Hainan cashes in on expanded duty-free policy

Island province hopes to become international tourist destination

Tourists visiting China's southernmost province, Hainan, have a higher duty-free spending limit starting Thursday - a stimulus to promote the island as a destination for luxury-good buyers.

Non-residents leaving the island can now make duty-free purchases of up to 8,000 yuan ($1,280) twice a year, up from the previous 5,000 yuan limit, according to a Ministry of Finance statement.

More categories of products - such as beauty and healthcare equipment, tableware, kitchenware and toys - are included in the tax-rebate category, bringing the total kinds of duty-free items from 18 to 21, the statement said.

Tourists aged 16 or older can now claim tax refunds on goods purchased. In the past, only tourists older than 18 were eligible.

In April 2011, Hainan piloted a duty-free policy allowing visitors to purchase goods with tax rebates. The aim of the preferential policy was to build the tropical resort into a shopping paradise for Chinese and international visitors.

So far, Hainan has two duty-free stores, at Meilan Airport in Haikou, the capital, and in Sanya.

By Sept 30, total sales revenue at the two shops had hit 2.6 billion yuan, according to the General Administration of Customs.

"Annual sales at the two duty-free stores was double that of Hainan's seven biggest traditional department stores together," Tan Li, vice-governor of the province, said at a news conference last week.

"To a certain extent, the strong sales have met the market demand for duty-free goods for Chinese tourists, which keeps consumption on high-end products within the country's border," Tan said.

He also said the structure of tourism products has now been driven by sightseeing and shopping, which makes the tourism industry more diversified and attractive.

Hainan aims to be an international quality shopping center by 2020, Hainan Special Zone News reported, citing Wang Keqiang, deputy director of the provincial commerce department.

The newspaper quoted Wang as saying that the central government hopes the island will take the lead by initiating tax-rebate programs to develop commerce, which can set an example for other provinces.

Wang said the province expects annual sales of duty-free goods to reach 4 billion to 5 billion yuan after the new policy, 80 to 90 percent more than in the past.

Hainan's annual tourism revenue growth is expected to rise by 6 to 7 percentage points, benefiting retailing and logistics businesses, Wang was quoted as saying.

To achieve this goal, Wang said efforts have to be made to improve fiscal policies, supporting facilities and service standards on the island.

A resident who gave his name as Tong said he expects the maximum purchase limit could go even higher.

"I'm an amateur photographer, and I hope duty-free items will expand to consumer electronics, like cameras and PCs," he said.

Zhang Guangrui, director of the Chinese Academy of Social Sciences' Tourism Research Center, said the policy fine-tuning would give a better deal to domestic tourists who have less chance to go abroad but are eager to purchase luxury brands.

"The pilot measures could set off a chain reaction, with other provinces establishing more duty-free stores at tourist destinations," Zhang said.

But he suggests that more Chinese brands should take advantage of the expansion of duty-free shops.

"So far, 80 percent of the commodities sold, especially luxury goods, are foreign brands, which shows customers' loyalty to import items," Zhang said.

"In South Korea, for example, this type of shop tends to serve as the display window for local, specialty products such as cosmetics."

Zhang also said the policy will have more incentives for domestic customers from second- and third-tier cities.

"International tourists and tourists from metropolises like Beijing and Shanghai have more options and can more easily buy luxury goods. But tourists from smaller cities have shown stronger purchasing power on the island."