China Envisions a New Hong Kong, Firmly Under Its Control

Hainan still lacks Hong Kong’s sheen. It lacks the restaurant options of Hong Kong, Tokyo, Paris and New York. Some of the most haute luxury brands are missing. Kering, the Parisian luxury house, has opened Gucci Sunglasses and Gucci Perfume stores in the Hainan beach city of Sanya but not shops for its elite Ulysse Nardin and Girard-Perregaux watches. Kering declined to comment.

“You can imagine what shopping atmosphere there is,” said Rachel Qian, a 33-year-old Shanghai resident who took frequent shopping trips to Tokyo before the pandemic. She is giving Hainan a pass to avoid rubbing elbows with people who will buy premium brands only to sell them elsewhere in China.

“People are not there for the fun of shopping but to make money,” she said.

In skills, too, officials are trying to overcome Hainan’s deficiencies. The central government has dispatched to the province experienced officials who have overseen successful development programs. Hainan’s governor, Shen Xiaoming, previously ran Shanghai’s free-trade zone and helped persuade Tesla to set up its first overseas car assembly plant there.

To draw skilled workers, the Hainan government bought private preschools all over the island last spring and made them public, with preferential enrollment for the children of well-educated parents who move there.

“There will be more and more high-end talent in the future,” predicted Yu Lei, a telecommunications engineer who has moved there from the city of Chongqing and has just enrolled his 3-year-old daughter in a newly public preschool.

To lure companies and the rich, Hainan officials have slashed taxes. They have cut personal and corporate taxes for some to 15 percent. In mainland China, high-earning individuals face a steep 45 percent income tax rate, while a wide range of corporations pay 25 percent.

Some wealthy individuals have rushed to set up personal companies on the island to route part of their paychecks through there and save on taxes, say those who work with them. Similarly, Chinese companies are exploring setting up subsidiaries there.