China Duty Free Group (CDFG) is ‘proactively adjusting’ its brand strategy after the raising of the offshore duty free tax credit limit on Hainan Island.

As reported, the new game-changing Hainan Island offshore duty free shopping policy was implemented on 1 July 2020. New regulations include the tripling of the purchasing quota from RMB30,000/$4,285 to RMB100,000/$14,284 and the expansion of the duty free category list from 38 to 45.

Liquor, tablet PCs, clothing and phones are among the seven new categories introduced. News of the increased quota for offshore duty free shopping was announced in early June when the Chinese authorities revealed the overall plan for the Hainan Free Trade Port (FTP).

At present, CDFG runs the impressive Sanya Duty Free Shopping Complex on the island and will operate the new Haikou International Duty Free Mall, which will house duty free and duty paid shops, along with a hotel slated for completion by 2022.

CDFG owner China International Travel Service Corporation Limited also acquired a majority stake (51%) in Hainan Duty Free Co. Ltd last month.

PREMIUM BRAND FOCUS

Speaking to Charlotte Turner, TRBusiness, Editorial Director, Charles Chen, President, CDFG said: “The adjustment of the offshore duty free tax credit limit means we have more opportunities to introduce premium brands and products with high unit prices.

“CDFG will provide more new brands and better products, which will offer diversified shopping options for consumers in the Hainan duty free market.”

On the ‘positive’ adjustments to the Hainan offshore duty free shopping policy, Chen said: “The adjustments will deeply release consumers’ shopping enthusiasm and purchasing power. This will help greatly in terms of conversion rate and our ability to increase average transaction value.”

He also welcomed the inclusion of new duty free categories as part of the updated policy. “The new duty free categories, especially phones and liquor will be our new business growth point. They are very popular with Chinese customers.”

CDFG, which opened two new duty free experience stores at the Mangrove Tree Resort and Nanshan scenic spot in Sanya on 13 May 2020, was unable to quantify the financial impact of the new policy, but Chen admitted: “The new offshore duty free policy has served as a great promotion for our sales. Further advantages will emerge once more consumers learn about the new offshore duty free policy.”

Under the new policy, entities with a duty free licence (see below) can now undertake offshore duty free tax business on the island. Regarding the prospect of increased competition, Chen commented: “Moderate competition has always existed in the Chinese duty free market. As the new policy stipulates, other duty free companies can participate in offshore duty free tax business on Hainan Island, but there are no detailed requirements and methods on how business entities can join.

“CDFG has the offshore duty free operation certificate. We have first-mover advantages on Hainan Island in terms of marketing, logistics and brand investment promotion.”

Overseas customers are ‘always’ a target for CDFG, but Chen said attracting Chinese domestic customers remained a priority. “We will continue to attract Chinese shoppers and increase market share on the domestic duty free market.

“On the other hand, we will actively prepare for the competition and maintain the competitive advantages of our enterprise.”

LICENCE AWARDS UNDER DISCUSSION

Meanwhile, the Hainan Provincial Bureau of International Economic Development, which has been assigned the task of generating investment in the FTP, is urging duty free retailers or manufacturers to grasp the Hainan FTP opportunity.

Speaking during a recent webinar hosted by the International Tax Review business-to-business publication, Han Sheng Jian, Director General, Hainan Provincial Bureau of International Economic Development addressed questions relating to the awarding of duty free licences on the island.

He said: “People are asking the question of whether they can get a duty free licence. This applies to the famous international duty free retailers.

“In relation to Hainan, we are discussing these matters with the China Central government and the Ministry of Finance in particular. We really hope we can issue more duty free licences to international companies.”

Asked if any duty free licence awards to operate on the island are in the pipeline, Jian said: “We understand it is not so easy to add further duty licences at the moment. Maybe, however, the Ministry of Finance can grant Hainan one or two new licences.”

PREPARATIONS UNDERWAY FOR 2025

Looking further ahead to 2025, when the FTP system is expected to be established, all companies will be able to run duty free businesses without the need to acquire licences, as Jian explained: “From my personal point of view, international and Chinese duty free companies are considering coming to Hainan to prepare for 2025.

“Until then, they can cooperate with current licence owners including China Duty Free Group.”

As mentioned, the FTP is expected to be implemented on 1 January 2025, but the date could be brought forward, according to Jian. “Should this be the case, Hainan will become a duty free island before 2024 or even in 2023.”

In the meantime, preparations are continuing for next year’s China International Consumer Products Expo, which is due to take place in March 2021. The Hainan Expo as it is known, will be held jointly by the Chinese Ministry of Commerce and Hainan Provincial government.

“Next year, we will hold the Hainan Expo,” added Jian. “Products imported especially for the Expo will be exempt from VAT and consumption. This provides a good platform for everyone.”