By Tan Xingyu
The reform and opening-up policy launched in 1978 allowed China to take a broader view of the world and begin to close the huge development gap that had formed with the developed world. With determination to “emancipate minds while seeking truth from facts,” China began to establish special economic zones (SEZs) in its southeastern coastal cities such as Shenzhen and Zhuhai, attempting to explore a path of development suitable to its national conditions.
In 1987, to enable the country to open wider to the outside world, former Chinese leader Deng Xiaoping, also known as the chief architect of China’s reform and opening-up, set his sights on Hainan Island in the South China Sea. When meeting visiting foreign guests in June that year, he first presented the idea of establishing an SEZ in Hainan. “We are planning to create an even larger SEZ, which will be based on Hainan Island,” he asserted. “I believe Hainan SEZ would have promising prospects.”
On April 13, 1988, the First Session of the Seventh National People’s Congress adopted resolutions establishing Hainan Province and the Hainan Special Economic Zone. On April 26, the Communist Party of China (CPC) Committee and People’s Government of Hainan Province were officially established, with Hainan, formerly an administrative region of Guangdong Province, proclaimed to be the youngest province and the largest SEZ in China.
Thus, the tropical island closed a backward chapter of its history and embarked on a journey of reform and opening-up.
China’s Largest SEZ
Since its establishment, Hainan SEZ has endeavored to shake off the shackles of stereotypes and achieve breakthroughs in various fields through pioneering spirit, and has taken the national lead in adopting a series of reform measures. It was the first to adopt a socialist market economy approach, first to carry out administrative system reform aiming at “small government, big society,” the first to implement a system of direct corporate registration, the first to conduct reform on fuel surcharge adjustment, the first to rescind agricultural tax and taxes on special agricultural products, the first to work to construct an ecological province, the first to implement visa-on-arrival policy, the first to open air traffic rights and the first to establish a new type of social security system coordinating all provincial-level insurance programs including old age pension, unemployment insurance, occupational injury insurance and medical care.
Reports on the numerous innovative reform policies soon spread across China and attracted ambitious, talented people flooding from every corner of the country to chase their dreams. The first destination for this group was often a lakeside wall near the People’s Park in Haikou, the provincial capital. Pasted with colorful pieces of paper carrying either recruitment advertising or letters of self-recommendation, the wall was dubbed by the dream chasers “talent wall.”
Later, a real-estate crash left Hainan in an economic downturn, with an annual growth rate lower than the national average for three consecutive years beginning in 1995. In 1998, Hainan set the goal of building an ecological province, making ecotourism and tropical agriculture pillar sectors of its economy.
In April 2013, Chinese President Xi Jinping arrived in Hainan’s town of Boao to attend the annual conference of the Boao Forum for Asia. After the event, he visited Qionghai and Sanya, where he inspected fishing ports, agricultural industrial parks and the Phoenix Island International Cruise Port. During this inspection tour, Xi, also general secretary of the CPC Central Committee and chairman of the Central Military Commission, stressed that as China’s largest SEZ, Hainan has a great late-comer advantage and tremendous development potential to be tapped. He urged the island to make a leap in development by focusing on becoming an international resort site to contribute to the development of a beautiful China.
Following the president’s direction— “Reform and opening up is key to the development of Hainan” — Hainan began a new round of reform explorations. It served as a national pilot in integrated development, designing comprehensive plans to build the province as a single megacity or a scenic area. Under its new round of agricultural reclamation reform, government functions were separated from enterprise management, farms were gradually transformed into enterprises, agricultural land management was standardized and vitality of agricultural reclamation was stimulated. Judicial system reform has been implemented in all courts and procuratorates throughout the province, effectively improving the quality and efficiency of outcomes. Continuous efforts have been made in further streamlining administration, delegating power, improving regulation and strengthening services as well as implementing the commercial system reform. As a result, enterprises’ tax burdens have been eased and the business environment has improved. Hainan also took the lead in the country in developing all-for-one tourism with an aim to better capitalize on its natural beauty.
Remarkable Economic Growth
Since its founding as an SEZ, Hainan has never ceased efforts to explore new thoughts and approaches to economic growth. At the first CPC congress of the province, guidelines and goals such as “A large SEZ should practice market economy so that the law of value spontaneously plays a regulatory role” and “Greater resolve is required for pushing forward reforms on economic and political systems” were enshrined in the congress report.
Between 1987 and 2002, Hainan’s industrial added value averaged a 13 percent annual growth, and the proportion of industrial added value in GDP rose from 13.4 to 16.4 percent. In 1993, its gross industrial output value topped 10 billion yuan for the first time, five times the figure of 1987, and its local financial revenue reached 2.9 billion yuan, 9.8 times the figure of 1987. From 1988 to 1993, the province’s total foreign investment in actual use exceeded US$2.1 billion, 20 times the total of foreign investment in actual use across the eight years prior to the establishment of the province. From 2002 to 2006, as a number of key projects were completed and put into operation, processing industries including oil refining, chemicals, paper pulp, automobiles, glass and cement gained steam to become new growth points for the province.
Economic growth immediately triggered the surge of real estate development, and as huge amounts of capital flooded in, a housing bubble formed and peaked in 1994. However, the sudden burst of the housing bubble dealt a heavy blow to Hainan’s economy. Facing tough economic challenges, the provincial government decided to draw lessons from past experience and deepen reform.
In 1998, Fidel V. Ramos, former president of the Philippines, Bob Hawke, former prime minister of Australia, and Morihiro Hosokawa, former prime minister of Japan, proposed establishing a mechanism similar to the Davos-based World Economic Forum and headquartering it in Boao, Hainan. This initiative won support from the Chinese government. On February 27, 2001, Boao Forum for Asia (BFA), the first international convention organization headquartered in China, was formally inaugurated, with Boao as the permanent site of its annual conference.
The launch of the BFA brought fresh opportunity to Hainan to expand its reform experiments. Development of the modern services sectors gained momentous, and a group of internationalized talented professionals were cultivated, which helped build the national image of China. Meanwhile, Hainan’s economy eventually climbed out of the low-growth trap. In 1998, the province’s GDP growth surpassed the national average, and its agricultural added value doubled the national level. In 2003, the province resumed its two-digit GDP growth.
When delivering a government work report at the First Session of the Sixth Hainan Provincial People’s Congress on January 26, 2018, governor Shen Xiaoming stated that in 2017 Hainan generated a regional output value of 446 billion yuan (US$70 billion), at an annual growth rate of 8.1 percent. Its per capita regional output value reached US$7,179, at an annual growth rate of 7.2 percent, and per capita disposable incomes of urban and rural permanent residents reached 30,817 yuan (US$4,897) and 12,902 yuan (US$2,050), respectively, at an annual growth rate of 8.6 percent and 10.5 percent, respectively.
From Closure to Openness
Chi Fulin, president of China Institute for Reform and Development, told China Report ASEAN that Hainan would not have become what it is today without reform and opening-up.
“In an island economy, which is naturally sluggish and closed, its endogenous growth dynamics can only be unleashed through an open approach,” Chi opined. “Openness is vital, and serves like the lifeline of an island economy. All successful island economies in the world rely on openness. Against the backdrop of economic globalization, the openness of an island economy determines its degree of development. It’s fair to say that Hainan’s development over the years has benefited from openness. If there is still room for better development, it’s because the economy is not open enough.”
Complete and sound infrastructure is an inevitable piece of opening-up. Alongside accelerating infrastructure construction of highways, lighting, electricity, gas and water, Hainan has built the world’s first island-looping high-speed railway that enables traveling all the way around the island in three hours, constructed an airport in Boao and reconstructed the Haikou Meilan International Airport and Sanya Phoenix International Airport. Ground has been broken for a network of crisscrossed expressways aimed to connect all counties on the island. At present, a total of 58 international flights, 337 domestic and overseas shipping routes and 14 passenger liners serve the island. Along with further implementation of the offshore duty-free policy, Hainan plans to provide visa-free entry or visa on arrival to citizens of 26 countries. So far, it has established sister-city partnerships with 56 cities around the world, and its degree of internationalization has improved constantly. On December 6, 2017, when a flight from Moscow landed at Sanya Phoenix International Airport, the inbound visits received by Hainan surpassed 1 million, achieving the goal set by the provincial government three years ahead of schedule.
A favorable investment environment is also imperative to opening-up. In February, Wall Street Journal published an article titled “China’s Hainan Cuts Red Tape to Attract Foreign Investment,” focusing on the province’s administrative reform and all-for-one tourism. The article begins: “Denis Koreshkov waited only one night before getting his business license in South China’s Hainan Province. The 34-year-old Russian engineer and his business partners were amazed at the administrative efficiency. He is among foreign investors benefiting from the favorable business environment in China.”
Opening-up also demands a beautiful ecological environment and comfortable cultural surroundings. By integrating countryside construction with efforts towards all-for-one tourism development, poverty reduction and infrastructure construction, Hainan is striving to build a beautiful home for its residents, create attractive resorts for tourists and ensure a sustainable growth of incomes. The traditional GDP-centered assessment system has ceased in 12 cities (counties), with the focus of assessment criteria shifted to residents’ incomes, living standards and ecological conservation. The aim is to lure more investors to the island with its sound ecological environment and allow its inviting ecosystem to benefit more people from around the world.