Haikou: An emerging industrial city

Often referred to as the ‘coconut city’, Haikou is a prefecture-level city situated on the northern coast of Hainan known for its crystal waters and coconut trees. Haikou literally means ‘sea mouth’—the place where rivers and streams meet before joining the sea—and was viewed by its ancient inhabitants as being blessed by Heaven.[1] Rainy Yao from Dezan Shira & Associates takes a look at this ‘paradise’ that is fast becoming the economic and industrial centre of Hainan Island.

Economic overview

Since the Song Dynasty, Haikou has been a trading port and main courier station to the countries to the southeast of China. Following the establishment of the Hainan Special Economic Zone in 1988, Haikou began vigorously promoting itself as China’s Outstanding Tourism City, with an advanced service sector. In 2005, the city established Haikou Industrial Day and rolled out various preferential policies to support the development of industry.

In 2013, Haikou’s gross domestic product (GDP) exceeded RMB 90.46 billion and grew at an annual rate of 9.9 per cent. The city’s primary industry contributed RMB 5.85 billion (6.3 per cent growth) and its secondary, RMB 21.7 billion (8.9 per cent growth). The remaining RMB 62.9 billion came from the service sector, which grew at an annual rate of 10.5 per cent.[2]

Tourism, the pillar industry of Haikou’s service sector, brought in close to RMB 12.02 billion in 2013, with 10.44 million foreign and domestic tourists visiting the city last year.

The city’s three other pillar industries, namely, pharmaceuticals, tobacco and the electromechanical industry, brought in RMB 7.1 billion in 2013, accounting for 53 per cent of growth in large-scale industries.

Last year, growth in foreign investment was boosted by 37 newly-established, foreign-invested enterprises (FIEs), an increase of 94 per cent from the year previous.

Development zones

Haikou’s main development zones include:

Haikou Integrated Free Trade Zone

The Haikou Integrated Free Trade Zone was approved by the State Council in 2008 and has four pillar industries: bio-pharmaceuticals, digital information, automobiles and the electromechanical industry. The zone’s major functions include foreign trade, logistics and deliveries, international transfers, goods processing and exhibitions.[3]

Haikou National New Hi-Tech Industrial Development Zone

This is the only national-level, new hi-tech industrial development zone in Hainan approved by the State Council. The zone consists of six parks, namely, Medicine Valley Industrial Park, Hippocampus Industrial Park, Shiziling Industrial Garden, Yunlong Industrial Park, International Creative Port and Mei’an Science & Technology Park. Hi-tech industry clusters have been established in the zone for biological pharmacy, automobile manufacturing, new energy and new materials.[4]

Haikou Guilingyang Economic Development Zone

Approved in 1991, the Guiling Economic Development Zone (EDZ) covers an area of 41.3 square kilometres and features industry clusters in biological pharmacy, agricultural and aquatic product processing, yacht manufacturing and logistics.[5]

Investment opportunities

The municipal government has implemented various preferential policies to promote industrial development in Haikou including tax incentives, financial support and subsidies.

According to Several Provisions on Promoting Industrial Development, released by the municipal government in 2011, the city will make efforts to develop a ‘headquarters economy’—conditions suitable for on-site hosting of corporate headquarters—and encourage the establishment of research and development (R&D) centres.[6]

Moreover, the municipal government grants financial support to foreign investment projects in the following fields:

• Modern agriculture
• ‘New’ industry (a catch-all for high-tech, low-waste industries)
• Modern services
• Marine industry

Tax incentives and land policies

Enterprises established within the Haikou Integrated Free Trade Zone are exempt from paying value-added tax (VAT). Machinery, equipment and other construction materials used in the construction of infrastructure shall be exempt from import tariffs and import VAT. Goods traded within the zone shall be exempt from VAT.[7]

Newly-established factories, employee cafeterias and R&D centres shall be exempt from urban infrastructure construction fees.[8]

Financial Support

The Haikou government has established a special fund of RMB 38 million for eligible hi-tech enterprises in bio-pharmaceuticals, automobile manufacturing, and other industries.[9] Manufacturing enterprises’ purchase of machinery and equipment costing RMB 5 million or more shall receive a subsidy of three per cent of the total price.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com or visit www.dezshira.com.

[1]http://www.haikou.gov.cn/haikou/gyhk/201311/t20131106_603381.html

[2]http://www.haikou.gov.cn/xxgk/szfbjxxgk/tjxx/tjgb/201402/t20140224_648395.html

[3]http://www.hkftz.gov.cn/shownews.php?sysmenuID=4&ID=241

[4]http://www.gxq.gov.cn/?action-viewnews-itemid-14311

[5]http://gly.haikou.gov.cn/yqjs/yqjj/201312/t20131211_615880.html

[6]http://www.xinhuanet.com/chinanews/2011-09/28/content_23799167_1.htm

[7]http://www.hkftz.gov.cn/shownews.php?sysmenuID=17&ID=246

[8]http://www.haikou.gov.cn/xxgk/szfbjxxgk/zfgb/2011zfgb/2011nd10q/201111/t20111129_443049.html

[9]http://www.zgswcn.com/2014/0611/415307.shtml