China will reduce its import tariff on luxury goods to attract more Chinese consumers to buy such products domestically, Beijing News reported Thursday, citing spokesperson Yao Jian with the Ministry of Commerce.
China had already reduced the average import tariff from 15.3 percent to 9.8 percent since the country entered the WTO in 1991.
However, most Chinese tend to purchase luxury goods in overseas markets because of lower prices. According to a report from the Beijing Evening News, prices of top brand watches, bags and clothing are 45 percent lower in Hong Kong, 51 percent lower in the United States and 71 percent lower in France.
The report also said only 20 percent of consumers buy luxury goods at home, while 57 percent buy overseas and 23 percent buy the products through "daigou" – purchasing products through a third party or agents.
This phenomenon has attracted much attention from the nation's top officials. Chen Deming, Chinese Minister of Commerce, said that the distribution system and higher tariff rates cause the price of luxury goods to be much higher in the Chinese mainland. Some industry groups, including the China General Chamber of Commerce, have also appealed to reduce the rate and strengthen domestic purchasing power.
Chen said the reduction of the import tariff would be trend-driven as the Chinese people's GDP per capita is more than US$4,000.
According to an earlier report, China's number of middle class households with incomes between 100,000 yuan (US$15,248) and 200,000 yuan (US$30,497) was predicted to grow from 13 million in 2010 to 24 million (22 percent of all households) by 2015.
As incomes increase, Chinese consumers are eyeing top brand goods, especially luxury goods that increase in value. Mr Li, a businessman, called a handbag he bought at 25,000 yuan (US$3,814) in 2008 a good investment because its price had since risen to more than 30,000 yuan (US$4,574).
Those who say they indulge themselves by buying luxury goods at a price two or three times their monthly salary increased from 25 percent in 2008 to 36 percent in 2010, according to McKinsey & Company.
As the number of first-tier Chinese cities is expected to increase from 30 to 60 in the next five years, McKinsey & Company predicted that sales of luxury goods in many of the current two-tier cities would double in five years.
China's booming luxury goods market also makes it an oasis for global luxury brands, which are losing ground in other markets. The nation overtook the US as the world's second largest market for luxury goods in 2008, with sales of US$8.6 billion. China presently consumes about 25 percent of the world's luxury products, just after Japan, according to earlier reports.
Moreover, the latest report released on June 14th by the World Luxury Association said China is set to surpass Japan as the world's largest consumer of luxury goods by 2012, with the economic crisis causing sales of luxury goods in the United States and Europe to decline, and the tragic earthquake in Japan greatly damaging the country's economy.
