China plans to turn a tropical island state roughly the size of Belgium into the world’s largest duty-free shopping zone, as it seeks to persuade shoppers to buy luxury goods at home and stimulate the country’s sluggish economy. ing.
Policymakers aim to establish a single duty-free zone with a separate customs system in China’s southernmost Hainan province as early as next year. Low duty-free zones are particularly attractive because shoppers in most jurisdictions in China pay high taxes on foreign luxury goods, and the Chinese government has made Hainan a rival duty-free zone, such as South Korea’s Jeju Island. We want to make it a competitive driving force for domestic consumption. The same goes for duty free shops in Europe.
Authorities have already lowered Hainan’s income tax rate for some companies to 15% from 25% in most of the country and eliminated import taxes on some goods. We also extended visa-free access to citizens of 59 countries. The creation of an independent customs zone next year will further simplify taxes on luxury purchases in Hainan.
“If you look at Hainan Island, the main objective is to build a whole duty-free zone aimed at bringing some of the overseas duty-free sales back to China,” said Charlie, head of Asia research at China Renaissance. Mr. Chen pointed out that: The provincial government’s annual tax-free sales target is set to reach 300 billion yuan (approximately 4.2 trillion yen) by around 2025. “This is a huge market.”
The Chinese government introduced the first overseas duty-free shops in Hainan in 2011, with the aim of boosting growth and narrowing the gap with wealthier interior regions. The industry grew after the government tripled purchasing limits in 2020 as pandemic-era restrictions discouraged travel to overseas locations.
As China’s economic growth slows and international flights are restricted, shoppers are seeking shorter, more affordable luxury shopping holidays in Ialy, which is already home to some of the world’s largest shopping centers. They live on a southern island surrounded by trees.
The world’s largest duty-free shopping mall, the 280,000 square meter Haikou International Duty Free City, will open in the northern part of Hainan Island in 2022, joining the previous 12,000 square meter duty-free area in the southern part of the island.
China Renaissance’s Mr Chen said the island was “benefiting from a consumption downgrade” as shoppers opted for shorter domestic trips and purchased non-luxury products offered in duty-free shops. Brands tend to sell their newest and most expensive luxury goods at flagship duty-free stores in mainland China and Europe, he said.
Defying difficulties for Western luxury goods groups in the Chinese market, Hainan province posted 2.49 billion yuan ($345 million) in Chinese New Year duty-free sales in February, up 60% from a year earlier, according to customs data. ) was recorded.
The island’s duty-free market is also attracting the attention of Western companies.
DFS, the travel retail arm of luxury goods giant LVMH, last year announced plans to invest in a 128,000 square meter “seven-star” luxury retail and entertainment complex near the southern city of Sanya.
U.S.-based Tapestry, which owns the Coach, Kate Spade and Stuart Weitzman brands, has chosen Hainan as the headquarters for its China travel retail operations in 2022, according to government agency Invest Hainan. Tapestry did not respond to requests for comment.
On the other hand, this occurred in a challenging environment for the luxury goods sector. French luxury conglomerate Kering issued a profit warning in March after Gucci’s sales in Asia declined.
Tighter rules Daigoushoppers who buy goods in low-tax jurisdictions and resell them for a profit in mainland China also pushed down Hainan sales for brands like L’Oréal last year.
Chen Yizhe, who sells luxury Western brand watches at the world’s largest duty-free shopping mall in the provincial capital Haikou, said this year’s duty-free sales have fallen to about 80% of 2023 levels due to the holdup. Shoppers took to overseas trips as demand from the coronavirus pandemic waned.
“Overall, the economy is not that good this year,” he said, but added that he expected sales to “slowly improve” in the coming months as more infrastructure is completed.
In the mall’s VIP area (available to those who spend RMB 100,000 over three years at the owner’s China Duty Free store), the bar is stocked with French brandy and Scotch whisky, and the bookable meeting room has its own dedicated Showers and Estée Lauder soaps are provided. Owns Le Labo.
Tom Chou, a businessman in his 50s from northern China’s Hebei province, spent about 50,000 to 60,000 renminbi ($6,900 to $8,300) on high-end clothing and jewelry on his recent annual pilgrimage to the complex. He said he plans to spend it.
Hainan Island was more “convenient” than traditional overseas duty-free destinations, as well as Hong Kong and Macau. He didn’t need a visa, there were no restrictions on how long or how often he could visit, and he was treated well by the staff. He said.
“The service in Hong Kong is not as good as it is on the mainland,” he said, wearing a Burberry shirt and Louis Vuitton sneakers and clutching a new Van Cleef necklace. “You can’t compare.”
Additional reporting by Andy Lin in Hong Kong and Adrian Crasa in Paris