Duty-free Store in Hainan: New Strategy to Stimulate Domestic Spending

Source: news.xinhuanet.com

Chinese mainland shoppers have been thrilled by this news: Hainan, China’s southernmost island province, kicked off an offshore tax-free scheme on April 20, going after Okinawa in Japan, Jeju in Korea and Penghu County in Taiwan Island to become the fourth island of implementing a tax-rebate scheme in the world.

Over 17,0000 people swarmed into Sanya’s tax-free store on the first day, splurging on imported jewelry, watches, perfumes and cosmetics. Shortly after the store’s opening, cosmetics and perfumes such as Estee Lauder Advanced Night Repair Synchronized Recovery and Dior J’adore Perfume were nearly out of stock. For those luxury brand lovers who travelled all around the country to this tropical island and waited for hours to enter the store and check out, the bargain prices of luxury goods which were 10 to 35 percent lower than in other domestic stores were too irresistible to say no.

Imported Goods Duty-free price at Sanya Normal price in China
Dior J’adore Eau De Parfum Spray for Women – 3.4oz 785 yuan / 120 US dollars 980 yuan / 150 US dollars
Lancome Absolue Premium BX Replenishing Cream 1115 yuan / 171 US dollars 2000 yuan/307 US dollars
Chanel NO.5 Eau De Parfum Spray for Women – 3.4oz 950 yuan / 146 US dollars 1280 yuan / 197 US dollars

While the store celebrated large daily turnover of more than 10 million yuan (1,536,880 US dollars), the zealous customers’ appetites for the imported commodities were still not satisfied: they complained that they could only purchase up to 5,000 yuan (768 US dollars) worth of products on this tropical island, much smaller than the 20 million yen (2441 US dollars) limitation of tax-free shopping in Japan’s Okinawa Island, not to mention that the mainland visitors can only enjoy this duty-free policy twice a year, while island residents can only once a year.

Source: China Luxury Market study 2010

Emerging middle class in China is showing growing interests in luxury goods. But due to the high duties, luxury goods in china are up to 50% more expensive than Hong Kong, Europe or North America, driving people to purchase these items overseas. According to China Luxury Market study 2010 released by  Bain & Company, a global management consulting firm, total luxury spend by mainland Chinese reached 156 billion yuan (24 billion US dollars) in 2009, but less than 50 percent, or 68 billion yuan (10.45 billion US dollars), was spent domestically.

As the old saying, “Every miller draws water to his own mill.” It is obvious one of the strategies that the Chinese government is trying to transform China’s economy from export-driven to domestic spending-driven, attracting Chinese consumers’ attention back to the domestic market in the Twelfth Five-Year Plan period. I have to say, it is a good start. Let’s keep an eye on how it goes.

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