On June 1, 2020, the Chinese authorities rolled out the master plan for the construction of the Hainan Free Trade Port (the “Master plan”) With the ultimate goal of transforming Hainan into a high-level free trade port with strong international influence.

Hainan Free Trade Port (“Hainan FTP“) is set to become China’s largest special economic zone. Since the announcement of the master plan, regulations from various government departments and agencies have already been issued to put this master plan into action, all of which signal new opportunities for foreign investors in light of the increased facilitation of cross-border trade and investment in the region.

Among these subsidiary regulations, the People’s Bank of China, the Banking and Insurance Regulatory Commission of China, the Securities Regulatory Commission of China and the State Administration of Foreign Exchange, recently issued notices on the support financial support for the comprehensive deepening reform and opening up of Hainan (the “”Opinions“) On April 9, 2021.

Several measures relating to the facilitation of cross-border investments have been published in the opinions, including:

  1. allow qualified foreign limited partnerships (QFLP) in Hainan FTP to freely transfer funds outward and inward in accordance with the balance management model;
  2. simplify foreign currency registration procedures;
  3. the establishment of a capital pool that integrates local and foreign currencies, for groups of qualified multinational companies in order to facilitate the flow of national and foreign currencies centrally within the group while being under macroprudential supervision;
  4. allow qualified foreign financial institutions to own or own 100% shares in futures companies in Hainan; and
  5. encourage foreign financial institutions to locate in Hainan and support the establishment of Sino-foreign joint banks.

The Ministry of Commerce also released the General Plan of the Comprehensive Pilot Program to Further Open the Service Sector in Hainan Province (the “”General Plan“) On April 21, 2021.

The General Plan encourages market-oriented development, the removal of barriers to entry, as well as the strengthening of the regulatory system in various key sectors. With regard specifically to the financial services sector, in order to stimulate innovation and further liberalize the sector, it encourages, among other measures:

  1. multinational companies to establish wholly foreign-owned financial companies in Hainan Province;
  2. a platform for exchange and collaboration in fintech and green finance to be set up;
  3. foreign institutions to collaborate in the development of cross-border commercial medical insurance products and to settle international commercial medical insurance in accordance with the relevant provisions;
  4. foreign financial institutions to invest and create securities companies with foreign capital; and
  5. expand the activities in which qualified foreign banks are allowed to participate.

In addition, to encourage foreign investment in the modern service sector, in accordance with the Notice on Preferential Business Income Tax Policies of Hainan Free Trade Port issued by the Ministry of Finance and the State Tax Administration On June 23, 2020, enterprises in the modern service sector, including the financial services sector, which are incorporated in the Hainan FTP, may be exempt from corporate tax if such income is derived from direct investment abroad.

More recently, the Standing Committee of the National People’s Congress passed the Hainan Free Trade Port Law (the “Hainan FTP Law“) which took effect on June 10, 2021.

The objective of the Hainan FTP law is to make institutional arrangements to transform these various policy objectives into concrete legislation. This includes the implementation of the “pre-establishment national treatment policy” which allows foreign investors and their investments to benefit from treatment no less favorable than that accorded to its own nationals at the initial stage of investment. A more permissive negative list has also been specially designed for Hainan’s FTP, and its industrial restrictions have been relaxed from the negative list applicable to other non-special zones, allowing foreign investment in more sectors than ever before. It is important to note that according to the Hainan FTP Law, a free trade tax system will be implemented, with the principles of zero tariffs, low tax rates and streamlining a simplified tax regime.

It is foreseeable that, in accordance with the Masterplan, more and more subsidiary regulations in all their forms will be deployed by the relevant government bodies and the Council of State. These various laws and regulations will undoubtedly have an impact on the Hainan FTP business and investment landscape in the years to come and investors who wish to seek a gateway to the Chinese market should pay attention to the developments occurring in this area. region.

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