CHINA

allowHainan to fullymatch Hong Kong. Hainan also lacks Hong Kong’s educated, oftenworldlyworkforce andHong Kong’s proximity to China’sGuangdong province manufacturing belt.

Still, in areas like shopping or luring corporate offices, Hainan is starting to compete.

“You don’t need a visa, it’s easy to get there and the COVID situation may drag onfor months or a fewyears before they fully reopen the border with Hong Kong,” said Jean-PierreCabestan, a professor of political science at Hong Kong Baptist University. “What’s happening in Hainan is adding to the sense of marginalization inHongKong.”

Chinese officials say they want to complement Hong Kong, not replace it. And in any case, making Hainan a free-trade mecca will not be easy. Over the past few years, at least 21 free-trade zones have been introduced in places like Tianjin, Shanghai and elsewhere. Most never took off.

Efforts specific toHainan have faltered in the past, too. Local officials have for years looked for a way to further develop the province, which is more famous in China for property booms and busts than for finance or shopping. They have repeatedly explored gambling, only to be told no each time by Beijing.

Local officials say their new campaign is different. Rather than catering to importers and exporters, they have unveiled efforts to appeal to shoppers, the wealthy and even those seeking face-lifts.

“The level of Hainan’s opening up is much greater than the mainland freetrade zones,” said Xia Feng, a prof at Hainan University, studyng free-trade areas.

Shopping is a big part. New rules allow anyone from the mainland to buy about $15,000 a year worth of goods onHainanwithout paying China’s usual import, sales and luxury taxes. The previous limitwas only $5,000.

By contrast, tariffs and other taxes raise theprice of imported cosmetics on the mainland by half.

Tourists like Xu Yang, a

33-year-old from Qingdao, have been mobbing Hainan stores for brands like Lancôme, SK-II, La Mer andDior. XusaidEstéeLauder liquid makeup foundation costs about one-third less at the duty-free store in the Hainan capital, Haikou, than at home.

Thatwasworth enduring the crowds of shoppers. Tourist visits jumped by nearly two-thirds after the policy changed July 1 comparedwith a year ago.

“It’s crazy here, and the line is so long,” Xu said.

Brands like Tiffany and Prada have opened stores in Haikou in recent weeks to reach Chinese buyers who no longer travel overseas because of the outbreak.

“Shopping in Hainan is more convenient,” Mary Liu, a Beijing resident, said as she browsed Coach handbags inHaikou.

In skills, too, officials are trying to overcome Hainan’s deficiencies. The central government has dispatched to the province experienced officials who have overseen successful development programs. Hainan’s governor, Shen Xiaoming, previously ran Shanghai’s free-trade zone and helped persuade Tesla to set up its first overseas car assembly plant there.

To draw skilled workers, the Hainan government bought private preschools allover the island last spring and made thempublic, with preferential enrollment for the children ofwell-educated parentswhomove there.

“There will be more and more high-end talent in the future,” predicted Yu Lei, a telecommunications engineer who has moved there from the city of Chongqing and has just enrolled his

3-year- old daughter in a newly public preschool.

To lure companies and the rich, Hainan officials have slashed taxes. They have cut personal and corporate taxes for some to

15%. In mainland China, high- earning individuals face a 45% income tax rate, while a wide range of corporations pay 25%.

Some wealthy individuals have rushed to set up personal companies on the island to route part of their paychecks through there and save on taxes, say those who work with them. Similarly, Chinese companies are exploring setting up subsidiaries there.

“I persuadedmy customers to go there to register companies,” said Kevin Shi, a banker in Shenzhen, across the Chinese border fromHongKong. “They are exploring how they can benefit there, and there are discussions with the government on what they can do, what they can get.”

Hainan officials hope low taxes will attract new types of business. For example, hospitals and cosmetic surgery offices could use Hainan to lure well-heeled patients who might seek residency while they recuperate. Hong Kong, with its advanced medical care, currently plays this role.

Shi said that he had taken executives from hospitals and other health care businesses to Hainan in September.

Still, buildingHainan as a low- tax, low- regulation haven will be a tough task. Other provinces may come to resent its low taxes and other perks and prompt the central government to push back.

Beijing is not about to give up control. In recent months, even as Hainan officials laid out their plans for the island, Beijing officials pledged to keep in place strict limits on money movement and other restrictions on daily life.

That includes some lingering tariffs. Shen, the island’s governor, said at a news conference in June that someone buying a $1.4 million yacht could save more than $500,000 in tariffs and taxes.

Zou Jiayi, a Chinese vice financeminister, threwcold water on that idea within minutes at the same event. Imported cars, buses and yachts are exempt from tariffs only if used for tourist businesses, she said.

And unlike other goods, they may not be taken back to the mainland.