The development of Hainan SEZ stands to complicate the geopolitical situation of the South China Sea
Special Economic Zones (SEZs) along China's southeastern coast share a deeply intertwined relationship with the South China Sea (SCS). This connection transcends economic considerations, extending into the realms of geopolitics, strategy, and technological innovation. The strategic positioning of these zones along this critical maritime region is instrumental in their success and underscores their significance within China's broader economic and maritime strategies.
The SEZs have played a crucial role in driving China’s economic transformation over the past few decades and are an important driver behind China’s assertions in the SCS.
These SEZs constitute a pivotal aspect of China's economic reform and opening-up policies and served as vital experimental laboratories for economic reforms, aiming to attract foreign investment, promote technological advancements, and stimulate economic growth. The establishment of SEZs in the late 1970s marked a significant departure from China's rigid centrally-planned economy and were initially designed as pilot projects or zones for experimenting with and gaining an understanding of modern capitalist economies. All four of China’s initial SEZs were located along the coast of South China, facilitating easy access to key trading routes, including those in the SCS. The SEZs have played a crucial role in driving China’s economic transformation over the past few decades and are an important driver behind China’s assertions in the SCS. While maritime territorial claims and rights comprise one part of the discourse on China’s advances in the SCS, rationales related to ensuring control over sea lanes that pass through the SCS and the Strait of Malacca chokepoint are inextricably linked to the protection of these SEZs.
Trade routes in the SCS are of principal importance for the SEZs along China’s southeastern coast, serving as critical arteries for the flow of goods, resources, and raw materials that fuel the economic engines of these zones. Positioned strategically along the coastline, SEZs like Shenzhen, Guangzhou, Xiamen, and those in Hainan Island enjoy direct access to one of the world's busiest and most critical maritime trade routes. This geographical advantage translates into efficient transportation of goods and materials, reducing costs and bolstering the competitiveness of industries based in these zones. The SEZs, being situated along this strategically important waterway, serve as pivotal nodes in the global supply chain. They function as hubs for manufacturing, assembly, and distribution activities that are intricately woven into the broader tapestry of international trade. The well-established ports and shipping facilities in the SCS further amplify the connectivity of these zones to the global economy.
Positioned strategically along the coastline, SEZs like Shenzhen, Guangzhou, Xiamen, and those in Hainan Island enjoy direct access to one of the world's busiest and most critical maritime trade routes.
One of the most prominent SEZs in this region is Shenzhen, often hailed as the pioneer of China's economic reforms. Situated adjacent to Hong Kong, Shenzhen's strategic location facilitated a symbiotic relationship with the global financial hub. This proximity allowed for a seamless exchange of knowledge, capital, and technology, accelerating its growth into a technological powerhouse and a hub for manufacturing and innovation. The city of Guangzhou, adjacent to Shenzhen, hosts another vital SEZ. Guangzhou, a well-established industrial base, has played a pivotal role in the export-oriented economic strategy of China. Its strategic position along the Pearl River Delta and the SCS has made it a crucial gateway for trade and commerce, further solidifying its significance in China's economic landscape.
Moving further east along the coast, Xiamen and Hainan Island also host SEZs of strategic importance. Xiamen, situated across from Taiwan, has leveraged its geographical proximity to establish robust trade links with the island. Meanwhile, Hainan Island’s transformation into a free trade port is a testament to China’s ambition to bolster economic activity in the SCS region. The establishment and success of these SEZs underline China’s adeptness at utilising its maritime geography to drive economic growth. By strategically locating these zones along the southeastern coast bordering the SCS, China has not only attracted substantial foreign investment but has also transformed these regions into vibrant economic engines, fostering innovation, technology transfer, and international trade.
The establishment and success of these SEZs underline China’s adeptness at utilising its maritime geography to drive economic growth.
Despite political and administrative reforms, the Hainan SEZ had failed to keep pace with the other SEZs in China. Nonetheless, a new plan to establish a Hainan Free Trade Port (HFTP), initially proposed in 2018, promises development of the SEZ with comprehensive reforms and opening up. In 2022, the HFTP transformed into a separate customs zone as the first step towards transforming the province into the world’s largest free trade port by 2025. Besides plans to link the HFTP with the Greater Bay Area of 11 cities (Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen, and Zhaoqing) into an integrated economic and business hub, there are also plans to develop Hainan as a regional tourism hub given that it is also referred to as China’s Hawaii.
Besides its economic role, the Hainan province also serves another vital function vis-à-vis the SCS. Sansha City, which administers the disputed features of the SCS, is located in the Hainan province and the latter has played three important roles—a staunch advocate for China's claim and stance, a proactive shaper of China's interests in the disputes, and a constructive contributor to safeguarding China's national security in the SCS. It is also home to the country's key military bases and is part of its South Sea Fleet. The island was also recently in the spotlight as the launch site for Chinese spy balloons, one of which was shot down by the US in February this year. China is also building a dedicated port in Sanya to support deep-sea research.
Due to its geographical location, the ASEAN member countries are poised to become Hainan’s most natural foreign partners, investors, participants, and tourists. It is expected to be a major export market for ASEAN intermediate products and also a major export market for consumer goods and services.
Due to its geographical location, the ASEAN member countries are poised to become Hainan’s most natural foreign partners, investors, participants, and tourists.
Nevertheless, the HFTP stands to complicate the geopolitical situation of South China for China because recent years have not only seen an uptick in the number of adverse incidents in these waters with countries like Vietnam Philippines, Malaysia, and even Indonesia, but these countries and ASEAN as an organisation have been increasingly vocal against Beijing’s assertions in the SCS. Some recent incidents include China’s recent map showing 10 dashes instead of the usual nine-dash line demarcating what it considers its maritime territory in the SCS, the near collision of a Chinese coast guard ship with a Philippine vessel, and a joint naval exercise between Washington and Manila. None of these recent incidents are new developments but rather a recurring feature of this tenuous body of water. Time will tell whether the HFTP contributes to closer economic ties between China and ASEAN or whether things remain more or less as they are now. Apparently, although given that China-ASEAN relations will be vital to the success or failure of the HFTP, Beijing’s activities in the SCS appear to be at odds with its economic plans for the Hainan SEZ.
Pratnashree Basu is an Associate Fellow at Observer Research Foundation
Aishiki Chowdhury is an Intern at Observer Research Foundation
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Pratnashree Basu is an Associate Fellow, Indo-Pacific at Observer Research Foundation, Kolkata, with the Strategic Studies Programme and the Centre for New Economic Diplomacy. She ...
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