An iPhone that costs about $100 less might not sound like a trade policy story, but in China’s Hainan Island, it is.

As global trade faces rising tariffs and growing protectionism, China is moving in the opposite direction by opening one of its doors wider. That door is Hainan, a tropical island now being positioned as China’s most ambitious experiment in free trade and economic openness.

Expanded zero-tariff policies and new value-added rules are reshaping costs for international companies and delivering real savings to consumers.

Unique opening

China already has 22 free trade zones (FTZs), but Hainan represents a fundamentally different level of openness. Most FTZs are limited to specific urban areas and focus on upgrading local industries. Hainan has transformed an entire island into a unified free trade port, with its own customs, tax and regulatory system.

Under the new policy, Hainan functions as a special customs area, enabling deeper institutional reforms: broad zero-tariff policies, freer cross-border capital flows, and a value-added processing policy that allows qualifying products to enter the Chinese mainland duty-free.

This scale matters. Hainan’s land area is more than 35,000 square kilometers, which is over 70 times the combined area of China’s 156 bonded zones. What happens elsewhere in tightly fenced industrial parks can in Hainan happen almost anywhere on the island.

For international companies, this provides unprecedented access and flexibility compared to other regions in China.

Special customs operations

The rules sound technical, but the logic is straightforward.

• Massive zero-tariff expansion: The share of goods eligible for zero tariffs rises from 21% to roughly 74% of all tariff lines, covering nearly all production equipment and key raw materials. Companies importing machinery and materials could reduce tax costs by around 20%.
• 30% value-added rule: Products processed in Hainan with at least 30% of their value added locally can enter the Chinese mainland duty-free. In simple terms, Hainan is saying: don’t just pass goods through – do real work here. Assembly, manufacturing, processing, and supply-chain development all count.
• “Double 15%” tax advantage: For companies registered and genuinely operating in Hainan, and belonging to encouraged industries, corporate income tax is capped at 15%, compared with 25% on the mainland and 16.5% in Hong Kong. The list of encouraged industries is broad, ranging from desalination equipment and commercial space launches to imported food processing, modern agriculture and even rural homestays.
• Income tax cap: For individuals, the incentive is just as striking. For professionals listed in Hainan’s talent catalog, personal income tax is also capped at 15%, compared with a top rate of 45% on the mainland.
• Simplified regulations: Customs and import procedures have been streamlined, including the removal of licensing requirements for many used mechanical and electrical products. This reduces administrative barriers and makes cross-border trade faster and easier.