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HAINAN PROVINCE

General Background

Hainan - abbreviated as Qiong - is located 18 nautical-miles off Guangdong's Leizhou Peninsula in southern China. Hainan province is composed of the Hainan Island, Xisha Islands, Nansha Islands and Zhongsha Islands. Hainan Island is the second largest island in China, after the Taiwan Island.

Hainan, used to be a special administrative region of Guangdong province, was designated as a province and a special economic zone (SEZ) in 1988. Hainan has two provincial administrative prefectures  Haikou and Sanya, and Haikou is the provincial capital.

The island is rich in natural resources. Its inland and offshore deposits of oil and natural gas rank one of the highest in China. Hainan has potential gas reserves of 5.8 trillion cubic meters and oil reserves of 29.1 billion tons in the main basins of the sea including the Yingge Sea and Beibu Bay. There are over 6 oil and gas fields in operation, including Yacheng 13-1, Dongfang 1-1, Ledong 22-1 and Ledong 15-1. Since the beginning of 1996, Hainan has provided gas to Hong Kong through a 770-kilometer pipeline, supplying 2.9 billion cubic meters annually.

Hainan is rich in certain mineral resources. Its reserve of Titanium is about 70% of the national total.

Hainan is also China's major salt production base. The Yinggehai Salt Field, one of the top salt fields in China, is located in the province. Besides, Hainan's tropical climate is unique in China, yielding an abundance of tropical cash crops like coconuts, pepper, coffee, tea and rubber.

Hainan is the most important tropical fruit production base and seeds-breeding base in the country. The island supplies 100 million kg of fine grain seeds annually. Hainan is one of the largest banana producers in China with an annual output of nearly 1 million tons. Besides, the province also takes significant role in production of herbal medicines in the country.

The numerous beaches along the island's long coastline make the island a favorable breeding ground for shrimp, shellfish and other aquatic products. Baimajing, Sanya and Qinglan are Hainan's major fishing ports.

Infrastructure

Water Transport ⌒ A total of 13 deep-water berths, including Haikou, Basuo, Sanya, Yangpu, Haikou New Port and Macun, with cargo handling capacity of 15 million tons.

Railways ⌒ The construction of Guangdong-Hainan railway linking Zhanjiang of Guangdong to Sanya , the first cross-sea railway in China, has been completed recently. This railway connects Hainan with the Mainland railway network.

Highways ⌒ The existing road network includes three major south-north highways and four east-west highways. Two of them are the Eastern Expressway linking Haikou and Sanya and the Western expressway linking Haikou and Yangpu.

Besides, an expressway linking Haikou and Wenchang, a round-the-island expressway linking Haikou with Sanya, Tongza and Dongfang, an extension of the Eastern Expressway from Fucheng to Qionghai and the sections from Jiusuo to Sanya and from Yangpu to Basuo of the Western Expressway and a special highway from Jiaji to Boao are all under construction.

Air Transport ⌒ Hainan has three airports locating at Haikou, Sanya and Qiongshan. They provide regular services to more than 50 domestic and overseas destinations, including Hong Kong, Macau, Singapore, Malaysia, and Thailand. The Hainan Airlines which have 25% stake owned by the American Airlines, is the first Sino-foreign joint-funded airlines in China.

Telecommunications ⌒ Roaming services for pagers to more than 100 China's cities is available in the whole province. In 1999, the subscribers for mobile phone services were about 280,000, a 47% increase over previous year. There are also over 200,000 internet users in the same year.

Industries

In 2000, Hainan's industrial output totaled Rmb20.2 billion. Rubber, foodstuffs and other light industries used to be the major traditional industries of Hainan. Over the past decade, the province has expanded its industrial base to include metallurgy, petrochemicals, chemicals, pharmaceutical, automobile, food processing, papermaking, tobacco, textiles, building materials, machinery and electronics. Currently, the province is trying to regionalize its economy by concentrating its integrated industries on the northern region, heavy industries on the western region and light industries on the eastern region, and tourism on the southern region

Hainan is the largest rubber production base in China. A wide range of rubber products such as tyres, conveyor belts and latex gloves are produced. Electronics is an emerging industry in Hainan, producing color TV, refrigerators, cassette tape recorders and various electronic parts and components.

Currently, Hainan strives to attract large-scale, technology-intensive and pollution-free manufacturing projects in the fields of electronics, petrochemicals and pharmaceuticals. The priority development industries include beverages, automobiles, motorcycle, garments, building materials and metallurgy. Industries related to food processing and beverage should have strong prospects. "Yeshu" Brand Natural Coconut Juice is one of the best-known brands in China.

Tourism

Hainan is keen on utilizing its tropical tourism resources such as mangrove forest, coral reefs, beaches, tropical cash crop plantations and rainforest.

Sanya, a tropical beach resort located in the south most part of the island, is designated as one of China's 11 major tourist and holiday resorts by the State Council. Hainan also offers numerous tourist festivals and celebrations. "The Hainan Coconut International Festival" which is held annually attracts thousands of overseas and domestic visitors. In 2000, Hainan attracted more than 486,800 tourists (+6.6%) and generated total revenue of US$109 million (+3.8%).

The local government strives to turn Hainan into an international tourist destination. Four tourism zones are being developed: Sanya Beach Holiday Development Zone, Haikou Entertainment & Shopping Development Zone, Tongza Li & Miao Ethnic Traditions & Holiday Development Zone and Xinglong Hot-spring Resort Development Zone.

Consumer Market

Retail sales of consumer goods in Hainan rose by 9.5% to Rmb17.3 billion in 2000. Haikou, Sanya and Tongza are the major consumer markets in Hainan. The Hainan Provincial Duty-Free Commodities Enterprise Company and the Friendship Store are the two major department stores in Haikou. Besides, the "Pearl Plaza" center, the largest shopping mall in Hainan, covers an area of 2.67 hectares has put into operation in 2000.

Hainan is one of the 11 pilot cities and SEZs to allow the establishment a maximum of two large-scale Sino-foreign department stores with import/export rights. The government targets foreign joint ventures investment in supermarkets and chain store shops. Retailers from Hong Kong have already established their presence in Hainan.

Foreign Trade

Hainan's exports remained unchanged at US$550 million in 2000. Major export items included natural gas, alloy, medicine, furniture, etc.

Hong Kong was the biggest export market for Hainan. In 1999, Hainan exported US$318.5 million to Hong Kong. Other major export markets are Taiwan, Japan, U.S and Germany.

Imports also remained the same at US$490 million in 2000. Major import sources were the US, Japan, Russia, Republic of Korea and Singapore. Major import products included iron and steel, electrical equipment, machinery, fertilizers, medicine, etc.

Foreign Investment

In 2000, Hainan approved 184 foreign-invested projects (+16.4%) with contracted foreign investment of US$137 million (-82.7%). The actual utilized foreign capital dropped by 11.1% to US$430.8 million in the year.

Hong Kong is the biggest investor in Hainan. In 1999, the province approved 80 HK-invested projects with an amount of US$63 million. It also utilized US$143 million of the investments. Other major investors were from the US, Taiwan, Japan and the UK.

Major foreign-invested projects mainly engaged in tourism and hotels, agriculture, manufacturing and property development. Multinational giants such as Siemens, Dupont, BASF, Benz and Mitsubishi have also invested in the province. In coming years, the province plans to attract more foreign funds into its key projects in power generation, transport, farm product processing, environmental protection and tourism.

Haikou and Sanya were the major cities in Hainan to attract foreign investment. Currently, there are more than 1000 foreign-invested enterprises in Haikou. Of which, 70% come from the Asian countries and they are mainly involved in the sectors of commercial services, finance and insurance. In 1999, the city approved 103 foreign-invested enterprises with total investment of US$84.7million. Foreign investments mainly engaged in four pillar industries: food processing and beverage, textiles and garment, medicine and metal products.

Sanya has attracted foreign investors from 23 countries or regions including France, Japan, the US, Hong Kong and Taiwan. In 1999, 597 overseas-funded enterprises have been established in the city, involving total investment of US$1.2 billion. Taiwan is one of the major foreign investors in Sanya. There were 108 Taiwan-funded enterprises, which was about 23% of all the foreign-invested enterprises in the city, involving contractual investment and actual utilized funds of US$300 million and US$160 million respectively in 1999. Those projects mainly engaged in agricultural, tourism, transportation, services, real estate and the processing industry.

Economic Indicators of Major Cities (1999)

	Population	GDP	Industrial Output	Retail Sales	Utilized FDI
Cities	('000)	(RMB bn)	(RMB bn)	(RMB bn)	(US$ mn)
Haikou	544 (+3.0%)	11.8 (+7.3%)	7.8 (+8.3%)	6.8 (+7.9%)	385 (-17.7%)
Sanya	462 (+3.6%)	2.6 (+6.7%)	0.9 (+11.3%)	0.8 (+21.4%)	164 (+1.2%)
Qiongshan	662 (+1.4%)	4.2 (+3.7%)	2.1 (+10.5%)	1.0 (+20.0%)	55.9 (-68.4%)
Wenchang	530 (+0.4%)	3.1 (+6.9%)	1.6 (-15.8%)	0.7 (+10.0%)	10.2 (-74.5%)
Qionghai	440 (+0.7%)	3.8 (+8.6%)	1.6 (+12.1%)	0.9 (+12.5%)	26.4 (-53.7%)

Note: Figures in ( ) represent year-on-year growth Source: Statistical Yearbook of Hainan, 2000

Major Economic & Technological Development Zones (ETDZs)

1. Yangpu ETDZ, was approved by the State Council in March 1992 to develop into China's biggest development area by leasing to foreign investors. The Yangpu Land Development Corporation, a Kumagai Gumi-led consortium, began construction of the zone in 1993 and played a major role in raising capital for industrial projects and attracting foreign investment to engage in trading, industrial investment, finance, real estate, and other tertiary industries in the zone. Thousands of both domestic and overseas-invested enterprises have established in the zone.

2. Haikou Bonded Zone, was approved by the State Council in April 1993, located at the centre of Haikou city. The zone is designed to be a free trade zone to attract foreign trade, export processing, bonded storage, finance and insurance businesses, as well as other trade-related services.

3. Yalong Bay State Tourist & Holiday Resort Zone, located in the east coast of Sanya, is one of the first 12 state-level tourism development zones approved by the State Council in 1992. The zone will offer a full range of accommodation, leisure, and shopping facilities to attract both domestic and overseas tourists. It is set to become China's premier tourist destination. Many Hong Kong companies have invested heavily in the zone's hotels, golf courses, and other holiday facilities.

Other major development zones in Hainan include:

1. Haikou Jinpan Industrial Development Zone, aims to develop into an export-oriented economic development zone with a coordinated development of commerce, finance, culture and entertainment. It has so far attracted 138 projects with total investment of US$360 million. A total of 75 joint ventures have already gone into production there, including 12 hi-tech companies.

1. Haikou HongKong/Macau Industrial Development Zone

2. Haikou Finance & Trade Zone

3. Guilinyang ETDZ

4. Qinglan ETDZ

Economic Indicators

	1999		2000
Economic Indicators	Value	Growth	Value	Growth
		(%, y-o-y)		(%, y-o-y)
Area (sq km)	33,920	--	33,920	--
Population (mn)	7.6	1.2	7.9 ^	3.3
Gross Domestic Product (RMB bn)	47.1	7.5 *	51.9	8.8 *
Per Capita GDP (RMB)	6,227	6.1	N/A	N/A
Disposable Income Per Capita
-- Urban (RMB)	5,338.3	10.0	5,358.3	0.4
-- Rural (RMB)	2,087.5	3.4	2,182.3	4.5
Fixed-assets Investment (RMB bn)	15.1	-3.4	15.0	-0.7
Added Value Output
-- primary industry (RMB bn)	18.2	10.7	19.7	8.2
-- secondary industry (RMB bn)	9.5	5.1	10.2	7.4
-- tertiary industry (RMB bn)	19.5	5.8	22.0	12.8
Retail Sales (RMB bn)	15.8	6.7	17.3	9.5
Inflation (Consumer Price Index, %)	-3.4		1.1
Exports (US$ bn)	0.6	-14.1	0.6	0.0
- by FIEs (US$ bn)	0.3	262.5	0.3	0.0
Imports (US$ bn)	0.5	-47.3	0.5	0.0
- by FIEs (US$ bn)	0.1	-70.6	0.2	100
Direct Foreign Investment
- number of projects	158	-9.2	184	16.5
- contracted amount (US$ bn)	0.8	452.9	0.1	-82.7
- utilized amount (US$ bn)	0.5	-32.4	0.4	-11.1

Notes: * In Renminbi real terms

^ Latest population census, 1999 figure was estimate base on previous survey.

Sources: China Statistical Abstract, 2001. CEIC database