Put Off By High Luxury Taxes, Chinese Smuggling Luxury Goods From Hong Kong

Couple Caught Smuggling 4 Million Yuan (US$630,000) Worth Of High-End Items Into Shenzhen

Some of the smuggled goods intercepted by customs officials in Shenzhen (Image: NDDaily)

Some of the smuggled goods intercepted by customs officials in Shenzhen (Image: NDDaily)

Police in the city of Shenzhen had some excitement this week, nabbing a young couple from Shanxi province who were trying to smuggle over US$600,000 worth of luxury goods over the border from nearby Hong Kong. According to customs officials, this is the largest luxury smuggling case in the city since 2007. As Shanghai Daily points out, the young couple claimed they were bringing in the high-end items for personal use, and rather than smuggling the items to sell back home, they were simply trying to evade the stiff luxury and import taxes for goods worth up to 50,000 yuan (US$7,872).

The couple in their 30s tried to cross the border through a green lane reserved for travelers with duty-free belongings when they were stopped by the customs officials, the Southern Metropolis reported.

The officials found seven brand-new iPhone4S, handbags from Prada, Marc Jacobs and Daniel Hechter, numerous [pieces of] Cartier jewelries (sic) and watches in the couple’s Toyota MPV. They also found 28 diamonds and two large emeralds in their pockets and 540,000 HK dollars (US$70,000) in their bags.

According to Caijing, smugglers face up to three years in prison for sneaking in items worth between 50,000-100,000 yuan, so no word on what kind of jail time the couple from Shanxi faces, but they will also be expected to pay anywhere from one to five times the 50,000 yuan in punitive import taxes they sought to evade.

While a smuggling case this large is quite rare, it’s not surprising that mainland Chinese are resorting to sometimes extreme measures to get around Beijing’s 50,000 yuan duty-free cap. Mainland tourist-shoppers are famous for queuing up outside Louis Vuitton and Gucci stores in Hong Kong for hours, dropping tens of thousands of dollars on diamond-studded Rolexes and leaving the city with arms draped in shopping bags. Perhaps hoping for some of that money to stay in the mainland, in recent years Beijing has toyed with the idea of building its own duty-free shopping areas, and this summer kicked off a pilot program on the southern Chinese island of Hainan. Though this program reported mixed success, its duty-free cap of only 5,000 yuan (US$762) means tourists are unlikely to view Hainan as a real duty-free alternative to Hong Kong for quite some time, if ever.

With Beijing continuing to drag its feet on reforming its notoriously high luxury tax codes, which tack upwards of 40 percent onto high-end imported goods, Hong Kong will likely retain its crown as the luxury shopping Mecca for mainland Chinese. But with this week’s audacious smuggling case in Shenzhen, we’re wondering if this is simply a one-off attempt by a brazen couple or a sign that wealthy individuals from inland areas are increasingly turning to smuggling (rather than personally flying to Hong Kong) out of frustration with luxury and import taxes.


Hard Luxury, Market Analysis