's highest densities of road traffic.
Hainan has 68 natural ports, of which 20 have operating facilities. Recent expansion of old harbours and new construction has raised the island's goods handling capacity to 10 million tons per year.
Hainan plans to connect its insular rail network with the mainland's, by means of a train ferry. Other projects include the construction of a Yangpu feeder railway and a west ring railway.
Hainan is perhaps somewhat optimistically billed as "the Chinese Hawaii". Its climate and beaches do a certain amount to attract tourists, but the market for the time being is largely restricted to mainland and overseas Chinese. The province now has nearly 100 hotels, with a total of over 16,000 beds. In 1991, Hainan welcomed 1.4m tourists, 280,000 of whom came from outside mainland China. Tourist revenue in that year exceeded US$64m.
It is claimed that Hainan has 241 "potential scenic spots". So far, fewer than 50 have been exploited. Many investors, both Chinese and foreign, have shown great enthusiasm for the island's tourist industry. In 1991, investors spent US$160m on 59 tourist developments, 33 of which were foreign-funded.
There are over 69,000 programme-controlled telephones in Hainan. Haikou, Sanya and Tongza all have long-distance direct telephone links with major cities in China and worldwide.
Two civil airports, Haikou and Sanya, serve the province. Dragonair operates a regular service from Haikou to Hong Kong. There are also international services to Bangkok and Singapore. Air China, China Southern Airlines, China Northern Airlines, and China General, between them operate scheduled flights to mainland destinations which include Beijing, Shanghai, Guangzhou, Changsha, Chengdu, Chongqing, Dalian, Kunming, Shenyang, Shenzen,Tianjin and Xiamen.
Hainan Airlines, a fledgling carrier with four Boeing 737-400s, is likely also to play a role in the expansion of air services to the island. *
This feature was compiled by the commercial section of the British Embassy, Beijing.
Hainan's income exceeded its expenditure in the first quarter of the year, with its financial income totalling US$88.79bn, a 137 per cent increase over the same period last year..
* Bank deposits reached US$6.18bn by the end of March, up 30 per cent over the corresponding period last year.
* Hainan's GDP totalled US$534m in the first three months of this year, a 23.3 per cent increase over the same period in 1992. * Industrial production value reached US$372m, an increase of 37.7 per cent. The number of money-losing industrial enterprises dropped by 7.5 per cent in1992.
* US$197m were invested in fixed assets during this period, 1.7 times more than the previous year. Approximately 60 per cent of the investment was spent by overseas-invested enterprises on capital construction.
* Retail sales totalled US$29lm in the first three months of 1993. More than US$145m worth of products were exported by the province in this period, a 58 per cent increase on the same period in 1992.
* Hotels in Hainan provided services to 647,000 tourists during the period and the income from tourism rose to US$16.2m. * Enterprises in the province signed 758 contracts for economic cooperation with foreign counterparts, compared to only 118 signed in the first three months of 1992.
Everbright's Hainan investment tops US$100m
China Everbright Holdings Company, a major investment firm in China, as achieved satisfactory economic results in Hainan and its investment in the province has reached US$103.45m, according to a report in the China Daily.
In August 1991, a bank attached to the company opened an office in Hainan, where flexible policies are being implemented to encourage investors from ong Kong, Macao and overseas. Everbright has also jointly established a real estate development company with a Hong Kong firm and an international leasins business with Hainan Provincial Securities Company.
The China Everbright International Trust and Investment Corporation has set up an affiliate in Hainan with a registered capital of US$31m. In 1992, the company leased 333 hectares of land in Haikou, Sanya, Qiongshan, and Yangpu Development Zone for the development of tourism, real estate, industry, commerce and high-tech projects. According to the report, US$51.72m will be invested in the projects this year.
The group has also invested US$22.59m in five major local companies. It has also spent US$77.59m in nine large real estate development facilities in Haikou. It has raised US$56.52m for Hainan's development.
According to the report, these businesses have earned the group an estimated US$11.03 million in profits.
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