Full-island free trade zone could alter supply chains, tourism and investment flows across Asia, with long-term implications for India
China’s move to operationalise the Hainan Free Trade Port (FTP) marks a major structural shift in Asia’s trade and investment landscape, with potential long-term implications for India, the Economic Survey 2026 said.
The survey noted that China launched full-island customs operations in Hainan on December 18, 2025, converting the entire island province into a free trade port with some of the country’s most liberal regimes for trade, investment, and visas.
Unlike conventional special economic zones, Hainan’s FTP spans the whole island, creating a vast, low-tariff economic space that allows the relatively free movement of goods, services, capital and people.
Under the new framework, tariffs on most imports into Hainan have been scrapped, enabling foreign goods to enter the island without customs duties. Hainan also operates under a customs system separate from mainland China.
Products manufactured on the island that meet minimum local value addition of 30 per cent can be sold across the rest of China without additional tariffs, subject to rules aimed at encouraging genuine production rather than re-exporting.
The survey described the FTP as “a services-heavy, low-friction trade and business hub” and China’s most ambitious experiment so far in opening up its economy beyond the mainland’s traditional models.
For India, however, the survey cautioned against viewing Hainan as an immediate disruptive shock. Instead, it characterised the development as a gradual structural shift that could, over time, reshape the economics of trade, logistics, and investment in China’s near neighborhood.
The presence of a large free trade port in the northern Indian Ocean and South China Sea region could influence supply-chain routing, tourism patterns, and corporate investment decisions across Asia.
The importance of Hainan, the survey said, lies not just in the competition it may create for global capital but also in its emergence at a time of growing fragility in the world economy. Production decisions, capital flows, and supply chains are increasingly being shaped by geopolitical risk and strategic considerations, rather than purely by cost efficiency.
“While the global economy has so far weathered the shocks of 2025 better than initially feared, the window for ‘business as usual’ may be closing,” the survey said, warning that the probability of moderate to severe disruption in global affairs now outweighs the chances of a smooth status quo.
In such an environment, India’s reliance on global capital flows assumes greater significance. The survey highlighted the need for careful planning around liquidity management and external capital buffers, particularly in the face of emerging risks such as capital flight and the growing use of US stablecoins.
Although India is better placed than many economies to sustain a reasonable growth rate, the survey said its resilience will continue to be tested by strategic vulnerabilities, including dependence on external capital, energy imports, and critical inputs such as fertilisers.
“Hainan’s Free Trade Port should be seen as part of a broader reordering of the global economy,” the survey said, adding that India’s policy challenge lies in strengthening domestic buffers and competitiveness while navigating an increasingly uncertain external environment shaped by new trade architectures and shifting centres of economic gravity.
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