Duty-free shopping spurs consumption growth in China

HAIKOU -- Offshore duty-free shopping in South China's island province of Hainan has expanded domestic demand and helped spur new consumption growth in China.

"Hainan has been a lighthouse for the global duty-free and travel retail industry during a very dark and difficult period. The growth of the offshore duty-free market in Hainan has been phenomenal, but there is still potential for more," noted Erik Juul-Mortensen, president of the Tax Free World Association via video link at the ongoing second China International Consumer Products Expo (CICPE) held in the province.

"The difficult times we have experienced do not change the fact that China is and will remain the motor of the regional and global duty-free and travel retail industry," he added.

Over the past decade, China's consumer market has grown rapidly into the second largest in the world. In 2021, China's total retail sales of consumer goods exceeded 44 trillion yuan ($6.5 trillion), an increase of 1.1 times compared with 2012, with an average annual growth rate of 8.8 percent.

"China is one of the largest and most promising consumer markets in the world," said Wang Haimin, general manager of China Tourism Group. Wang added that China's consumption growth is forecast to contribute to over a quarter of global consumption growth in the next decade, ranking first in the world.

According to Wang, in the past two years, the global tourism retail market has been shrinking due to the pandemic, but China's tourism retail market still registered a 38 percent year-on-year growth last year. The personal luxury goods market, particularly, exceeded 470 billion yuan in China last year, more than twice that before the epidemic.

"Hainan is one of the most dynamic open markets in China," said Wang.

As one of the country's major opening-up measures in the new era, China aims to build the whole of Hainan Island into a globally influential and high-level free trade port (FTP) by the middle of the century.

Now duty-free shopping has become one of the core competitive features of Hainan's tourism consumption.

The province's duty-free shops raked in over 60 billion yuan in 2021, an increase of 84 percent year-on-year. About 9.7 million people made duty-free purchases in 2021 in the province, up 73 percent year-on-year.

Hainan FTP has also become a new luxury goods market in China, with its sales in 2021 accounting for 13 percent of the total sales of luxury goods market in the country.

Global management consulting firm Bain & Company predicts that with the continuous growth of the number of luxury consumers in China and the sustained construction of the Hainan FTP, China's personal luxury consumption market will maintain a rapid recovery pace, and is expected to recover to the 2021 level by late 2022 or early 2023.

During the CICPE, a white paper on Hainan travel retail market in 2022 was jointly released by KPMG China and Moodie Davitt Report. The white paper said with the landing of more supportive policies in duty-free shopping, the scale of tourism retail market in Hainan FTP is expected to further swell, injecting strong confidence into investors to expand their footprints in Hainan.

It predicts that Hainan will grow into the world's largest tourism retail market in the next five years.