Hainan’s next chapter: Will new customs rules spark a luxury comeback?

Hainan, once hailed as a duty-free shopping haven, wants to do more than reclaim its crown — it’s aiming to evolve into a high‑level trade, investment, and consumption hub. On December 18, 2025, China’s southernmost province officially started its island-wide customs closure, a milestone in the development of the Hainan Free Trade Port (FTP). Under the new regime, Hainan will become a pilot zero-tariff zone under a special supervision model: “freer access at the first line, regulated access at the second line, and free flows within the island.” At the “first line,” most overseas goods can enter Hainan without import duties, value-added tax, or consumption tax. Capital and people can also move more freely between Hainan and overseas markets, and once on the island, zero-tariff goods can circulate freely. However, trade between Hainan and mainland China — the “second line” — remains subject to standard customs oversight to prevent smuggling and maintain market order. Building on this framework, the number of tariff-free items has risen from 1,900 to 6,637, covering roughly 74% of imports. This expansion could lower costs and streamline supply chains for brands. Coupled with a range of policy incentives designed to attract capital and talent, these measures set the stage for long-term growth in luxury consumption. With tariff exemptions, lower business costs, and easier cross-border flows, on top of the island’s appeal as a tropical travel destination, Hainan could emerge as a powerful force reshaping Asia’s luxury landscape. Hainan’s rise and fall Hainan’s latest move marks an upgrade to its off-island duty-free policy, introduced in 2011, and signals a new stage in the development of the Hainan FTP, announced in 2018. Key milestones include raising the annual duty-free shopping quota to 100,000 RMB ($14,000) per traveler in 2020, removing purchase limits and single-item caps, and introducing the “buy-and-take” model, allowing immediate collection of duty-free goods. In November 2025, Hainan expanded duty-free categories to 47, adding items such as pet supplies, portable musical instruments, home appliances, and mini drones. These preferential policies transformed Hainan into a major shopping hub for China and Asia. Luxury sales surged 120% in 2020, according to Bain & Co., and rose another 90% in 2021 to roughly 60 billion RMB ($8.5 billion), with personal luxury accounting for 95% of the total. In 2021, Hainan’s duty-free share of China's total personal luxury market doubled to 13% from 6% in 2018, while CDFG (China Duty Free Group) stores across the island contributed about 70% of the group’s total sales — a major feat, considering the company itself holds roughly a 25% share of the global duty-free market. Over those two years, global luxury brands moved in aggressively. Beauty players, which account for half of the island’s duty-free sales, expanded their presence, including Estée Lauder, L'Oréal, and Shiseido. In 2022, Tapestry established its China travel retail headquarters in Hainan. Meanwhile, more than 800 top-tier luxury and premium brands — from Louis Vuitton and Ralph Lauren to Coach — joined CDFG’s Haikou International Duty Free City, the world’s largest single duty-free store, which opened the same year. Yet the rapid boom exposed Hainan to new vulnerabilities. In 2024, duty-free spending in Hainan dropped by 29.3%, and the number of travelers fell 15.9% year-on-year. As the island’s duty-free sales ballooned, many global luxury groups reported sliding revenues in their mainland boutiques. In response, they began scaling back discounts in duty-free stores and limiting new launches to prevent cannibalizing their mainland business. At the same time, Hainan is facing intensifying competition from other Asian destinations. Japan continues to draw foreign travelers with its weak yen — which at its lowest shaved roughly 30% off the regular price of a luxury item — combined with a tax-free policy and the most complete product lines in Asia. South Korea has also grown into a key magnet for luxury buyers, offering highly curated, K-pop-infused shopping experiences, as consumers seek more immersive, personalized retail. A key market emerges: Russian tourists Even as Hainan’s luxury momentum wavers, the island’s next chapter could be defined by the convergence of experiential travel and a more sophisticated luxury ecosystem. By combining competitive pricing with world-class tourism services along its tropical coastlines, the island could once again become a key destination for luxury travelers. Hainan has doubled down on the development of its tourism sector. In early 2024, it initiated a 30-day visa-free policy for visitors from 59 countries, which expanded to 86 in July 2025. This move has already shown promising results: the island received 1.11 million inbound visitors in 2024, up 130.9%, largely from Russia, South Korea, Malaysia, Singapore, and Vietnam. In fact, Russian arrivals alone rose more than tenfold to 178,400 in 2024, making Russia the largest source of inbound tourists to Hainan. Between January and August 2025, Hainan received 301,000 Russian tourists, up 200% year-on-year. These numbers are expected to keep growing, supported by China’s one-year trial visa-free policy for Russian passport holders and the rising number of direct flights between the two countries. These Russian tourists, who favor tropical retreats for vacation, may become a significant driver of luxury consumption. The exodus of luxury brands from Russia following the war in Ukraine and subsequent Western sanctions has pushed affluent Russians to shop abroad or use “gray channels” to buy high-end goods. Hainan’s generous duty-free quota and high-end tourism offerings could make it an appealing alternative to Dubai and Istanbul, where Russians traditionally shop for luxury goods. Recognizing this opportunity, Hainan has rolled out Russian-language services, concierge support, and targeted campaigns. Sanya, in particular, has started positioning itself as a winter refuge as well as a duty-free travel retail hub. Betting big on luxury travel retail Currently, there are 13 off-island duty-free stores in Hainan, located across major tourist cities such as Sanya, Haikou, and Qionghai. More are expected to open in the near future. For example, LVMH-owned luxury travel retailer DFS is set to open its seven-star luxury retail and leisure complex in Sanya’s renowned Yalong Bay resort in 2026. Expected to host over 1,000 luxury brands and attract 18 million visitors annually by 2030, the project is DFS’ most ambitious to date. Going forward, Hainan’s pull may hinge less on its price advantage and more on its ability to deliver compelling luxury travel retail experiences. The test lies in whether it can carve out a space in the crowded Asian luxury market by winning over a diverse pool of discerning visitors.

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Hainan’s next chapter: Will new customs rules spark a luxury comeback?