CHINA. The stock price of China Duty Free Group parent company China Tourism Group Duty Free Corp (formerly China International Travel Service) soared to a 52-week high today following yesterday’s announcement of a wide-ranging stimulus programme for the Hainan offshore duty free business.
The measures, unveiled by the Chinese Ministry of Finance, the General Administration of Customs and the State Administration of Taxation, will transform China’s and Asia’s travel retail landscape.
From tomorrow, 1 July, the annual offshore duty free allowance for shoppers visiting Hainan will be raised from RMB30,000 (US$4,215 at current exchange rate) to RMB100,000 (US$14,050) as part of sweeping government plans to stimulate consumption, tourism and pave the way for the creation of Hainan Free Trade Port.
Critically, the range of duty free categories is also being expanded from 38 to 45, as part of a hugely ambitious Hainan Free Trade Port Overall Plan released by Hainan Provincial Bureau of International Economic Development. New categories include consumer technology, liquor (subject to a 1.5 litre allowance restriction per visit, as long as the RMB 100,000 allowance is not exceeded in a year), as well as watches, phones (four pieces per person a year), computers and fashion. The liquor category includes beer, sake, imported wines and spirits.
Additionally, and of major significance to high-end goods, the previous CNY8,000 (US$1,130) limit for a single tax free purchase is removed.
By 3pm today, China Tourism Group Duty Free Group stock had touched CNY/RMB154.03, up +10% since start of trading (and +24.7% in a week) to a 52-week high.
The latest moves follow another recent boost to the offshore business. In April, China Duty Free Group (CDFG) introduced a scheme allowing Mainland visitors to Hainan to spend any of their unused RMB30,000 (US$4,240) annual allowance online for up to 180 days once they arrive back – and have the goods couriered to their home.
Hainan the new global epicentre of travel retail
Yesterday’s announcement – and the stock market reaction to it – underlines Hainan’s status as the new epicentre of global travel retail.
With China having largely curbed the COVID-19 outbreak (albeit with strict measures on travel into the country) and Hainan disease free since 24 March, travel to the holiday island is set to flourish in the second half of 2020.
Combined with consumer reluctance to travel abroad, other than perhaps on limited short-haul routes, the expanded offshore duty free offer is a big incentive for Mainlanders to visit Hainan.
Pricing is increasingly competitive with cosmetics prices at Hainan duty free stores some -35% lower than China domestic according to a recent Morgan Stanley Research report.
Compared with previous policies, the latest announcement’s main adjustments are as follows:
- The offshore shopping quota has been increased from RMB30,000 (US$4,215) to RMB100,000 (US$14,050)
- The number of categories is increased from 38 to 45.
- The limit of RMB8,000 (US$1,129) for a single tax-free purchase is removed.
- With quota management adopted as the main form of administration, the types of goods that are limited by the quantity of a single purchase are substantially reduced.
- “Proper competition is encouraged” and all business entities with a tax-free product distribution qualification [i.e. licence] can equally participate in the offshore tax and duty free business on Hainan Island.
- Intensified supervision will be conducted during and after business activities. Legal responsibilities of individuals, enterprises and offshore tax free shops who participate in reselling and smuggling will be defined clearly.
