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Changes to Hainan Duty-Free Rules Opens Door for HK Suppliers

Expanded purchase opportunities sees Hainan duty-free companies open new premises and increase range of stock.

Photo:  High-end Hainan visitors duty-free shopping in Sanya. (Xinhua News Agency)
High-end Hainan visitors duty-free shopping in Sanya.
Photo:  High-end Hainan visitors duty-free shopping in Sanya. (Xinhua News Agency)
High-end Hainan visitors duty-free shopping in Sanya.

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

Hainan's off-island duty-free policy was first introduced in April 2011. This entitled tourists exiting the province by air to enjoy the privileges of duty-free shopping, even if they were only transferring elsewhere in China. These initial regulations specified several restrictions, including limits on the number of visits that could be made to duty-free facilities, an upper ceiling on the value and quantity of goods that could be purchased, and strict guidelines as to the categories of goods covered by the policy. Customers also had to pay for the goods at a duty-free store, then later collect them at a designated pick-up point within the airport's restricted zone.

Hainan was the fourth tourist destination in the region to implement such a policy. At that time, similar regimes had already been introduced in Japan's Okinawa and South Korea's Jeju, as well as the islands of Matsu and Kinmen.

In January of this year, the Ministry of Finance announced its plans to further liberalise duty-free shopping for visitors to Hainan. As of 1 February, non-residents have no longer been restricted in the  number of times they can make duty-free purchases, as long as the total value of their purchases does not exceed Rmb16,000 in any given year. Additionally, for the first time, two of Hainan's existing duty-free outlets – Haitang Bay and Meilan International Airport – have been given the go-ahead to introduce online shopping facilities.

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

In light of the changes, Hainan Duty Free is now looking to expand its activities in Haikou City. By the end of this year, it plans to have opened three new duty-free shops, 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 has also seen it look to widen its range of products. At present, it is targetting a number of global brands with a view to introducing new items across a number of categories, including fashion, wine, watches, bags, shoes, imported food, and mother and child products. It is also intended that each store will 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.

In the case of the Haitang Bay Duty-free Shopping Center in Sanya, this is already a popular site, with heavy footfall and easy access via public transport. Operated by China Duty Free, it does a bristling trade in internally branded cosmetics and perfumes, with mainland tourists frequently queuing to make purchases. Already embracing social media, it offers discounts to those customers who have registered with its public WeChat account.

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

Selina Lin and Natalie Lu, Guangzhou Office

Content provided by Picture: HKTDC Research
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