Choosing the Right China Entry Route: Hainan Free Trade Port vs Bonded Zones vs Direct Mainland Entry

For international companies entering or expanding in China, the structure chosen at the outset shapes tax exposure, compliance burden, speed to market, and long-term flexibility.

The three most common entry routes are:

• Establishing operations in the Hainan Free Trade Port

• Using bonded zones or bonded logistics parks

• Entering the mainland market directly

Each serves a different commercial purpose. This comparison is designed to help decision-makers understand where each model works best — and where it does not.

Hainan Free Trade Port

The Hainan Free Trade Port is designed as a liberalised trade and investment environment with a distinct customs regime.

How it works

Goods imported directly from overseas into Hainan generally benefit from exemption from import duties, import-stage VAT, and consumption tax, unless they fall within a published negative list. Goods can circulate freely on the island. Standard import procedures apply only when goods move into the mainland.

Strengths

• Significant upfront tax relief on imports

• Ability to hold inventory in China without immediate mainland import costs

• Clear separation between overseas trade and mainland market entry

• Suitable for regional hubs, trading platforms, and manufacturing operations

Limitations

• Mainland sales still trigger standard import procedures

• Eligibility requires proper establishment, substance, and regulatory alignment

• Not all business models fit the island-based operating logic

Best suited for

• Businesses building a long-term China or Asia hub

• Companies needing flexibility on timing of mainland entry

• Groups testing products or supply chains before scaling

Bonded Zones and Bonded Logistics Parks

Bonded zones are established customs-supervised areas within mainland China that allow goods to be stored, processed, or re-exported without immediate import taxation.

How they work

Goods enter the bonded zone from overseas without import duties or VAT. Taxes become payable only when goods leave the zone for the domestic market.

Strengths

• Established and familiar structure

• Efficient for storage, light processing, and re-export

• Close proximity to major ports and manufacturing clusters

• Clear customs procedures with predictable administration

Limitations

• Limited scope compared with Hainan’s broader trade liberalisation

• Activities are tightly regulated within the zone

• Less flexibility for non-logistics or non-trading business models

Best suited for

• Logistics-heavy operations

• Distribution and consolidation centres

• Businesses focused on import, re-export, or light processing

Direct Mainland Entry

Direct mainland entry involves importing goods straight into China under standard customs and tax rules.

How it works

Import duties, import VAT, and any applicable consumption tax are paid at the point of import. Goods can then circulate freely within the domestic market.

Strengths

• Immediate access to the full China market

• Simplified supply chain with no secondary customs boundary

• Suitable for established sales-driven operations

Limitations

• Higher upfront tax and cash flow impact

• Less flexibility to defer or optimise import timing

• Lower tolerance for experimentation or market testing

Best suited for

• Companies with confirmed demand and distribution channels

• Businesses prioritising speed over flexibility

• Mature operations scaling existing China activity

Side-by-side comparison

Factor	Hainan Free Trade Port	Bonded Zones	Direct Mainland Entry
Import tax on overseas entry	Generally exempt	Deferred	Payable immediately
Mainland access	Via second customs line	Via zone exit	Immediate
Flexibility	High	Medium	Low
Setup complexity	Medium	Medium	Low
Best for	Strategic hubs, testing, restructuring	Logistics and trading	Established sales

Choosing the right model

The right structure depends on what the business needs to achieve.

• If flexibility, staged entry, or regional positioning matters most, Hainan offers the broadest toolkit.

• If the focus is logistics efficiency and controlled inventory flow, bonded zones remain highly effective.

• If speed to customers outweighs optimisation, direct mainland entry may be the most practical route.

Some groups use a combination of these models at different stages of growth.

Final perspective

China’s trade framework no longer forces businesses into a single entry model. Hainan, bonded zones, and direct mainland entry each serve a defined role within a modern China strategy.

The key is alignment. Structures work best when trade flows, tax treatment, compliance obligations, and commercial reality move in the same direction.

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Woodburn Accountants & Advisors is one of China and Hong Kong’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

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