China Touts Hainan’s ‘Customs Closure’ as Milestone for Open Markets, but Doubts Persist

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When China formally launched its “customs closure” operation at the Hainan Free Trade Port on Dec. 18, the regime quickly framed the move as a milestone in Beijing’s push for innovative economic opening.

State media outlet Xinhua News Agency highlighted surging foreign trade, record duty-free sales, rising port volume, and a spike in new business registrations, portraying the island as the world’s “largest free trade port.”

In Beijing’s official narrative, “customs closure” does not mean sealing borders. Instead, it refers to tighter control over goods moving between Hainan and the rest of China while promising looser rules for foreign trade. The regime has portrayed the arrangement as a foundation for turning Hainan into a globally competitive free trade hub, but experts warn that short-term gains in trade volume and company registrations may conceal structural limits that obstruct long-term foreign capital.

Six weeks into the new regime, the results appear far less dramatic than the official narrative. On Jan. 24, videos posted on Chinese social media by netizens showed Yangpu Port—touted as a key logistics hub for the free trade port—largely quiet on its 37th day of customs closure operations. The footage depicted sparse vehicle traffic and no visible clusters of cargo vessels or container ships, a scene that contrasted sharply with state media portrayals of bustling maritime activity.

However, the Hainan branch of Chinese state media People’s Daily, citing the Yangpu Maritime Safety Administration, has asserted that the customs closure operation has been smooth. According to official figures, the port handled 3,510 vessel calls and 14.54 million metric tons of cargo in the first month after the customs shift, including nearly 500 international vessel calls—year-on-year increases of more than 27 percent in ship traffic and 50 percent in cargo volume.

Zeng, a finance scholar based in China who spoke to The Epoch Times on the condition of publishing only his surname because of fear of reprisal, said the data cited by officials obscure deeper structural issues. Much of the recent growth, he said, appears concentrated in specific commodities and among a narrow set of firms—particularly state-owned enterprises, and businesses tied to duty-free retail, energy, and basic processing.

“These flows are heavily dependent on administrative arrangements,” Zeng said. “They look more like policy-driven traffic than market decisions based on long-term confidence in the system.”

True openness, he argued, would be reflected in foreign companies establishing long-term operations, supply chains that embed locally, and capital committed without the need for constant policy incentives. “Right now, goods are moving, projects are rotating—but capital isn’t staying,” Zeng said.

The Chinese regime has also highlighted a sharp increase in business registrations as evidence of investor enthusiasm. According to a Jan. 15 report in Chinese state media, more than 4,700 foreign trade firms were newly registered in Hainan in the 24 days following the customs change, nearly matching a full quarter’s total for 2024 and pushing cumulative registrations past 100,000.

Analysts have said those figures deserve scrutiny.

A China-based researcher who tracks regional economic development, told The Epoch Times on condition of anonymity because of fear of reprisal, that Hainan’s trade statistics are disproportionately inflated by transshipment, bonded warehousing, and intra-group transactions. Although these activities can quickly boost trade totals, they do little to generate sustained industrial upgrading and institutional credibility.

“The official narrative deliberately blurs the gap between making trade figures bigger and making the economy stronger,” the researcher said.

Fang said many newly registered firms are essentially shell companies, which are lightly capitalized entities with minimal staff and sometimes no permanent office. Their goal, she said, is to secure free trade port status first, then decide later whether to invest meaningfully once policy details become clearer.

“Some companies register and then sit idle for over a year,” Fang said. “No real operations, no follow-up investment—they’re just holding a place.”

Although such firms are counted as new market participants, she said, they reflect defensive positioning amid regulatory uncertainty rather than confidence in a stable, transparent system.

“If the rules were truly clear and reliable, you wouldn’t see so many companies registering just to wait,” Fang said.

For foreign investors and international observers, the real test will not be duty-free sales records or short-term trade spikes, but whether Hainan sees sustained growth in long-term foreign investment, genuine freedom for capital to enter and exit, and firms willing to commit without constant policy sweeteners.