Investment Rating - The report maintains an "Overweight" rating for the retail industry [1]. Core Insights - The Hainan Free Trade Port has entered the final 30-day sprint phase for its full closure operation, which began on November 18. The port optimization and "second-line" regulatory facility construction are nearing completion, with the expectation of achieving a regulatory framework of "first-line opening, second-line management, and island-wide freedom" [4][9]. - The policy framework post-closure focuses on "zero tariffs, low tax rates, and simplified tax systems." Approximately 6,600 products will benefit from zero tariffs, covering most production equipment and raw materials, allowing companies to save about 20% on import tax costs. Additionally, encouraged industries will enjoy a 15% corporate income tax rate, significantly reducing operational costs [10]. - The adjustment of the duty-free shopping policy for departing island travelers was implemented on November 11, which has led to a 28.52% year-on-year increase in duty-free sales amounting to 1.325 billion yuan as of November 17 [10]. Summary by Sections Industry Viewpoint - The report highlights the operational upgrade of port management as a critical step towards establishing a high-level free trade port system, facilitating the free flow of various elements within Hainan [9]. Market Review - For the week of November 17 to November 21, the retail index decreased by 7.24%, while the overall market indices also experienced declines, with the Shanghai Composite Index down by 3.90% [12]. Company Valuation Table - The report includes a valuation table for various companies, indicating that companies like China Duty Free Group, Wangfujing, and Hainan Airport are expected to benefit from the duty-free shopping policy adjustments [11][19].

Core Viewpoint - The establishment of the Hainan Free Trade Port (FTP) represents China's commitment to high-level opening-up and global trade cooperation, with a focus on creating a customs supervision special area for the entire island, characterized by a "zero tariff" trade system and a unique "one line" and "two lines" policy framework [1][2]. Group 1: Hainan FTP Overview - Hainan FTP aims to implement a customs supervision special area with a "zero tariff" policy, showcasing China's determination to expand high-level openness amid a complex international economic environment [1]. - The FTP's design draws on successful management experiences from international free trade zones like Singapore and Dubai, with a significant distinction being that Hainan is not a separate customs area, necessitating the establishment of a "two-line" system [2]. Group 2: Key Tasks for Hainan FTP Development - The first priority is to enhance the openness of the modern service industry, which is crucial for increasing the global influence of Hainan's pillar industries and fostering new competitive advantages in service trade [3]. - The second task involves gradually increasing the level of liberalization for "one line" policies, expanding the range of "zero tariff" goods from 1,900 to approximately 6,600 items, thereby reducing the taxable and specially managed imports to below 26% [4]. - The third focus is on innovating "two line" regulatory policies to prevent "zero tariff" goods from impacting the inland market while ensuring smooth economic connections between Hainan and the mainland [5]. - The fourth task is to advance tax system reforms, emphasizing "zero tariff, low tax rates, and simplified tax systems" to enhance investor expectations and attract domestic and foreign enterprises [6][7].

Core Viewpoint - Hainan Free Trade Port aims to attract high-quality foreign investment through three main attractions: policy system, industry direction, and business environment [1][3][5] Group 1: Policy System Attraction - Hainan Free Trade Port offers unique "double 15%" tax incentives for corporate and personal income tax, along with "zero tariffs, low tax rates, and simplified tax systems" [3][4] - After customs closure, the "zero tariff" list will expand, increasing the proportion of "zero tariff" goods from 21% to 74%, covering approximately 6,600 product tax codes [3][4] - The province has the shortest negative list for foreign investment and encourages a wide range of foreign investment categories, maintaining the highest number of encouraged industries in the country [4] Group 2: Industry Direction - The development strategy focuses on a modern industrial system characterized by four leading industries, five growth directions, three consumption articles, and two innovation islands, targeting emerging fields such as new energy vehicles, biomedicine, aerospace, and seed technology [4] - Hainan invites foreign enterprises to participate in the construction of these future sectors, emphasizing the opportunity to invest in China's growth potential [4] Group 3: Business Environment - Hainan is committed to creating an international, legal, and convenient business environment, establishing a "direct access" mechanism for key foreign investment projects and a "single window" for international investment services [5] - The province aims to enhance intellectual property protection and ensure that foreign entrepreneurs feel welcomed and supported in their business endeavors [5] - In the first eight months of the year, Hainan saw a 7.2% increase in newly established foreign enterprises, totaling 1,297, and a 50.4% increase in actual foreign investment, amounting to 17.063 billion yuan [5]

Core Insights - Hainan is positioned as a significant hub for international trade and tourism, with its free trade port construction entering a critical phase, aiming for full island closure operations within three months [1][4][6] - The island's duty-free shopping sector has matured, with a total of 12 duty-free stores covering major cities, and has seen over 200 billion yuan in shopping amounts since the new policies were implemented [2][3] - Hainan's economic growth is driven by a robust consumer market, with retail sales reaching 176.2 billion yuan in the first eight months of 2025, growing 9.6% year-on-year, outperforming the national average [3][6] Duty-Free Shopping and Consumer Trends - Hainan has established a comprehensive duty-free shopping landscape with 7 operators and 12 stores, covering over 500,000 square meters [2] - New delivery methods such as "mail delivery" and "immediate pick-up" have been introduced to enhance consumer convenience [2] - The cumulative shopping amount in the duty-free sector has surpassed 2.5 trillion yuan, accounting for over 68% of the national market [3] Policy and Regulatory Developments - The announcement of full island closure operations on December 18 has led to the implementation of key policies, including a significant expansion of the zero-tariff product list from 1,900 to approximately 6,600 items [4][5] - A smart customs supervision platform has been launched to support efficient customs operations post-closure [4] Foreign Investment and Economic Growth - Hainan has attracted significant foreign investment, with actual foreign capital usage reaching 102.5 billion yuan over five years, growing at an annual rate of 14.6% [6] - The province has seen a substantial increase in foreign direct investment, with a year-on-year growth of 97% [6] Industrial Development and Innovation - Hainan is focusing on building a modern industrial system, with GDP reaching 370.2 billion yuan in the first half of the year, and industrial output value growing by 11.4% [8] - The province is enhancing its industrial structure, with key sectors such as tourism, modern services, high-tech industries, and tropical agriculture contributing significantly to economic growth [8][9] - Hainan has established itself as a center for commercial aerospace, with successful rocket launches and the development of a commercial launch site [7][8]

Core Viewpoint - The official launch of the Hainan Free Trade Port on December 18 will significantly impact businesses, particularly in the jewelry industry, by attracting international brands and creating a competitive environment [1][2]. Policy Impact - The Hainan Free Trade Port will implement a "zero tariff" policy, increasing the proportion of zero-tariff goods from 21% to 74% for imports, allowing for tax-free circulation among eligible entities within the island [2]. - Companies registered and operating in Hainan will benefit from a reduced corporate income tax rate of 15%, compared to the standard 25% in other regions [2]. Industry Dynamics - The zero tariff and low tax policies are expected to attract industry clusters and encourage companies to develop a complete industrial ecosystem [3]. - There is a concern about potential price wars due to increased price competitiveness among companies, which could lead to unhealthy competition [3]. Market Trends - The jewelry retail sector is experiencing growth, with gold and silver jewelry retail sales increasing by 11.3% in the first half of the year, outpacing the overall retail growth of 5.0% [4][5]. - The industry is focusing on younger consumer demographics, particularly the millennial and Gen Z groups, to drive retail growth through innovative marketing strategies [6]. Seasonal Sales Patterns - The jewelry retail market typically sees seasonal fluctuations, with peak sales expected during wedding seasons in October and the year-end holiday period [6].

Core Viewpoint - The "Simplified Tax System" will enhance the unique competitive advantage of Hainan Free Trade Port after its closure operation, aiming to attract capital and improve tax revenue competitiveness [1][2]. Tax System Reform - The "Simplified Tax System" merges multiple taxes into a sales tax, significantly reducing the complexity of the current tax system, which has 18 types of taxes in China [2][4]. - This reform aims to eliminate double taxation issues, particularly benefiting manufacturing enterprises reliant on imported materials by lowering costs [2][3]. Tax Structure Design - The reform's core goal is to establish a simple and scientifically structured tax system with lower tax burdens [4][5]. - There are two design approaches for the sales tax: "broad tax base with low rates" or "narrow tax base with high rates," with experts suggesting that the former may better suit Hainan's goals [4][6]. Implementation Challenges - The "Simplified Tax System" reform faces significant challenges, including the complexity of tax collection and the need for coordination with other regions' tax systems to avoid double taxation [7][8]. - Experts indicate that the reform is still in the research phase and may not be fully implemented during the current planning period due to its complexity [7][8].

Core Viewpoint - The Hainan Free Trade Port will officially start its full island closure on December 18, 2025, marking a significant transformation in its operational phase and enhancing its role in China's high-level opening-up strategy [1][3]. Group 1: Significance of the Closure - The closure is seen as a landmark project that signifies the transition of Hainan Free Trade Port from an initial stage to substantial operational capabilities, especially in the context of rising trade protectionism and unilateralism globally [1][3]. - The closure will facilitate a more convenient connection between Hainan and international markets, promoting the gathering of global quality resources and contributing to high-quality development of the Hainan Free Trade Port [3]. Group 2: Policy Framework - The closure will establish Hainan as a "borderless" zone, allowing for zero tariffs and other preferential policies, with a focus on a system characterized by "one line open, one line controlled, and free flow within the island" [1][2]. - The proportion of goods enjoying zero tariffs has increased from 21% to over 70%, enhancing resource allocation efficiency [2]. Group 3: Implementation Readiness - The necessary policies and supporting documents for the closure have been completed, including the import tax item catalog and the list of restricted goods, with hardware facilities passing national inspections [3][4]. - Comprehensive pressure tests are being conducted to ensure effective management post-closure, balancing openness with regulatory control [3]. Group 4: Travel and Trade Impact - Travelers will not require additional documentation to enter or exit Hainan, maintaining current travel convenience while enhancing the overall travel experience [4][5]. - The annual duty-free shopping limit for travelers is set to increase to 100,000 yuan, which is expected to boost consumption [5]. Group 5: Taxation and Trade Facilitation - The zero-tariff system will be a core feature of the Hainan Free Trade Port, with the proportion of zero-tariff goods expected to rise to 74% post-closure, significantly increasing from the previous 21% [6][8]. - The policy changes will lower production costs for market entities and stimulate market vitality, enhancing the level of trade liberalization and facilitation in Hainan [8]. Group 6: Strategic Development - The combination of zero tariffs and the policy of exempting tariffs on goods with a processing value added of 30% or more is crucial for leveraging the domestic market and establishing Hainan as a key point for domestic and international dual circulation [8][9]. - Hainan aims to develop a preservation and processing base for agricultural products targeting ASEAN markets, enhancing the efficiency of tropical agricultural resources and supporting the goal of becoming a global tropical agricultural center [9].

Core Viewpoint - The duty-free industry is witnessing a significant recovery with a narrowing decline in sales and a strong rebound in average transaction value, indicating a new investment window due to the implementation of the closure policy, the rollout of "buy and refund" services, and the context of increased tariffs on imports from the US [1][2]. Group 1: Hainan Duty-Free Market - Sales decline in Hainan's duty-free sector is narrowing, with sales amount showing marginal improvement in the first five months of 2025 [1]. - The average transaction value has turned positive after two years of decline, with February's average price per item reaching a recent high [1]. - The implementation of the closure policy is expected to enhance Hainan's overall attractiveness in consumption, business, and logistics, thereby strengthening the core competitiveness of leading companies as customer flow potential is gradually released [1]. Group 2: Tax Refund and Market Dynamics - The nationwide promotion of the "buy and refund" service starting April 8 is expected to increase the shopping conversion rate for foreign consumers in China [2]. - The duty-free channel has significant price advantages over taxed channels, allowing for substantial market share expansion; for example, duty-free cosmetics can be priced at 70-80% of taxed prices, while wine can be as low as 60% and tobacco at 45% [2]. - The decline in South Korean duty-free sales due to local customer purchasing power and regulatory changes is enhancing Hainan's position as a substitute market [2].

Group 1 - The construction of Hainan Free Trade Port is a significant strategic decision made by the central government to promote innovation and development in socialism with Chinese characteristics [1] - Since the implementation of the overall plan in June 2020, the Hainan Free Trade Port has established a policy system characterized by "zero tariffs, low tax rates, and simplified tax systems" [2] - As of April 2025, the total value of imports under the "zero tariff" lists reached 22.585 billion yuan, resulting in a tax reduction of 4.308 billion yuan [2] Group 2 - The first batch of 31 projects related to the Hainan Free Trade Port's closure operation has been completed and accepted, focusing on port construction and customs inspection facilities [2] - Over 60 international vessels have registered under the "China Yangpu Port" ship registration system, with a total tonnage exceeding 5.83 million tons, making it the leading port in terms of registered vessels and total capacity among free trade ports in China [2][3] - Hainan has released 19 batches of 158 institutional innovation cases, with 11 cases being promoted nationwide by the State Council [3] Group 3 - The continuous optimization of the business environment in Hainan has stimulated the vitality of economic development, with over 70% of business entities being newly established after the implementation of the overall plan [3] - The provincial government is focused on top-level design and aims to promote a series of systematic and integrated innovative cases to enhance the overall innovation environment [4]