Why does Hainan's customs closure and Yangpu Port make Singapore uneasy?

Hainan's customs closure and Yangpu Port make Singapore uneasy?

On December 18, 2025, the full customs closure of Hainan Free Trade Port officially started, marking a significant move for China's high-level opening, which has sparked global discussions, with Singapore's anxiety particularly evident. Recently, the President of Singapore publicly accused China's self-controlled strategy as 'wrong', and Prime Minister Lawrence Wong openly supported Japan during the deterioration of Sino-Japanese relations, expressing concerns about 'small countries lacking bargaining power' in the international economy. This series of unusual statements suggests that Singapore is preemptively reacting, realizing China's strategy, and perhaps speaking out of turn. The rise of Yangpu Port could shake the core foundation on which Singapore relies for survival, and its anxiety is far from unfounded.

1. The benefits of transshipment trade are fading, with a direct impact on the $380 billion market.

Singapore's economic lifeline is highly dependent on transshipment trade, with its transshipment trade volume with China reaching $380 billion in 2024, of which the share of goods transiting between China and Indonesia accounts for 15%. Just this transshipment trade alone brings substantial 'toll fees' and service fees to Singapore. For a long time, the strategic location of the Strait of Malacca has made Singapore an 'essential hub' for Southeast Asian trade. Goods like coconuts and rubber from Indonesia typically need to detour through Singapore, taking as long as 20 days, with some fresh products experiencing a loss rate as high as 8%.

However, after Hainan's customs closure, this pattern is likely to be disrupted. Yangpu Port, relying on the 'direct shipping - deep processing - domestic sales' model, attracts Indonesian cargo ships to sail directly north, with direct shipping taking only 6 days to reach its destination, and loss rates can be reduced to 3%, significantly lowering costs for businesses. In the first 10 months of 2025, cargo volume on Yangpu Port's direct shipping routes to Indonesia soared by 78%, while Singapore's transshipment volume in the same region plummeted by 23%, with the transshipment trade volume with China declining by 11.3% year-on-year, marking the largest drop in a decade. The impact after the customs closure is even more severe for Singapore, which relies on transshipment trade for over 300% of its GDP; such diversion is not merely a localized shock but could directly shake its economic pillars.

2. Policy advantages crush competition, with '30% value-added tax exemption' + restructuring of logistics logic.

The policy dividends brought about by Hainan's customs closure diminish Singapore's transshipment advantages. After the closure, Hainan implemented rules of 'open first line, control second line, and free trade within the island', allowing 6,600 tax items for foreign goods to achieve 'zero tariff', and crucially, the '30% value-added processing tax exemption for domestic sales' policy targeting manufacturing. As long as goods achieve a 30% value increase in Hainan, they can be exempt from import tariffs when sold to the mainland. Even products with relatively low added value can have significant profit margins if they reach over 9%. This policy attractiveness is something Singapore cannot replicate. Previously, goods transiting through Singapore incurred additional port operational fees, fuel surcharges, and lengthy waiting costs, with a 100,000-ton cargo ship facing waiting costs of up to a million dollars a year. Yangpu Port, on the other hand, can complete electronic customs clearance in just 1 hour, several times faster than Singapore, and its 'second line' design significantly simplifies the process for goods entering and exiting the mainland, saving 400 nautical miles compared to detours through the Strait of Malacca.

More critically, Yangpu Port's bonded fuel prices are cheaper than Singapore's, allowing a large vessel to save over 100,000 RMB in fuel costs with each refueling, combined with a 15% corporate income tax incentive, prompting multinational companies to plan relocating their regional shipping routes from Singapore to Hainan, which will impact Singapore's policy gap effect.

3. Singapore's ethnic stance diverges, along with China's self-controlled demand, making Yangpu Port an 'irreplaceable' new choice.

As a predominantly Chinese nation, Singapore has long been subservient to the West, diverging from the fundamental interests of the Chinese ethnic group, becoming a 'Chinese comprador' for the West in Southeast Asia.

In the context of the US-China rivalry, Singapore chose to align with the US, acting as a 'nail' in its Indo-Pacific strategy, while China's determination to promote a self-controlled strategy and build a secure supply chain remains unwavering, leading to a continuous devaluation of Singapore's strategic significance. Previously, although Malaysia's Port of Kuantan was set to operate in August 2024, its design standard is only for handling 8 million standard containers annually (less than 1/8th of Singapore's capacity), and it lacks supporting services such as financial settlement and ship maintenance, posing no substantial threat to Singapore. However, Yangpu Port is entirely different; it is backed by a vast domestic market of 1.4 billion people and China's complete industrial system, and it is not a simple transshipment port, but an integrated industrial hub for processing, trade, and logistics. Singapore's transshipment model essentially remains at the level of 'goods passing through hands', while Yangpu Port allows enterprises to achieve 'value-added processing + tax-free domestic sales' for full-chain benefits, making it capable of substituting for Kuantan Port in ways that are simply incomparable.

Moreover, for China, choosing Yangpu Port is not solely a matter of cost consideration, but also a strategic choice for self-controlled supply chains, making Singapore's intermediary value completely incomparable.

4. Singapore's continuous misjudgments in alignment, with the Kra Canal not being out of reach.

Singapore's anxiety also stems from its misjudgments in strategic alignment. In the context of escalating US-China competition, Singapore not only failed to maintain neutrality but actively became a loyal ally of the United States, a choice that exposes it to the enormous risk of losing the Chinese market. Even more alarming is that if Singapore continues to play the role of a 'nail for Americans', China has the capacity to promote the construction of more disruptive logistics channels, namely the Kra Canal (Kra Isthmus Passage).

This passage, if constructed, would allow ships to transit directly between the east and west coasts of Thailand without detouring around the Malay Peninsula, completely circumventing the Strait of Malacca. This would not only save several days of sailing time but also transplant Singapore's high-value-added industries such as logistics transshipment, financial settlement, and ship maintenance to Thailand, which would be a significant blow to Singapore. Currently, the China-Laos Railway is already operational, the China-Thailand Railway is accelerating, and the land logistics network in the Indochina Peninsula is taking shape, with the technical and economic feasibility of the Kra Canal continuously improving.

For Singapore, this may no longer be a distant idea, but a potential 'survival crisis' that could become reality if it continues to misjudge its alignment. Hainan's customs closure and the rise of Yangpu Port are essentially the inevitable result of China's reconstruction of the regional trade landscape. Singapore's anxiety stems from its long-standing reliance on geographical benefits and intermediary models; if Singapore remains obsessed with aligning with the West and diverging from ethnic interests, continuing to act as a pawn to contain China, its era of easy profits will surely come to an end.