Chart of the Day: China Duty-Free Sector Booms Amid Loosened Policies, Pandemic

China’s imports of duty-free products hit a record high in September as rules on purchases were eased on South China’s tropical island province of Hainan and travel restrictions prevented international travel.

The imports were up 86.4% year-on-year to $565.4 million, data from the General Administration of Customs showed (link in Chinese), the highest in available data going back to 2014. In the third quarter, such imports rose 90.8% year-on-year, following declines of 34.4% and 3.4% in the first and second quarters.

After staying at home under lockdown for much of the first half of the year, Chinese people’s pent-up shopping demand was further fueled by policymakers’ efforts to bolster domestic consumption, and the recovery of the world’s second-largest economy.

On July 1, the annual quota for duty-free purchases in Hainan stores was tripled to 100,000 yuan ($14,908) per person. Seven new categories of duty-free products were also added, including mobile phones, digital tablets and liquor, bringing the total to 45 items. The price threshold for a single duty-free product, previously set at 8,000 yuan, was abolished.

From July to September, the average Hainan duty-free shopper spent over 6,600 yuan, up 16% from the first half of the year, according to customs data compiled by Dongxing Securities Co. Ltd. (link in Chinese).

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Cover Story: Why China Is Expanding Access to Duty-Free Shopping

To avoid high import taxes, Chinese consumers in recent years have flooded abroad to shop, especially for luxury products. However, the number of international flights has sharply declined sharply this year as countries around the globe roll out stricter travel restrictions amid the pandemic. The Association of Asia Pacific Airlines said airlines in the region carried only 1 million international passengers in August, just 3% of the figure a year earlier.

State-owned China Duty Free Group Co. Ltd. (CDFG), which runs four duty-free stores in Hainan, posted improved performance in the third quarter due to the province’s better-than-ever sales.

As the dominant player in China’s duty-free shopping market, CDFG reported revenue of 15.8 billion yuan from July to September, up 39% year-on-year, according to its latest unaudited earnings report (link in Chinese). Net profits surged 141.9% year-on-year to 2.2 billion yuan.

The report credited the loosened policies with boosting CDFG’s duty-free business, especially sales of high-margin luxury goods including luggage, watches and jewelry.

More luxury products and high-end brands are expected to go on sale in Hainan’s duty-free stores, which will spur sales and grow margin, Dongxing Securities said.

Multiple analysts said they believe duty-free shopping in Hainan may see growth in both supply and demand.

More people will head to Hainan to buy duty-free goods next year, analysts at Shanghai-based securities research firm SWS Research Co. Ltd. said in a note (link in Chinese). The number of visitors spending nights in Hainan saw year-on-year growth in August, even as the cumulative figure declined by one-third in the first eight months, they said.

Contact editor Joshua Dummer (joshuadummer@caixin.com)

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