New Policies to Boost Duty-Free Shopping in Hainan
New policies easing restrictions on duty-free shopping in Hainan are expected to attract more tourists and shoppers to the tropical island resort in southern China as part of a strategy to develop the province into a new commercial hub.
Effective Wednesday, visitors to Hainan will be allowed to purchase more duty-free products with fewer limits, according to a policy document issued Monday by the Ministry of Finance, the General Administration of Customs and the State Taxation Administration. The document also encourages more licensed duty-free retailers to operate in Hainan, which may lead to a major revamp in the closely held sector.
The duty-free shopping policies are part of a plan unveiled earlier this month to develop the region into a world-class free-trade port. With 60 key measures to boost a wide range of industries on the island, the plan aims to turn the province into a “front line” of the country’s integration into the global economic system.
The new policies will bring more competition in Hainan’s duty-free retail sector, expand product options and reduce prices, giving the island a competitive edge over cities like Hong Kong, Paris and London because of its relatively lower business costs, a Hainan official said.
Under the new rules, the quota on duty-free purchases in Hainan by individuals will be tripled to 100,000 yuan ($14,000) a year. The duty-free product catalogue will be increased from 38 to 45, adding new options from mobile phones and tablets to wine. Previous limits on the number of items that could be purchased per customer will be increased or eliminated, according to the document.
The new policies exceeded market expectations and will significantly boost duty-free shopping in Hainan, Essence Securities said in a research note.
One of the major tasks for developing Hainan is to build it up as an international tourism and shopping hub to encourage more consumption, said Chen Yao, a member of the Hainan government’s tourism development committee.
Chinese consumers in recent years have flooded abroad for shopping, especially for luxury products, to avoid high import taxes. According to Citic Securities, travelers from the Chinese mainland spent $277.3 billion overseas in 2018, including $110 billion for shopping. About 37% of the purchases were duty-free.
The policy issued Monday also encourages “fair competition” in duty-free retail business in Hainan, signaling broader market access that may reshuffle the industry, analysts said.
China has issued eight licenses for companies to operate duty-free retail businesses, including one June 9 to Beijing-based shopping mall operator Wangfujing Group Co. Ltd.
However, China Duty Free Group Co. Ltd., a unit of China International Travel Service Ltd., is the dominant player with 85% of the market. Smaller rivals including Shenzhen State-Owned Duty Free Commodity Group and Sunrise Duty Free Co. Ltd. have long been restricted to operating in airports in selected cities.
Hainan currently has four duty-free stores, all of which are run by China Duty Free Group. By inviting new players into the market and adding duty-free stores, the market in Hainan will be more efficient and diverse because of competition, the Hainan official said.
Analysts at Essence Securities said they expect to see the newcomer Wangfujing as the first to tap duty-free business in Hainan and challenge China Duty Free.
The new document also paves the way for the province to invite international players into its market, said Wang Lu, chairman of Haikou Real Estate Industry Association. Wang said the provincial government is in talks with global giants including Galeries Lafayette and DFS Group for potential partnership.
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