New Hainan Island offshore duty free policy ‘a shot in the arm’ for DF&TR

By Andrew Pentol |

Hainan-FTZ-2020Industry observers and stakeholders have welcomed the new game-changing offshore duty free shopping policy on Hainan Island which was implemented today (1 July), as pre-empted by TRBusiness.

The new regulations, which include the tripling of the purchasing quota from RMB30,000 to RMB100,000 (no limit on the number of store visits) and expanded duty free category list, were first highlighted in early June. The information was revealed as part of the Chinese Central Government’s Master Plan for the construction of the Hainan Free Trade Port.

Currently, the offshore duty free policy on the tropical island of Hainan applies to duty free shops at Haikou Meilan Airport, Haikou Riyue Plaza, Quonghai Boao and Sanya (Haitang Bay).

In an exclusive interview last month, Ruslan Tulenov, Supervisor, Hainan Provincial Bureau of International Economic Development told TRBusiness that further details of the new duty free policy on the island would be announced at the end of June or early July.

TRBusiness also reported that the raised allowance and new duty free allowance could also be implemented within this time-frame, which turned out to be the case.

‘NEW CHAPTER’ FOR OFFSHORE DUTY FREE

Speaking earlier this week to TRBusiness Tulenov said: “The inclusion of new duty free categories such as clothing, phones and liquor is massive news for the offshore duty free business.

“This is a new chapter for the China offshore duty free shopping business, which will significantly boost the development of the Hainan Free Trade Port.”

Hainan Provincial Bureau team shot

The Hainan Provincial Bureau of International Economic Development must generate that foreign investment in the Free Trade Port, which KPMG’s Bailey talks about.

Further adjustments to the island’s duty free policy were also announced this week, in addition to the raised purchasing allowance. These include seven new duty free product categories including liquor, tablet PCs, clothing and phones. These new categories take the total from 38 to 45.

For most categories, purchasing limits per person/per store visit are now unlimited. Cosmetics (30 items), liquor (1,500ml) and cell phones (four pieces) are the exceptions.

Other modifications include the removal of the RMB8,000 limit on single duty free purchases, and a substantial reduction in products limited to single purchases.

Proper competition is also encouraged. All business entities with a license to distribute duty free products can now participate in offshore duty free tax business on Hainan Island.

Intensified supervision will also be conducted during and after business activities. Individuals, enterprises and offshore duty free shops who resell and smuggle products will be reminded of their legal responsibilities.

CDFG-Haitang-Bay-Hainan-exterior-2019

An exterior shot of China Duty Free Group’s Haitang Bay duty free complex.

The significance of the increased duty free purchasing allowance on Hainan Island and expanded product category list must not be underestimated, according to Evita Qu, Deputy General Manager, China National Service Corporation for Chinese Personnel Working Abroad.

Qu, who took part in the latest TRConnect webinar held by TRBusiness yesterday (30 June), believes the most recently announced regulations relating to quantity limits will quickly stimulate business in Hainan.

She commented: “Generally speaking, the tripling of the allowance is definitely goods news for the Hainan offshore duty free industry.

“Initially, we didn’t think the [allowance] increase would solve all the problems, but the new quantity limits for the various skus will certainly drive growth.”

MASSIVE OPPORTUNITY IN HAINAN

She added: “Now that all qualified duty free operators are allowed to participate in this [offshore duty free — Ed] industry, there is massive opportunity and potential for the Hainan duty free business.”

Stephie Yang, Head of Business Development, Jessica’s Secret, who also delivered some fascinating insights as part of yesterday’s China-focused TR Connect webinar, believes developments in Hainan are part of the Chinese government’s long-term plan to drive domestic consumption.

“The Chinese government definitely wants to drive and profit and consumption internally, but that said, we know brands and retailers will continue to adopt different pricing and marketing strategies,” she told TRBusiness.

“If the Chinese plan to travel abroad [once international travel resumes from China — Ed], they will definitely shop overseas, especially if prices are more competitive than at home.

“Domestic shopping has certainly increased in China, but I do not think this will be a long-term trend.”

Haikou Meilan Airport Confectionery

The tripling of the offshore duty free allowance on Hainan Island and various other adjustments will inevitably boost Haikou Airport’s duty free business.

Another industry source based in Beijing, described the new Hainan duty free policy as a ‘shot in the arm for the travel retail industry.’

“The policy can effectively promote the recovery of the travel industry during the pandemic and enhance the purchasing power of Chinese tourists.

“It will effectively promote the recovery of the travel industry and Chinese duty free sector [from the Coronavirus pandemic- Ed] and enhance the purchasing power of Chinese tourists.

“In addition, it will alleviate some the financial pressure on brands,” the source commented.

Anson Bailey, Head of Consumer & Retail Asia Pacific, KPMG, who participated in his second TR Connect webinar yesterday said further developments in Hainan Island are on the horizon. “It is not only the duty free element which is significant, but the opportunity for organisations to look at setting up holding companies over there. Hainan, therefore, is very interesting for us from a corporate perspective.”

Bailey, who described Hainan Island as the ‘Hawaii of China’ is adamant Hainan Island will become a more significant destination for Chinese consumers. “In this new normal, there will be more travel closer to home. Will there be as much global travel from China over the next couple of years? Time will tell.”

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