China seeks to tap duty-free shopping potential, adds 21 urban shops amid tourism surge
China will lift the number of urban duty-free shops to 27 as part of the latest move to improve consumption
China will make duty-free purchases more accessible in most major cities by adding 21 downtown shops, including in Guangzhou and Shenzhen, to boost spending amid an inbound tourism surge.
Eight new shops would be built, while 13 special foreign exchange goods duty-free shops – which only serve returning Chinese travellers – would be upgraded, the Ministry of Finance said in a joint statement with four other departments on Tuesday.
The changes will bring the total number of urban duty- free shops to 27 after adding to six existing locations in Beijing and coastal cities.
According to the guidelines, urban duty-free stores would primarily serve travellers who are set to depart China within the next 60 days, including Chinese nationals.
Shoppers must collect their purchases at designated pickup points located within the outbound customs areas at airports or ports before leaving the country.
And while there are no purchase limits for duty-free goods, shoppers must adhere to customs regulations, which stipulate that items must be for personal use and in “reasonable quantities”.
The guidelines, which will take effect from October, also encourage shops to sell trendy domestic products and those that “help spread China’s excellent traditional culture”.
According to Huaxi Securities analysts led by Xu Guanghui, China’s urban duty-free market represents a crucial area of growth that has vast potential due to policy limitations and a previously weak inbound travel market.
In 2019, sales from urban duty-free stores accounted for less than 1 per cent of China’s duty-free sales, indicating a gap in its duty-free system, according to the report released earlier this month.
The potential for overseas consumption to return to China remains strong
“In the current context of relatively weak global consumption, the price advantage of duty-free channels is significant,” Xu said.
“The potential for overseas consumption to return to China remains strong, and with the rapid development of inbound tourism, the new policies for urban duty-free stores are likely to be implemented soon.”
The new policy, though, is not attractive to domestic consumers as it mainly focuses on travellers who are about to leave China.
“I don’t think I will buy from such stores, because according to the new policy, travellers are not allowed to deposit the goods at the port and pick them up upon entry, which makes it inconvenient for Chinese nationals making outbound travels to bring the goods home,” said frequent traveller Jenny Ye, a Shanghai-based white collar worker who often shops at duty-free stores at airports.
Previously, domestic consumers could shop at the 13 foreign exchange goods duty-free shops by presenting an entry-exit record from within the past 180 days.
Many consumers took advantage of the policy by purchasing duty-free goods after returning from abroad.
China’s state-owned duty-free distributing giant, China Duty Free Group, reported a slump in net profits and revenue in the first half of the year.
According to its half-year financial report released last month, its revenues saw a year-on-year decline of 12.81 per cent, while net profit fell by 14.94 per cent.
Analysts pointed to a slump in sales on the southern island province of Hainan, which accounts for 60 per cent of its total revenue, amid weak consumer spending.
The Hainan market had bolstered China Duty Free Group’s performance during the coronavirus pandemic, but data from Haikou Customs showed that offshore duty-free sales in the first seven months of the year fell by 30.4 per cent year on year to 20.1 billion yuan (US$2.8 billion).
In response to Tuesday’s policy adjustment, stocks related to the duty-free sector, including Wangfujing department store in Beijing, saw a strong opening on Wednesday, with Zhongbai Group and Friendship & Apollo shares hitting the 10 per cent daily upper limit.
