Chinese travelers can avail themselves of a newupper limit of RMB100,000 ($14,140) in off-shore duty-free shopping from today.The move is part of a master plan from the central government to develop a freetrade port on the tourist island of Hainan—but it could also impact airportduty-free stores worldwide as more sales start to concentrate in China.

The decision to increase the limit from RMB30,000($4,240) China was first announced a month ago, and the implementation todaywas sanctioned by the Chinese Ministry of Finance, the General Administrationof Customs, and the State Administration of Taxation.

Busy busy: Customers purchase cosmetics at aduty-free shopping center on June 30 in Sanya, Hainan ... [+] CHINA NEWSSERVICE VIA GETTY IMAGES

A major mid-century project

At 13,650 square miles, Hainan Island is 13 timeslarger than Hong Kong’s 1,064 square miles but with a population that is notmuch bigger: 9.3 million versus 7.5 million. Add to that Hainan’s GDP percapita of $7,173 versus Hong Kong’s $49,334 and it is easy to see Hainan’sdevelopment potential.

Policies for the free trade port will be in placeby 2025, and by 2035, if not before, the lure of zero tariffs on some importedgoods plus corporation tax expected to be 15%, a full 10% below the usual rate,will bring corporations and talent to the island. Hainan’s Provincial Bureau ofInternational Economic Development will be leading that campaign.

Table talk: CDFG-Sanya has tracked from 7th to 2ndand Hainan Meilan from 12th to 3rd. JESSICA'S SECRET

In the here-and-now, as well as the allowance rise,China has increased the product categories that can be bought tax-free from 38to 45. It has also removed the price cap on any single purchase opening thedoor to luxury brands offering higher-value products than was possible in thepast.

Shoppers entitled to the new allowance include bothdomestic and foreign travelers— including residents of Hainan—aged over 16 whohave air, train or ship tickets to depart from Hainan along with valid identitydocuments.

Stores authorized to sell tax-free currentlyinclude duty-free shops at Haikou Meilan Airport, Haikou Riyue Plaza, QionghaiBoao, and Sanya Haitang Bay, the biggest retail destination in Hainan.

Sales—and travel—are bouncing back

According to a whitepaper issued by therecently-formed Oriental Travel Retail Observer (OTRO*), China Duty Free Group,the country’s biggest duty-free retailer, has seen an exceptionally strongrebound since Covid-19 was at its height in the country in February. Duringthat month the retailer’s operation in Sanya saw a year-on-year sales declineof 79%, but by May it was having to handle a huge 99% rise.

The Chinese appetite to shop in Hainan is alsoincreasing based on retailer tracking by the Jessica’s Secret duty-free pricecomparison app. According to click data from the company, between September2019 and April 2020, CDFG-Sanya moved from the seventh-ranked retailer tosecond behind Sunrise-Shanghai, consistently ranked top, while Hainan MeilanDuty Free went from 12th to 3rd.

Flip flop: Hainan will almost certainly overtakeShanghai's airports this year.

Travel analyst ForwardKeys says that in 2019,Hainan was China’s second largest market for duty free sales at $1.7 billion,behind Shanghai’s two airports, Pudong and Hongqiao, with $2 billion betweenthem. But this year, with the higher allowance in place, Hainan could easilytop the table.

ForwardKeys analysis shows that in June and July,bookings to Sanya were back to 90% of 2019’s levels, leading a travel recoveryahead of other tourist destinations such as Chongqing, Zhengzhou, Chengdu andChangsha.

Crackdown on resellers

While new product categories and higher limits giveHainan’s shoppers more reasons to visit, the Chinese government has alsointroduced penalties to stop the reselling of products in the domestic market,especially by professional daigou traders. These are individuals who shop inbulk for others, a practice that has become so big it is effectively its owndistribution channel and prominent in markets such as South Korea andAustralia.

A Ministry of Finance statement says: “Individualswho resell, purchase for others, or smuggle duty-free commodities… shall beprevented from making any off-shore duty-free purchase for a period of threeyears. If a crime is constituted, responsibility shall be investigatedaccording to law.”

The ministry has gone further to widen culpability.It notes: “Travel agencies and transportation enterprises that assist inviolating the off-shore tax-free policy and disrupt the market shall be subjectto ‘rectification’. Duty-free shops that break relevant regulations shall bepunished and held accountable by the customs authority in accordance withrelevant laws and regulations."

Contributor：Kevin Rozario

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