Not only are Hainan Island's natural resources and huge economic potential constant attractions to investors from Hongkong, Macao and abroad; the preferential policies formulated by the Chinese Government to facilitate local development add to its appeal. These policies, embodied in the eight stipulations enacted by the State Council last year, grant greater decision-making powers to the Hainan Administrative Area in handling its economic and trade relations with the outside world. They are:

1) The Hainan Administrative Area may, upon state approval, exploit some of its important mineral resources in co-operation with foreign companies.

2) The Administrative Area is entitled to examine and approve any capital construction project or technological transformation undertaken with foreign capital, if the total investment in fixed assets is below US$5 million, if the central authorities or the province are not required to provide production conditions, and if the project is not likely to affect the fulfilment of state export quotas.

3) Equity and contractual joint ventures and wholly owned foreign enterprises in the Administrative Area are exempted from income tax in their first two profit-making years. Starting in the third year, they will pay income tax at a reduced rate of 15 per cent. Reduction or exemption of the industrial and commercial consolidated tax may be granted by the Administrative Area to enterprises unable to pay it three years after they begin production. Foreign representative offices in the Administrative Area will pay income tax at a reduced rate of 10 per cent on dividend, interest, rental and royalty incomes. The profits which duly belong to the foreign partner of a joint venture are exempted from income tax when they are remitted out of China.

Building materials and equipment, machinery, raw materials, seed and breeding stock imported for projects undertaken with foreign investment are exempted from import duties.

4) The Administrative Area should unfailingly fulfil minimum production quotas for delivery to the state or export by the central or provincial authorities. Surplus products over which there is no strict state control may be exported by the area itself or through state trading corporations. Provided that state regulations and minimum prices are met, the Administrative Area may directly export its products, a task formerly handled by the provincial trading corporations, and the state and Guangdong Province will grant preferential provisions for the export of Hainan's special products.

5) The Administrative Area may, in the light of actual needs, approve the import of capital goods needed for its industrial and agricultural development. It may use foreign exchange granted by the state to import consumer goods that are in short supply (including the 17 commodities whose imports are controlled by the state) so as to activate the local market and ensure a supply for tourists and those who, on strength of foreign remittances, enjoy the right to buy certain sought-after products.

Of imported materials and commodities, those destined for use in production are free from customs duties and industrial and commercial consolidated tax for five years. Certain consumer goods are granted a tentative 50 per cent reduction in import duties.

6) The Administrative Area may adopt effective methods to develop tourism in co-operation with foreign companies. Imported materials needed in building equity and contractual joint ventures are exempted from customs duties, as are equipment and articles imported to run them.

7) The Administrative Area may keep at its disposal foreign exchange earned from exports after state quotas are fulfilled, and from compensatory trade, tourism and processing and assembling materials and components supplied by overseas Chinese and compatriots from Hongkong and Macao to their families, who, in return, get equivalent amounts in Renminbl.

8) The Administrative Area may grant visas to foreign business personnel wanting to visit Hainan for economic activities or trade.

These stipulations, according to a US reporter, have interested many entrepreneurs in other countries. The low income tax rate and the long period of tax exemptions - or "tax honeymoon" - granted to joint ventures are particularly appealing. Foreign investors have already flocked to Hainan in search of business opportunities.

A year has hardly passed since the island was opened to the world, but Hainan has already signed 58 agreements with foreign companies concerning economic co-operation in energy, metallurgy, transportation, communications, light industry, tourism, agriculture, aquaculture and fishing, for a total investment of $83 million.

Thirty-three of these agreements are now being carried out, including an 8,000-hectare oil palm plantation in Chengmai County in northern Hainan, run jointly by a local overseas Chinese farm and a Singapore-based company. According to the agreement, the Chinese side provided land and manpower, and the Singaporean side provided funds, equipment, technology and select strains of seedlings. The plantation will set up a factory extracting 28,800 tons of oil a year.

On a stevia plantation run jointly by two Hainan farms and a Japanese company, sowing was completed earlier this year. (Stevia is a shrub grown for the sugar in its leaves.) The islanders are also raising cattle, high-grade ducks and chickens jointly with businesspeople from Australia and other countries. An automobile repair shop in Haikou now fixes 11 times as many vehicles a month as it did before in the same period by opening a service centre in collaboration with a Japanese company.

A nylon zipper factory with an annual capacity of 15 million metres of zippers, built with imported equipment by Dingan County in co-operation with a Hongkong firm is by far the largest of its kind in China. Between May 1983, when production began, and December, the factory produced one million metres of zippers. Wenchang County in eastern Hainan has, through compensatory trade with Hongkong companies, greatly developed its fishing capacity, becoming an important supplier of lobsters, prawns and groupers.

On a large island like Hainan, these success stories are only a drop in the ocean. However, they eloquently show that Hainan's preferential policies have already caught the attention of investors from overseas.

(To be continued)