Will Hainan’s Duty-free Plan Threaten Hong Kong’s Status As China’s Shopping Mecca?

What happened On March 29, at a press conference during the Bo’ao Forum for Asia, an annual Hainan event that promotes regional economic integration, the island province announced initiation of shifting to an island-wide, independent customs (封关) system by 2025. Will this threaten Hong Kong’s status — a city that has so far enjoyed special status as Greater China’s tax free shopping haven? After 2025, Hainan will operate outside of China Customs’ jurisdiction. Customs duties will apply to items entering mainland China from Hainan, while products moving in the opposite direction will count as exports. The announcement has gained significant traction on Chinese social media. On Weibo, the hashtag “Hainan prepares to establish independent customs” has generated over 330 million views to date, with many netizens speculating on how the move would impact their future visits to the island. The Jing Take While officials have argued that Hainan and Hong Kong will be complementary rather than competitive, the truth is that Hainan will offer a seriously attractive alternative for mainland shoppers to buy luxury goods, fashion and beauty without paying customs duty. The rapid rise of the island’s duty-free retail poses yet another challenge to Hong Kong, which is confronting its declining status in the luxury landscape. Hainan is much larger than Hong Kong geographically, and its long coastline provides plenty of natural attractions. With more competitive prices and a greater number of retail outlets to select from, Hainan could become the top shopping destination for Chinese consumers. Indeed, some Chinese analysts believe Hainan will become “Hong Kong + Florida” since it simultaneously boasts immense retail and tourism resources. The policy to establish an independent customs system in Hainan goes back to June 2020, when China’s State Council released its plan to transform Hainan into a free-trade port. However, the Bo’ao Forum announcement highlighted the development publically. The policy will provide a major boost to Hainan’s already impressive retail sector. After 2025, duty-free retail will no longer be confined to the 12 existing malls owned by travel retail giants such as China Duty Free. Instead, the entire island will be duty free. The development is expected to considerably increase the scale of Hainan’s duty-free retail industry. In addition, the initiative will greatly promote local consumption. Until now, customers who shop at Hainan’s duty-free malls can only use their purchased products after departing the island. In the future, it is possible that Hainan will permit duty-free items to be consumed on the spot, which will further unlock the spending power of its residents and encourage visitors to extend the duration of their stays. Moreover, as mentioned at the conference, Hainan will upgrade its hospitality industry to accommodate a bigger inflow of visitors. To be sure, Hainan is not without its own challenges. It is still a relatively underdeveloped area in China. In 2022, Hainan generated a GDP of 99.1 billion (681.8 billion RMB), up 0.2 percent year-on-year, ranking it 28th out of China’s 31 provinces. It is dwarfed by Hong Kong’s 2022 GDP of 363.4 billion. Hainan’s average disposable income per capita last year was about 4,500 (30,957 RMB), lower than the national average of 5,362 (36,883 RMB). Therefore, it will take time for the island to become the go-to location for major international labels. It is also unclear if Hainan’s post-2025 status will make visiting the island more complicated for mainland consumers. Mandatory customs checks could prolong the journey times and may require new travel paperwork. Nevertheless, with the recovery of consumption a key objective for China, Hainan’s retail prospects can only improve. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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Will Hainan’s Duty-free Plan Threaten Hong Kong’s Status As China’s Shopping Mecca?