Category: MIL-OSI

LCQ20: Opportunities arising from special customs operations of Hainan Free Trade Port 
Question:
 
     The Hainan Free Trade Port (Hainan FTP) formally commenced the island-wide special customs operations on December 18, 2025 and began to implement a management model of “liberalization at the first line, effective control at the second line and freedom within the island”. As a result of the special customs operations, the scope of zero tariffs on imported goods has been expanded, marking a new stage in the country’s expansion of high-level opening-up. At the regular press conference of our country’s Ministry of Commerce on January 8, 2026, the spokesman indicated “support for Hong Kong to integrate into and serve the overall national development, and to achieve complementary advantages and synergistic development with Hainan, so that both places could join hands in giving better play to their functions in the country’s high-level opening-up”. In this connection, will the Government inform this Council:
 
(1) whether the Government will join hands with think tanks, industry associations, members of various industries and academic institutions in conducting a comprehensive assessment of the opportunities brought to Hong Kong by the special customs operations at Hainan FTP and examine how Hong Kong can better perform its role as a “super connector” and “super value-‍adder”, so as to realise high-level alignment with Hainan FTP; if so, of the details; if not, the reasons for that;
 
(2) of the measures put in place by the Government to leverage Hong Kong’s position as a green and sustainable finance centre to provide Hainan FTP with green financing services at lower costs and support Hainan in achieving its target of low-carbon development; if so, of the details; if not, the reasons for that;
 
(3) as Article 86 of the newly revised Arbitration Law of the People’s Republic of China provides that overseas arbitration bodies are allowed to establish business organisations in Hainan FTP, whether the Government has taken any measures to support Hong Kong’s arbitration bodies in “going out” and give play to the functions of the International Organization for Mediation in Hong Kong in areas such as resolving cross-boundary investment disputes; if so, of the relevant measures; if not, the reasons for that; and
 
(4) whether the Government will assist Hong Kong’s professionals and enterprises in developing business in Hainan FTP, and promote the launch of more academic and youth exchange activities between both places; if so, of the details; if not, the reasons for that?
 
Reply:
 
President,
 
     Hong Kong and Hainan have always had a very close relationship. Hong Kong and Hainan are geographically close, share close personal ties, and are connected by business ties. Hong Kong has long been the major source of external investment in Hainan and an important trading partner. In March 2025, the Hong Kong Special Administrative Region (HKSAR) Government and the Hainan Provincial People’s Government signed the “Hainan Provincial People’s Government and HKSAR Government Memorandum of Cooperation” (MOU), further enhancing the cooperation between the two places in five areas, namely trade and investment, finance, safe and orderly flow of data, tourism and talent exchange. The MOU combines the advantages of Hong Kong and Hainan, deepens economic and trade exchanges between Hong Kong and Hainan, and helps the two places achieve a new chapter of deeper and broader development through the “connection of the two ports”.
 
     On December 18, 2025, the Hainan Free Trade Port (Hainan FTP) formally commenced the island-wide special customs operations, marking a new stage in the country’s expansion of high-level opening-up. The HKSAR Government attaches great importance to and supports the development of the Hainan FTP, and looks forward to further cooperation with Hainan Province to make greater contribution to the country’s high-quality development and high-level opening up.
 
     Regarding the Hon Erik Yim’s question, after consultation with the Commerce and Economic Development Bureau; Culture, Sports and Tourism Bureau; Education Bureau; Financial Services and the Treasury Bureau; Home and Youth Affairs Bureau (HYAB); Innovation, Technology and Industry Bureau; Transport and Logistics Bureau (TLB) and the Department of Justice (DoJ), our consolidated reply is as follows:
 
(1) Under the “one country, two systems” principle, Hong Kong has the distinctive advantage of enjoying strong support of the country and being closely connected to the world. The HKSAR Government will fully leverage Hong Kong’s roles as a “super-connector” and a “super value-adder” and give full play to Hong Kong’s strength, bringing the professional services that are on par with international standards into the Hainan market. At the same time, we will assist Hainan enterprises in going global via Hong Kong to expand their businesses through the Task Force on Supporting Mainland Enterprises in Going Global and proactive engagement with the enterprises by the Mainland teams of Invest Hong Kong and the Hong Kong Trade Development Council. By fostering synergistic development between Hong Kong and Hainan, we will generate more mutually beneficial collaboration, thereby contributing to the high-quality development of the country.
 
     In addition, the official launch of the island-wide independent customs operation in Hainan will bring new development opportunities for the maritime and logistics industry there. As an international maritime centre, Hong Kong can further explore how to achieve complementarity with Hainan FTP on the maritime and logistics fronts. The TLB will closely monitor the development of Hainan FTP and actively study how to drive collaborative development between Hong Kong as a free port and Hainan FTP further.
 
(2) As a leading green and sustainable finance centre in the world, Hong Kong has been actively leveraging its strengths as an international financial centre to provide diversified investment and financing channels, facilitate matching between international capital and quality green projects, and promote green transformation of the economy in the region. In 2025, the volume of green and sustainable bonds arranged in Hong Kong amounted to around US$38 billion, accounting for 40 per cent of the regional total and ranking first in the Asian market for eight consecutive years since 2018.
 
     As Asia’s leading green finance centre, Hong Kong will continue to actively serve as a bridge connecting international capital with the green finance needs in the Mainland. Since 2022, the Hainan Provincial People’s Government has issued offshore RMB local government bonds in Hong Kong for four consecutive years, including green, blue and sustainability bonds, with a cumulative issuance amount of RMB 18 billion (as of March 2026). To support and facilitate Mainland local governments to issue bonds in Hong Kong, we have made the Exemption from Profits Tax (Debt Instrument Issued by Mainland Local People’s Government at Any Level) Order (the Order) to extend the coverage of the profits tax exemption to the debt instruments issued in Hong Kong by all Mainland local people’s governments at any level. The Order has come into operation from March 31, 2023.
 
     At the same time, we also welcome Hainan enterprises to issue bonds and raise funds through Hong Kong’s financing platform to attract international capital to support sustainable infrastructure and green projects, with a view to helping Hainan in achieving its low-carbon development goals, and contributing to our country’s dual-carbon goals. To encourage relevant green and sustainable financing activities, the Government launched the Green and Sustainable Finance Grant Scheme in 2021 to provide subsidy for eligible bond issuers and loan borrowers to cover part of their expenses on bond issuance and external review services. The Scheme has been extended by three years from 2024 to 2027, with an expanded scope of subsidies to cover transition bonds and loans. These measures encourage relevant industries in the region to make use of Hong Kong’s transition financing platform towards decarbonisation. In April 2026, further refinements were introduced in response to recent market developments and ongoing engagement with industry stakeholders, so as to make the Scheme more targeted in addressing emerging trends. As of April 2026, we have granted subsidies to over 680 green and sustainable debt instruments issued in Hong Kong, involving a total underlying debt issuance of over US$190 billion (or over HK$1.5 trillion). 
 
(3) The National 15th Five-Year Plan clearly emphasises the acceleration of the development of foreign-related rule of law systems and capacity building, improving international commercial mediation, arbitration, litigation and other mechanisms, and supporting the International Organization for Mediation (IOMed) to further its role. In accordance with this policy, the DoJ will continue to take appropriate measures to support and strengthen the promotion of Hong Kong’s international mediation services, to deepen the mediation culture and to establish Hong Kong as a global mediation capital, which is also conducive to complementary and co-ordinated development with Hainan.
 
     In addition to disputes between States, the IOMed also handles international investment and commercial disputes. DoJ encourages enterprises (including enterprises and organisations of the Hainan FTP) to actively consider including the IOMed’s model dispute resolution clause in their international commercial and investment contracts to adopt a “Mediation First, Arbitration Next” approach to dispute resolution and strengthen foreign-related rule of law protection. In the absence of the IOMed’s model dispute resolution clause in their contracts, relevant enterprises and organisations are also encouraged to actively consider submitting disputes to the IOMed after they have arisen.
 
     To promote and publicise the work of the IOMed, the DoJ will be the key supporting organisation for the Global Mediation Summit to be organised by the IOMed in Hong Kong on May 8, 2026. The Global Mediation Summit will bring together mediators, policymakers, and leaders from around the world, and businesses and organisations from the Hainan FTP are most welcomed to register for the Summit.
 
     Hong Kong arbitral institutions operate independently and are not subject to government interference. Accordingly, the decision on whether to set up business offices in the Hainan FTP and any specific commercial arrangements will be led and decided by the Hong Kong arbitral institutions. However, the HKSAR Government encourages and supports Hong Kong arbitral institutions in seizing the opportunities presented by the newly revised Arbitration Law of the People’s Republic of China, actively promotes deeper exchanges and collaboration between Hong Kong arbitral institutions and the Chinese Mainland arbitral industry, continuously refines Hong Kong’s legal framework and utilises the edge of arbitration in Hong Kong, thereby deepening Hong Kong’s position as an international legal and dispute resolution services centre and creating a favourable environment for Hong Kong arbitral institutions to “go global”.
 
(4) The HKSAR Government strives to assist Hong Kong’s businesses in entering the Mainland market through the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), seeking more room for development for the trade on the Mainland and, at the same time, strengthening the economic and trade relations between the two places and fostering trade and investment facilitation. Under the CEPA Agreement on Trade in Services, Hong Kong service suppliers can enjoy preferential treatment in entering the Mainland market and developing Mainland businesses in most services sectors. The Second Agreement Concerning Amendment to the CEPA Agreement on Trade in Services has been implemented since March 1, 2025, introducing new liberalisation measures across a number of services sectors where Hong Kong enjoys competitive advantage, most of which apply to the whole Mainland (including Hainan FTP), making it easier for Hong Kong service suppliers and professionals to set up enterprises and develop business on the Mainland.
 
     The HKSAR Government will continue to seek to enhance the level of trade and investment liberalisation and facilitation between the Mainland and Hong Kong, enriching the contents of CEPA, so as to provide Hong Kong enterprises and professionals with greater room for development in the Hainan FTP as well as the entire Mainland, while leveraging Hong Kong’s strengths to serve the country’s needs.
 
     With regard to assisting Hong Kong legal professionals in expanding their business at the Hainan FTP, under CEPA, it is understood that there are currently two partnership associations set up by Mainland and Hong Kong law firms in Hainan Province; as of November 2025, there are also 20 Hong Kong legal practitioners being employed as legal consultants by Hainan law firms.
 
     The DoJ will continue to foster cooperation between Hong Kong and Hainan in the field of legal services, as well as to encourage and support Hong Kong legal sector in expanding their legal practice at the Hainan FTP and providing quality legal services to Hainan enterprises, including setting up partnership associations, representative offices, and being employed as legal consultants in Hainan.
 
     Regarding the tourism sector, the National Immigration Administration has announced the implementation of Hainan’s 144-hour visa-free policy for foreign tour groups from Hong Kong and Macao since July 30, 2024, enabling citizens of countries that have established diplomatic relations with China and holding ordinary passports to travel to Hainan visa-free and stay for not more than 144 hours if they enter as a tour group (with at least two people) organised by a travel agent registered in Hong Kong or Macao. This measure is conducive to attracting overseas visitors to embark on multi-destination travel itineraries by entering Hainan via Hong Kong, thereby further fostering the development of the tourism markets of the two places.
 
     On the other hand, The Cradle – Going Global Service Centre of the Hong Kong Productivity Council employs “Six Tactics” to support local enterprises and professionals to expand into the Mainland and overseas markets, including the Hainan FTP, and promote academic and youth exchanges between Hong Kong and the Mainland at the same time. The “Six Tactics” are training and study missions, smart manufacturing support, international standards and testing services, funding advisory support, technical research and assessment as well as professional services.
 
     At the same time, the Government will continue to support Hong Kong’s post-secondary institutions to strengthen their co-operation with the Mainland in the higher education sector, support them in forging multi-lateral and cross-disciplinary partnerships to leverage the distinctive characteristics and competitive edges of Hong Kong’s higher education sector, as well as create favourable conditions for scientific research and development, knowledge transfer and commercialisation, thereby complementing the strengths of the two places.
 
     As for youth exchange, the HYAB currently provides funding to non-governmental organisations (NGOs) to organise youth exchange projects in the Mainland through the HYAB Funding Scheme for Youth Exchange in the Mainland. The destinations cover various provinces and municipalities (including Hainan) in the Mainland. These projects aim to enhance young people’s understanding of our country’s culture, history, the latest developments, etc, and strengthen their exchanges with Mainland youth. We also encourage NGOs to organise two-way exchange projects under the funding scheme to deepen interaction and exchange between young people in Hong Kong and the Mainland.
Issued at HKT 16:40

NNNN

LCQ21: “Pay for What You Build” Pilot Scheme        
Question:
 
     In the 2025 Policy Address, the Chief Executive introduced a “Pay for What You Build” mechanism, with the aim of refining the existing arrangements for land grant and land premium payment to ease the upfront capital pressure on developers, encourage phased development, and accelerate the development of the Northern Metropolis as well as commercial and industrial projects across the territory. In this connection, will the Government inform this Council:
 
(1) given that the Government plans to implement a three-year pilot scheme on “Pay for What You Build” (Pilot Scheme) in the first quarter of 2026, of the current progress of its consultation with the industry, including the major views collected, its preliminary responses to such views, and the specific implementation details of the Pilot Scheme (such as eligibility criteria for application, assessment criteria, the method and transparency of land premium calculation, as well as how to ensure that the initial payment of 60 per cent of the land premium can reasonably reflect the market value);
 
(2) as it is learnt that the “Pay for What You Build” mechanism can complement policies such as the phased development approach, the diverse land grant modes, and the revitalisation scheme for industrial buildings, how the authorities will ensure that these policies can work in tandem to create maximum synergy, thereby encouraging developers to adopt more flexible approaches to project planning and development, particularly in the development of the Northern Metropolis, to attract a more diversified range of industries and investment; and
 
(3) as it is learnt that certain conditions are imposed under the Pilot Scheme (for example, the relevant land must not be subdivided for sale and, if no decision is made within 10 years on whether to proceed with the development of the remaining 40 per cent of the gross floor area (GFA), the Government may reallocate such GFA to other developers), how the authorities will establish a clear and effective regulatory mechanism to ensure developers’ compliance with these conditions, thereby preventing land idling or speculative behaviour; in cases where unforeseeable factors, such as market changes, render developers unable to develop the land as scheduled or decide whether to proceed with the development of the remaining 40 per cent of GFA, how the authorities will manage the associated risks to safeguard public interest and maintain market stability?
 
Reply:
 
President,
 
     To take forward the Northern Metropolis (NM) and overall industry development in Hong Kong, the 2025 Policy Address proposed various diverse land development models to promote active market participation in investment. Among these, the Development Bureau (DEVB) proposed to launch a three-year “Pay for What You Build” Pilot Scheme, which is applicable to all lease modification applications for non-residential use developments (Note 1) throughout the territory. This means that in the process of lease modification (including land exchange), lot owners are allowed to carry out phased development and pay the required land premium as determined according to the actual gross floor area (GFA) and the “preferred use” as proposed by the lot owners, with details as follows:
 
(a) the GFA under the initial phase of the development must amount to at least 60 per cent of the total permissible maximum GFA (Note 2), and to be completed in time in accordance with the Building Covenant, with the land premium assessed based on the full market value of the GFA under the initial phase of the development (i.e. at least 60 per cent of the total permissible maximum GFA of the whole development) and the “preferred use” of the land proposed by the lot owners. In other words, the Lands Department (LandsD) will determine the land premium based on the full market value to ensure that the land premium reflects the market value and protect the government revenue; and

(b) After the completion of the initial phase of the development, a developer can decide whether to proceed with realising and paying the land premium for the remaining development (i.e. 40 per cent or less of the total permissible maximum GFA) through another lease modification application based on the then prevailing full market value and conditions stipulated in the modified lease within 10 years. If the developer does not apply for lease modification within the 10-year period, depending on whether there are applications from other lot owners in the district, the Government may redeploy the remaining development intensity and infrastructure capacity to other lots in the district. In other words, although the land owner will retain ownership of the relevant land at that time, there is no guarantee that the developer can develop the remaining portion beyond the 10-year period.
 
     Our reply to the Hon Chen’s question is as follows:
 
(1) After the 2025 Policy Address proposed the “Pay for What You Build” initiative, the DEVB consulted various industry representatives and stakeholders from September to November last year, including the Advisory Committee on the NM, the Land and Development Advisory Committee, the Real Estate Developers Association of Hong Kong, the Hong Kong Institute of Surveyors, the Royal Institution of Chartered Surveyors and the Heung Yee Kuk. The DEVB then briefed the new-term Panel on Development of the Legislative Council (LegCo) in January this year on various measures to enhance land development including “Pay for What You Build” initiative.  
 
     LegCo Members and the industry generally supported the “Pay for What You Build” initiative. They considered that it was an effective means to reduce developers’ cash flow pressure, increase investment incentive and promote diverse industry development, when the Government no longer pursued maximum land premium in lease modification for land for industry development and allowed phased development as well as assessed the land premium based on the industry use selected by the market. The industry generally accepted the proposed implementation details (see first paragraph above), including that the development under the initial phase must amount to at least 60 per cent of the GFA, such that the land could be put to better use and there was flexibility in the development pace. The industry also suggested that the details of the alienation restrictions should be clearly specified, so as not to affect the long-term development potential of the land parcels. The DEVB and the LandsD are formulating the implementation details in accordance with the industry views, and planning to publish a practice note to set out the details of the Pilot Scheme next month.
 
(2) According to our policy design, if circumstances warrant, “Pay for What You Build” can be used in combination with other land development tools, forming a “combination punch” for better outcomes in industry development. For example, whether it is an application for in-situ land exchange in the NM or in other areas of Hong Kong, if an industry site does not involve residential development, “Pay for What you Build” can be considered to be adopted. Another example is the redevelopment of industrial buildings. The DEVB is reviewing the implementation of the Revitalisation Scheme for Industrial Buildings to put forth recommendations within this year, during which “Pay for What You Build” will be considered to further encourage the redevelopment of aged industrial buildings.
 
     As for the “phased development” (or “1.5-level development”) mentioned in the question, it covers land designated by the Government. It allows pilot low-density facilities to be developed and operated by enterprises initially to attract businesses, bringing income and footfall to the area to create momentum before long-term development is rolled out. This measure is different from “Pay for What You Build” in that the policy objective of the latter is to encourage the market to implement long-term industry uses. Therefore, we have no plans at this stage to combine the two measures.
 
(3) A Practice Note will be issued next month to set out the implementation details of the Pilot Scheme, providing the industry with a clear set of rules to follow. These include, among others, the applicable scope, the requirement to develop at least 60 per cent of the GFA initially, the handling of the remaining 40 per cent of the GFA, the assessment of land premium based on market value, and restrictions on alienation, etc. The key arrangements of the Pilot Scheme will be incorporated into land leases to enable regulation by the LandsD. 
 
     For example, to ensure completion of the initial phase of the development by a developer in time to prevent the land parcel from being left idle, the Building Covenant will be imposed in the land lease requiring the developer to complete the development project and obtain an occupation permit from the Building Authority within a period. Otherwise, the developer has to make an application to the LandsD for an extension of the Building Covenant period and pay the premium. Similarly, the land lease will stipulate that the whole piece of land will be subject to non-alienation restriction except as a whole during the said 10-year period (save for a decision already made to proceed with the remaining development), so as to allow the developer to retain the development right of the whole piece of land within the 10-year period, facilitating consideration by the developer in continuing to take forward the remaining development.
 
Note 1: The land parcel concerned should have been zoned for “non-residential” development use on the relevant Outline Zoning Plans, such as “commercial”, “industrial”, “other specified uses (annotation)”, etc.
      
Note 2: This means the total permissible maximum GFA of the whole development in accordance with the relevant Outline Zoning Plans or the Buildings Ordinance (Cap. 123), whichever is the lesser, and as stipulated in the lease modification documents.
Issued at HKT 16:40

NNNN