(Yicai Global) June 2 -- Chinese authorities plan to turn the island province of Hainan into a zero tariff free trade port by 2025.

The province will set up a special customs area for island-wide clearance to facilitate free trade, Xinhua reported, citing a master plan published by the Central Committee of the Communist Party of China and the State Council. Authorities will also set up a system to supervise services trade, according to the plan.

"The opening of the Hainan Free Trade Port has exceeded expectations," Prof. Hu Yijian of the Shanghai University of Finance and Economics, told Yicai Global, adding that China should speed up globalization and use a special tax system to further open up and become more competitive.

A free trade port generally refers to a specific area set up outside the borders of a country or region where people with goods and funds are free to enter and exit, and most goods are exempt from customs duties. It is the most open special economic zone model in the world.

China will draw up a blacklist of items which cannot be imported or exported via Hainan, and will also put together a catalog of imported taxable commodities. Goods not in the catalog will be exempt from import tariffs when entering the free trade port.

The plan pushes the development of the Hainan Free Trade Port to the “operational” phase from the “exploration” phase, said Wang Yiwu, dean of the Hainan Institute of Modern Management.

Companies operating in the free trade port will enjoy preferential corporate income tax rates and eligible individuals can receive better rates on personal income tax.

The port will remove the review process for foreign investment and simply require overseas companies to meet certain compliance requirements and submit their registration before investing and conducting business. The province will use pre-establishment national treatment and a negative list system for foreign investors while greatly reducing their restrictions.

Hainan will also increase its tax-free shopping quota to CNY100,000 (USD14,000) a person per year and include more categories in the program. Haikou Customs approved off-island sales of 72 million goods worth CNY55.1 billion (USD7.7 billion) to 16.1 million consumers between issuing the tax-free shopping policy in 2011 and the first quarter of this year, according to the local customs administration.

Hainan Province is China’s southernmost province. It consists of one large and many smaller islands. It has a land area of 35,400 square kilometers and sea area of about 2 million sqm. Its population was nearly 9.5 million at the end of last year and its 2019 gross domestic product was CNY531 billion (USD74.5 billion).

Editors: Tang Shihua, James Boynton