China Forex (English)

Financial Policies for the Hainan Free Trade Port

- By Chen Zhiwei and Cao Xiehe

The constructi­on of the Hainan Free Trade Port (FTP) is a major national strategy personally planned and promoted by Communist Party General Secretary Xi Jinping. The release of the Master Plan for the Constructi­on of the Hainan Free Trade Port on June 1 demonstrat­ed that the program has entered the full implementa­tion stage. The plan provided a roadmap and timeline for building a FTP with Chinese characteri­stics. So what can we expect in the near future? Chen Zhiwei, the editor-inchief of China Forex and Cao Xiehe, president of Bank of China Haikou Central Sub-branch, discuss the financial characteri­stics of the free trade port and how this should ensure vital highqualit­y financial services.

momentum. A modern economy relies on the real economy and its lifeblood - the financial system.

The Master Plan calls for the broadening of industrial financing channels as well as innovation in terms of technology and financial policies, products and tools. It also calls for supporting enterprise­s in the Hainan Free Trade Port to issue bonds at home and abroad. It encourages them to move ahead in pledge loans, tourism asset securitiza­tion, financial products for shipping logistics and supply chain financing.

Meanwhile, there is a goal of supporting the developmen­t of financial technology, commercial medical insurance services, and cross-border medical insurance. The financial sector in Hainan needs to comprehens­ively improve its services in terms of quality and efficiency so that it can serve the real economy. It also needs to accelerate the implementa­tion of these measures, support FTP market entities in broadening the scope of these cross-border financial activities, drive production factors to flow towards the real economy, and facilitate the economic and social developmen­t of Hainan, especially in key areas such as tourism, modern service industries, and the high-tech sector.

Policies for the Hainan Free Trade Port are unique so they may not be easily replicated elsewhere. While experiment­ing with these innovative financial policies, we should gradually explore the establishm­ent of financial management systems, organizati­onal systems, market structures and risk prevention and control mechanisms that are in line with internatio­nally accepted rules. The ultimate objective is to promote the constructi­on of a free, open, effective and safe financial service environmen­t. We should focus on innovation in offshore finance, offshore renminbi, renminbi internatio­nalization as well as capital account convertibi­lity. The innovation­s need to be closely linked to legislativ­e developmen­ts, fiscal and taxation policies, clearing and settlement, as well as protecting confidenti­ality and combatting money laundering.

FTP in carrying out product innovation in crossborde­r financial services and provide convenienc­e and services for cross-border transactio­ns and cross-border financing.

First, the plan calls for advancing the financial work in a step-by-step and phased manner. The financial sector in Hainan will coordinate the financial reform and opening up work based on the developmen­t goals of the two phases to provide convenient services at all phases for market entities.

Second, it focuses on the financial planning in the region and the FTZ park. According to the Master Plan, the Hainan FTP will set up a number of special customs supervisio­n zones and key parks before completion of the constructi­on work. These will serve as the major vehicle and platform for the constructi­on of a modern industrial system for the FTP, as well as an "incubator" for the trial operation.

Third, there is a need to determine the financial services of the FTP after the constructi­on work is completed. The Hainan FTP will start island-wide customs clearance operations before 2025. Timely adjustment­s and deployment will be necessary by then.

Moreover, accelerati­ng the improvemen­t of the organizati­on of the financial system is extremely important. Implementi­ng the support policies specified in the Master Plan in a timely manner is also critical alongside giving full play to the functions of existing financial institutio­ns. A number of local legal financial institutio­ns such as banks, securities companies and insurers will be cultivated, while efforts will be made to attract top tier domestic and overseas financial institutio­ns to the FTP area.

Lastly, we must continue to broaden the financing channels for the developmen­t of the FTP. Preferenti­al policies on domestic and overseas financing are being extended to enterprise­s within the port in various forms. Enterprise­s are allowed to issue stocks and bonds overseas, carry out crossborde­r asset management, develop real estate investment trusts (REITs), and make cross-border asset transfers. specifical­ly designed for the FTP, to vigorously introduce domestic and overseas capital. This will be aimed at strengthen­ing cooperatio­n in product innovation and corporate governance, and enhance the internatio­nalization and modernizat­ion of the financial sector in the FTP.

We should integrate the operations with the internatio­nal financial system, especially in terms of bringing in financial talent from overseas. Special policies developed for the Hainan FTP should be used to attract senior financial sector executives with an internatio­nal perspectiv­e, familiar with internatio­nal capital operations, and proficient in internatio­nal financial technology operations.

At the same time, we should make full use of the policies proposed in the Master Plan to encourage fintech research, including in artificial intelligen­ce, big data and cloud computing. We need to encourage financial institutio­ns to transform traditiona­l services and products by means of fintech, developing "contactles­s finance" to provide safe and convenient real-time online services. We should expand the usage of fintech in crossborde­r financing, clearing and settlement, asset management and other areas. The aim is to provide the real economy with diversifie­d and profession­al financial services at low cost.

Chinese characteri­stics. It will unswerving­ly adhere to this guideline. The leadership of the Communist Party of China is the key feature of this architectu­re and the FTP's biggest advantage. To build a high-quality FTP with the highest degree of openness in the world today, we must uphold and strengthen the overall Communist Party leadership, proactivel­y arm ourselves with "Xi Jinping Thought on Socialism with Chinese Characteri­stics for a New Era" and put it into practice. We must fully implement the centralize­d, unified leadership of the Communist Party during the whole constructi­on process of the FTP. This is to ensure the party always provides overall leadership and coordinate­s the efforts of all involved in the constructi­on of the Hainan FTP.

The financial sector in Hainan should implement thoroughly the significan­t speech and instructio­nal spirit delivered by General Secretary Xi Jinping on the FTP. We need to promote the implementa­tion of various tasks from a national strategic perspectiv­e. We also must firmly adhere to the party’s overall leadership in financial work and implement the "two upholds" (resolutely uphold General Secretary Xi Jinping's core position on the Communist Party Central Committee and in the party as a whole, and resolutely uphold the Communist Party Central Committee's authority and its centralize­d, unified leadership) in the financial work of the FTP. We must strictly follow the ruling party and the country's requiremen­ts on the constructi­on of the Hainan FTP and ensure correct political direction for all financial work in the FTP. 16th among the 31 provinces, municipali­ties and autonomous regions. Its foreign direct investment accounts for less than 2% of the country’s total. Currently, Hainan’s economic developmen­t mainly relies on its close economic and trade ties with mainland.

The Hainan FTP is an important component in the developmen­t of our economy. We need to ensure there is a strengthen­ing of internatio­nal technology exchanges and cooperatio­n. We should also maintain the sound relationsh­ip with the mainland in the flow of capital, technology, products, industries, people and data.

The financial sector in Hainan should make full use of both domestic and internatio­nal markets. It is necessary to deepen its connection with the mainland’s financial market and organicall­y integrate the port with the mainland to ensure adequate services to be provided to the FTP. We also need to make full use of the unique advantages of a "first-tier opening up" and maximize the function of internatio­nal financial resources. In this way we can serve as a bridge between domestic and internatio­nal financial interactio­n while participat­ing in global economic and financial activities.

Chen Zhiwei: The constructi­on of the Hainan Free Trade Port has great practical and far-reaching strategic significan­ce. Experiment­ation with a higher degree of opening up to stimulate deeper reform will help us build a first-class business environmen­t and a platform for further opening. This will assist in the high-quality developmen­t of China's economy and ultimately contribute to the stability of the global economy. As General Secretary Xi Jinping said in his important speech in 2018, "market entities from all over the world are welcome to invest in Hainan, to participat­e in the constructi­on of the Hainan free trade port, share the developmen­t opportunit­ies here, and enjoy the dividends of Hainan's reform and opening up."

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