SHANGHAI–China’s duty-free expansion continues.
The country plans to open more duty-free stores at its ports of entry in a bid to spur domestic consumption. News of the plan emerged this week after a meeting of the country’s State Council. It’s the second time this year the government body has stated its intention to open more duty-free stores in a bid to stimulate spending- the first announcement came in April, coinciding with another decision to slash tariffs on a range of imported consumer goods from June 1.
More than 100 million Chinese traveled overseas last year and spent more than 1 trillion yuan (or $157 billion at current exchange) during their trips, according to China’s Ministry of Commerce.
These numbers are only going to keep getting bigger, with data from CEIC predicting the number of Chinese travelers going abroad growing to 242 million per year by 2024.
According to a statement released after the State Council meeting, which was attended by Premier Li Keqiang, China’s overseas travelers have branched out from simply buying luxury products overseas and are now also buying up everyday products while traveling.
During October’s Golden Week holiday alone, Chinese tourists bought nearly 100 billion yen, approximately $830 million at current exchange, worth of goods, according to the Chinese government-backed newspaper People’s Daily, which went on to say that hot ticket items included luxury items, but also medicines and household items, including thermoses, rice cookers, shavers and toilet seats.
According to Benjamin Cavender, a senior analyst at China Market Research Group, China’s duty free stores certainly have significant appeal to domestic consumers, though more of them on the Mainland won’t necessarily put a huge dent in the number of purchases Chinese consumers are making overseas.
“These stores are primarily serving Chinese consumers from Tier 2 and Tier 3 markets who are in transit or returning from overseas trips. Many duty free stores in China are cost competitive with overseas prices and as a result have attracted strong interest from consumers,” Cavender said. “To some extent these stores will encourage consumers to buy within China but the brand and product range available in duty free stores is not broad enough to completely match consumer needs so we are still going to see overseas buying increase.”
These moves illustrate China’s efforts towards price parity with other markets, after years of high customs, duties and VAT have driven consumers to spend more and more overseas (or buy products domestically from grey market “dai gou” sellers, who purchase products overseas and then resell then in China).
“We are probably moving in the direction of lower taxes and duties on imported goods. We’re already seeing this happen with the special imported e-commerce zones that are being set up and this is in line with the government trying to spur domestic consumption as the economy continues to transition,” Cavender said.
The Chinese government has been steadily expanding the country’s tax-free shopping sector since 2011, when it set up a pilot duty-free program on the holiday island of Hainan, which allowed non-locals visiting the island to make duty-free purchases twice per year.
Then last year, the resort town of Sanya in Hainan opened the world’s largest duty free store, the 753,000-square-foot CDF Mall, which houses brands such as Prada, Rolex and Chanel.