Hainan's customs closure reshapes access and margins for energy and chemical sectors

Rather than blanket tax exemptions, Hainan's customs closure introduces a filtered set of incentives that favor high-value manufacturing and offshore circulation, while decisively shutting out low-end processing and arbitrage flows.

1 | Not all tax-free: "zero tariff" comes with red lines

A clear policy boundary:

• Encouraged: imports of upstream raw materials (e.g., crude oil, ethylene, propane) that serve as inputs for in-island production.
• Restricted: finished petroleum products and low-end blended chemicals intended for resale or simple packaging.

An official product list outlines which energy and chemical imports are eligible for full exemption. Many fuels and lower-tier coatings, detergents, and pigments remain taxed.

2 | Processing arbitrage: the 30% value-added rule

One of the most powerful tools in the Hainan playbook is the "≥30% value-added for domestic exemption" mechanism. Under this structure, companies can:

• Import raw materials and equipment tax-free
• Process in Hainan with sufficient transformation
• Sell into mainland China without triggering re-import duties

3 | Offshore trade: cash flow, blending, and transfer advantages

For trade players, Hainan's value is less about "duty-free import," and more about customs status flexibility:

• Deferred VAT: crude oil or LNG stored in bonded tanks in Yangpu does not trigger upfront VAT, preserving liquidity.
• Blending without penalty: under special supervision zones, fuel oil blending avoids consumption tax if destined for bunkering.
• Easy transfer and hedging: bonded cargo can change hands without invoice constraints or complex tax flows, and is directly linkable to China's futures markets.

These mechanisms combine to form a regional arbitrage model, not to rival global hubs like Singapore, but to offer "opportunistic logistics plus compliance premium" in select lanes.

4 | Marine fuel: policy advantage, market disadvantage

Hainan is currently the only Chinese port allowed to supply bonded fuel to Chinese-flagged vessels under mixed domestic-foreign trade voyages. This opens up a structural advantage for cost-optimized refueling in routes such as:

• South China – Southeast Asia
• Western China – Indonesian resource corridors
• Land-sea intermodal paths via the New Western Land-Sea Corridor

However, price, scale and ecosystem gaps with global leaders remain large. Average marine fuel prices in Hainan are still significantly higher than Singapore benchmarks, and total bonded volumes account for only a fraction of competing ports.

The result: Hainan is a situationally attractive port for certain domestic-regional use cases, not yet a systemic anchor for international fuel supply.

The above content is the major conclusions and highlights extracted from the January 2026 issue of the China Policy Perspective Monthly Report. The full report includes:

• A full breakdown of tax exemption categories across fuels, olefins, polymers and auxiliaries
• Simulation models of processing arbitrage under the 30% value-added rule
• Detailed risk flags for tax compliance, customs supervision, and audit feasibility
• Investment assessment scorecards for downstream integration and location matching
• Strategic comparisons of Hainan vs. Singapore for marine fuels, crude storage and offshore trade

A more comprehensive discussion, including charts, case studies and data appendices, is available in the January issue of China (Energy Transition) Policy Perspective (produced by GL Consulting).

Click the hyperlinks for the full text or email glconsulting@mysteel.com.