China is expanding its efforts to develop the southern Hainan island into a globally significant free trade port by creating an enabling business climate and facilitating investment.

A draft law of the Hainan free trade port was submitted to a bimonthly session of the Standing Committee of the National People's Congress, China's top legislature, for review on Tuesday.

The central government had released a master plan in June that outlined a series of measures for the construction of the Hainan free trade port. The new draft law, when passed, will convert the policy incentives into laws. Prominent among these include bills on Customs clearance, tax incentives, capital account opening and improved market access for several industries. Priority will also be given to sectors dealing with the real economy, especially businesses related to tourism, modern services and high-tech in particular, according to the draft.

Zhang Yansheng, chief researcher at the China Center for International Economic Exchanges, said relevant laws are necessary to achieve the goals laid out in the master plan, which will help transform the island into a high-level free trade port with strong international influence. "International free trade ports such as Hong Kong and Singapore started their FTP operations with legislation and it helped create a world-class business environment and boost their rapid development. The Hainan free trade law is in line with China's aim of promoting the development of rule of law and the modernization of the country's governance system, while seeking to provide a legal framework for the construction of a high-quality free trade port in Hainan," Zhang said.

According to the draft, new steps will be taken for promoting cross-border trade settlements. Financial institutions in the FTP will be allowed to run offshore financial services after necessary approvals. The draft also requires financial institutions in the FTP to serve the real economy as a basic requirement.

Economic activities will be carried out in accordance with the high-standard international economic and trade rules, the draft said. Efforts will also be aimed at making the Hainan FTP a place with world-class business facilities, and it will be governed by a sound legal framework. The island will also allow greater tax breaks for investors by introducing a clearer, more simplified tax structure.

A list-based management approach will be introduced for goods exported and imported through the Hainan FTP, with goods outside the list passing through the port without any hindrance. Greater efforts for environment protection will also be put in place, said the draft law.

In addition, the Hainan provincial government will have its own mandate to undertake necessary reforms.

Cui Weijie, director of the Institute of Industry Development and Strategy under the Chinese Academy of International Trade and Economic Cooperation, said future implementation of the law will ensure that follow-up policies and measures are implemented quickly so as to help advance the construction of a high-quality free trade port.

According to Cui, the Hainan FTP will play an important role in implementing the comprehensive deepening of reforms and testing the high level of openness policies. He said the construction of the free trade port will foster high-quality economic development and fuel economic growth in the economies associated with the Belt and Road Initiative.

Li Guanghui, chief expert of the China free trade zone strategic research institute at the University of International Business and Economics in Beijing, said the Hainan FTP is of vital importance for pursuing an open economy.

"Unlike free trade zones, free trade ports reflect the world's highest level of openness," Li said. "We need to build a legal system to lead the way for building a high-quality free trade zone in Hainan, which will inject new impetus to build an open economy in the nation and play a key role in building the new 'dual-circulation' development pattern that takes the domestic market as the mainstay while domestic and foreign markets complement each other."

The Hainan FTP will help boost international economic circulation and spur stable economic development despite the negative impact of COVID-19 on trade and investment, said Li.

According to the National Development and Reform Commission, Hainan's new duty-free policy, which took effect on July 1, has driven the purchase of 15.9 billion yuan ($243 billion) worth of duty-free items during the July-November period, with a 204 percent year-on-year increase.