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Duty-free Rules Open Door for Hong Kong Suppliers

Changes to Hainan tax regulations are set to boost the island province's duty-free trade, potentially opening new opportunities for suppliers and distributors in Hong Kong. Under the new regime, shoppers leaving the island will no longer be subject to a restriction on the number of times they shop for duty-free items, although an overall financial ceiling on total spending still applies. The revised policy is expected to spur rapid expansion of duty-free facilities operating in the region.

Introduced in April 2011, Hainan's off-island duty-free policy entitled air travelers to tax-free shopping, even if they are only transiting elsewhere in China. The previous regulations specified several restrictions, including a limit on the number of visits that could be made to duty-free facilities, a ceiling on the value and quantity of goods purchased, and strict guidelines on the categories of goods covered by the policy. Customers also had to collect their purchases at a designated pick-up point within the airport's restricted zone.

Hainan is the fourth tourist destination in the region to implement such a policy, with similar regimes introduced in Japan's Okinawa and South Korea's Jeju, as well as the Taiwanese islands of Matsu and Kinmen.

In January, the Chinese Ministry of Finance announced plans to further liberalise duty-free shopping for visitors to Hainan. Since 1 February, non-residents are no longer restricted in the number of times they make duty-free purchases, as long as the total purchase value does not exceed Rmb16,000 per year. Additionally, for the first time, two of Hainan's existing duty-free outlets – Haitang Bay and Meilan International Airport – have been authorised to launch online shopping services.

At present, the duty-free shops in Haikou and Sanya, two of Hainan's larger cities, are operated by the Hainan Provincial Duty Free Co Ltd (Hainan Duty Free) and the China Duty Free Group Co Ltd (China Duty Free) respectively. To evaluate the impact of the recent changes to the off-island duty-free policy, HKTDC Research recently visited the companies’ facilities.

In light of the relaxation in regulation, Hainan Duty Free is looking to expand its activities in Haikou City. It plans to open three new duty-free shops by the end of this year, with its Mission Hills and Boao outlets already in operation. The Boao shop was officially opened during the Boao Forum in March, while its Mission Hills facility is currently at the pre-launch testing stage. With 30,000 square metres of floor space, the Mission Hills operation is seen as the company's Haikou City flagship store. The company also hopes to establish its own cross-border e-commerce shop on Tmall.hk, while also opening a facility on the Haikou-Xuwen ferry.

The expansion of Hainan Duty Free's facilities means it will also widen its range of products. At present, it is targeting several global brands to introduce new items across several categories, including fashion, wine, watches, bags, shoes, imported food, and mother-and-child products. Each store is expected to tailor its stock in line with the preferences of its target customers. The Mission Hills store, for instance, will be positioned as Hainan's largest duty-free outlet for mother-and-child products.

The Haitang Bay Duty-free Shopping Center in Sanya enjoys heavy footfall and is easily accessible via public transport. Operated by China Duty Free, it does a brisk trade in internally branded cosmetics and perfumes. The outlet offers customer discounts for those who have registered with its public WeChat account.

The expansion of Hainan's duty-free activities can be good news for Hong Kong businesses. Given the city’s proximity to Hainan, Hong Kong companies are well-placed to supply these expanding outlets with high-value, imported branded goods.

For more China market opportunities, please visit: http://research.hktdc.com.

Content provided by Hong Kong Trade Development Council
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