Shanghai to lead China’s duty-free economy, boosting local consumption of luxury goods
As the fate of luxury brands increasingly depends on Chinese shoppers, news that one of its largest cities is adopting a tax-free shopping economy as part of the government’s plans to encourage domestic spending is good news.
With global economies in turmoil and disarray, China is leading the tax exemption movement with the city of Shanghai announcing its intention to openly sell tax-free goods as part of a five-year economic plan. Luxury goods in China are on average 30-50% higher than in other metropolitan cities around the world due to high local taxes and duties.
Goods cost twice as much in China
A study by the Chinese Ministry of Commerce in 2020 compared the prices of 20 luxury brands, including watches, travel cases, clothing, alcoholic beverages and consumer electronics, which found them 45% higher than ‘in Hong Kong, 51% higher than American prices and 72% higher than in France.
The city government office aims to support and expedite businesses seeking permission to sell tax free in bustling city malls, hotels, airports and other dedicated urban shopping hot spots.
Currently, duty-free spending in China is concentrated in the southern province of Hainan, where the annual limit imposed is capped at 100,000 yuan (about 13,000 euros), against 30,000 yuan (about 3,900 euros) previously.
Hainan Island attracts millions of tourists from all over China every year, with a growth rate that has seen a sharp increase following restrictions on local and international travel since the onset of the pandemic.
The rest of China, meanwhile, has more than 300 duty-free shops offering everything from clothing to cosmetics to luxury goods. The key player overseeing the industry, China Tourism Group Duty Free Corp, controls nearly 200 stores. A network which seems destined to develop further as long as travel retail cannot resume at full capacity. It is also in line with the nation’s broader interest to be self-sufficient.
Annual tax-free spending amounts to tens of billions of yuan, reflecting the importance of duty-free markets and domestic purchases.