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Hainan to Pilot Duty-free Shopping Policy

On December 31, 2009, the State Council released Opinions on Making Hainan an International Tourism Island. Several days before the one-year anniversary of the policy, the tropic island, again, became the center of attention. It was reported that China will unveil a duty-free shopping plan for the tropical island on today.

When being interviewed by Dongfang Daily yesterday, Mr. Lu ZhiYuan, Chairman of the Hainan Provincial Tourism Development Commission, didn’t confirm the news

Last night, an official of the Commission told Dongfang Daily that he and his colleagues were preparing for an agreement signing ceremony between the National Tourism Administration and the Provincial Government of Hainan. Many officials of the Commission worked on last Sunday to make arrangement for the event, which will be held today. However, he said he had no idea whether the ceremony was related to the duty-free shopping policy.

Upper Limit for the Value of Duty-free Items Purchased by Chinese Consumers: RMB5,000 Yuan

Hainan’s International Tourism Island Drive, duty-free policy and tourism infrastructure always grab the headlines. On November 23, 2010, Mr. Chen Cheng, Deputy Governor of Hainan, said on the Eighteenth Session of the Standing Committee of the Fourth Hainan People’s Congress that the province was stepping up its efforts to prod the central government into approving the policies to boost Hainan’s attractiveness. He implied that the duty-free shopping plan might be in place in early 2011.

According to informant, three announcements will be made at the press conference on December 27, 2010.

One is for the tax refund scheme for foreign shoppers. The scheme will be carried out on January 1, 2011.

The other two are for domestic consumers. Both Hainan and non-Hainan citizens will be able to buy duty-free in the island, of course, within a certain limit on the value of the items purchased and the number of times the consumers may shop duty-free in Hainan per year.

“I heard it’s twice a year and RMB5,000 Yuan for each time. But the rules will be available at a later date. The Customs needs time to prepare, like setting up rules and mechanism, which might take several months” the informant said.

It means the Chinese travelers may be eligible to tax exemption twice a year if they spend no more than RMB5,000 Yuan on duty-free items each time.

“Duty-free shopping policy is a breakthrough towards international shopping hub” Mr. Chi Fulin commented. He is the President of China Institute for Reform and Development and the first one who proposed the International Tourism Island initiative.

Yesterday, he said “the policy was good for Hainan. But it’s only a start. The State Council has made it very clear to turn the island an international shopping hub. The policy is the first step toward the goal. The policy planners drew in the experience of Jeju-do, Bali and Okinawa.”

According to statistics, the annual sales revenue of duty-free shops in Okinawa and Jeju-do is around USD 200 million and that in Hong Kong is about USD6.4 billion. Hainan has a huge market potential.

Duty-free Zone of Consumer Goods

According to Mr. Chi, the focal point of the policy will be the categories of duty-free items and the maximum amount of purchase and frequency to buy duty-free.

“My understanding is the policy may, at first, apply to only the goods or services purchased at duty-free stores”, he said, it may not go beyond duty-free stores until the whole island becomes a “tax-free zone of consumer goods”.

Making Hainan a shopping paradise is an important part of the blueprint for International Tourism Island. On March 5, 2008, the State Council gave Hainan Government the go-ahead to operate downtown duty-free stores in Haikou, Sanya, Qionghai and Wanning. Such stores are mainly for the foreign travelers. On September 1, 2009, China Duty Free Group (CDFG), a subsidy of China International Travel Service Corporation Limited (CITS), opened the first downtown duty-free store in Sanya. When shopping at the store, foreign travelers must present their passports and air tickets.

On November 19, 2010, CITS and the Administration Committee of Haitang Bay, Sanya, entered into a framework agreement on the cooperation over a project called Hainan International Duty-free Town, in which CITS will shell out RMB5 billion Yuan. Mr. Chen Cheng, the Deputy Governor of Hainan, said the island would attract big companies to build duty-free shopping malls and brand-name outlets to offer year-round discount of 30%-70%.

“Now, only imported cigarettes, wines and cosmetics are sold in the duty-free shop. The categories of duty-free items are very limited. This is not a Duty-free Zone of Consumer Goods in real sense, ” Chi said.

In his mind, Hainan should take three steps: first, innovating duty-free policies; second, following into his advice to make the whole island a duty-free zone of consumer goods; third, further developing into an international shopping hub.

In a report of China Radio, Mr. Dai Bing, head of China Tourism Academy, suggested other places might apply to implement duty-free policy as well.