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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A Rational Decision Maker: Stay Away from Next Panic Buying

Vincent Thian/AP

Chinese consumers just recover from the recent nationwide salt panic buying. The panic, which began in China’s coastal provinces and spread quickly throughout the country, was a result of two misunderstandings:

  • The radiation from reactors at Japanese nuclear plants, caused by the devastating earthquake and tsunami would contaminate sea salt supplies in China.
  • The iodine in salt can prevent thyroid cancer, which is a disease associated with radiation exposure.

Misled by the rumors, millions of Chinese consumers flocked to their nearby supermarket, bought as many bags of salt as they could, which made the salt price jump ten times in some cities. China Daily reports a man purchased 6.5 tons of salt during the insane buying period, now finds himself stuck with three truckloads of salt, which can’t be returned, sold or even transported.

straightfromthedoc.com

Chinese consumer is the victim in this rumor-led crisis, of course no one wants it to happen again. So how should we do to prevent it?

Many people blame the Chinese government for not responding quickly and effectively, but I don’t think it is the cause. We all know in a market-oriented economy, the price is determined by the demand and the supply. China is now transforming into a more open market, the price fluctuation is and will always be a common phenomenon. Open your eyes and be realistic. We are not living in a planned economy era any more. We cannot depend on government’s macroeconomic control all the time. We have to hand over the power to the “invisible hand” of the market. Otherwise, Chinese economy cannot be strong enough to enter the entirely free international marketplace.

But we’ve got to prevent it, and there is a way. All we should do is to become a rational decision maker to protect ourselves from next waves of social panic, and that can be achieved within several steps:

  • Be aware of the economic situation and be alert to the unusual signs. So when the crisis approaches, you can anticipate it and have enough time to make your decision.
  • Once you are aware of the unusual signs, you need to realize what are  important in making the decision. In this case:
    • the accuracy of the information: find out whether the rumors are true or not;
    • basic health knowledge: you should know that taking too much salt is bad for your health, a small amount of salt will be enough to maintain your body’s daily activities;
    • general prediction of the uncertain future:  the government will not let the salt price jump too much, since the seasoning is the fundamental ingredient in people’s life. It can go from 1.6 to 2 considering China is in a high inflation period, but if it goes from 1.6 yuan to 16 yuan, it is ridiculous, and you don’t want to be part of it.
    • financial cost: if you buy a small bottle of salt, it usually costs you 1.6 yuan ($0.25), at the highest price it costs you 16 yuan ($2.4), and you can consume it for several months. But if you buy 6.5 tons of salt, it costs you 27,000 yuan ($4,100), and you can NEVER eat it up in your life!
  • After understanding these, you can choose the optimal decision easily. You may still decide to go to buy several bottles to emotionally calm your fears towards the uncertain future, but  I am sure you will not rush into the supermarket to buy tons of salt, and you will not panic if the salt has been out of stock.

“Made in China” Got a New Rival

Photo by jurvetson (Flickr.com)

WSJ reported on Sunday that the increasing salary of the Chinese labors has reduced the advantage of producing and assembling goods in China. The countries in Southeast Asia have joined together as a new manufacturing union to compete China, the largest manufacturing country in the world.

Leaders in the region are pressing ahead with plans to stitch together the patchwork of nations into a common market and production platform by 2015. If fully realized, the project will include fewer restrictions on the movement of skilled labor from country to country and streamlined customs procedures.

Southeast Asian countries are also making headway on road and rail investments. Efforts funded by the Asian Development Bank and others have created three major overland trade corridors, with improved highway connections across Cambodia, Thailand, Vietnam and Laos.

Many companies are pursuing the same goals on their own. In the garment industry, more than a dozen Southeast Asian suppliers have reached agreements recently to more-closely integrate their supply chains by linking stitching companies in places such as Cambodia with raw-material makers in Thailand or other nearby countries. The companies effectively agree to market goods jointly so that they appear similar to suppliers in China, which often offer all the steps needed to make a whole garment, including access to yarns, fabrics, buttons and sewing, in the same area.

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