China Power | Politics | East Asia

One Country, Two Islands: Beijing’s Long Bet That an Open Hainan Can Hook Taiwan

Hainan is today engaged in what may be China’s most radical economic experiment since the 1980s – and Taiwan is part of the rationale.

More than four decades ago, Chinese leaders strategized that radical openness on one island could lead to reunification with another. 

Now, as cross-strait relations roil both politics in Taipei and the Sino-American relationship, Beijing has revived a decades-old dream: an island-sized free trade zone on Hainan Island. Top Communist Party officials and intellectuals have long hoped that such a zone might transform “China’s second largest island” into a mainland-controlled version of Hong Kong and lure Taiwan back into the fold.

Hainan is today engaged in what may be China’s most radical economic experiment since Beijing established the country’s first Special Economic Zones in the mid-1980s. In December 2025, Hainan, which is perhaps now best known as a tropical tourist destination for domestic and Russian tourists, was cleaved off from mainland customs rules in a move to make the island the world’s largest free-trade port. What appears to be a technocratic trade reform, however, has deep roots in an earlier geopolitical gambit that sought to reshape the relationship between China and Taiwan by using Hainan as a political and economic showcase. The idea was to leverage geographic and cultural similarities to create economic interdependence between the two islands and accelerate peaceful “reunification.”

For Beijing, the two islands have been inextricably linked since the birth of the People’s Republic of China in 1949.

The last major battle of the Chinese Civil War took place on Hainan, a place that Chiang Kai-shek hoped to make into the twin stronghold of Taiwan. After the Communists seized the island in the spring of 1950, for most of the early Cold War, Beijing kept Hainan cordoned off from the mainland, treating it as the military frontline “shield” of south China.

With the reversal of international politics that followed U.S. President Richard Nixon’s 1972 visit to China, however, Beijing reimagined the island’s role in China’s political economy and international strategy. Top reformist leaders began to reconceive of Hainan as an economic and geopolitical weapon.

As early as 1983, top leaders in the Communist Party drew comparisons in key internal documents, reports, and speeches between their country’s “two largest islands.” While they noted uniformly how “backward” Hainan was compared to Taiwan, top reformist leaders such as Zhao Ziyang and Hu Yaobang nonetheless drew parallels between the two islands’ geographies and natural endowments and even began to dream that, if Hainan could be put on a developmental trajectory similar to Taiwan’s, Hainan might prove invaluable in promoting Taiwan’s return.

In 1984, Deng Xiaoping himself suggested that through greater openness, Hainan should be developed rapidly and even catch up with Taiwan in 20 years. Then, in June of 1987 he revealed to a Yugoslavian delegation that something special was in the works. 

“We are setting up a larger Special Economic Zone,” Deng told the delegation. “Namely, the Hainan Special Economic Zone. Hainan Island and Taiwan are roughly similar in area. … If Hainan Island is properly developed, that would be truly remarkable.”

In late 1987, Beijing tasked a team of economists from the Chinese Academy of Social Sciences with formulating Hainan’s future as an independent province and the country’s largest special economic zone. Both would be officially established in April 1988. In a report compiled in just three months in late 1987 and early 1988, the team pursued two guiding questions: Why was Hainan more backward than Taiwan? And could it catch up? 

They decided that it could – if Hainan pursued policies that put into practice a “market economy guided by socialism” to construct an outward-oriented “free economic zone,” one that attempted to pare down the role of the state, while emphasizing economic cooperation with Hong Kong, Southeast Asia, and, yes, Taiwan. The central government bought in and gave the new provincial governor and party secretary wide latitude on the island.

At one point in 1988, Beijing even directed Hainan’s top officials to remove the customs posts between Hainan and the rest of the world and set them up, instead, between Hainan and mainland China, which would have created a free trade port almost four decades earlier.

Those visions, however, would be only unevenly........

© The Diplomat