Hainan's Free Trade Port: Duty-Free Supplier Opportunities
In a bid to implement the Overall Plan for the Construction of the Hainan Free Trade Port, Hainan is quickening building itself into an international tourism centre, as well as devoting great efforts to lure luxury shoppers from abroad back to the island. As construction of the Hainan Free Trade Port continues to progress, retail business in the province is booming thanks to the robust growth of duty free shopping.
Riding on its rich tourism resources and huge duty free market, Hainan provides a favourable environment for the comprehensive development of brands from all over the world. Hong Kong companies can take advantage of the Hainan Free Trade Port to tap the domestic market by selling Hong Kong products or distributing foreign brands to departing travellers duty free. In so doing, they not only benefit from the preferential tax policy offered by the Hainan Free Trade Port, but can also display and sell products to tourists from different parts of China, thereby raising brand awareness and expanding domestic sales opportunities in Hainan and other Chinese regions.
Building a high-end international tourism centre
It is worth noting that following the great efforts made by the Hainan Free Trade Port to develop itself into a high end international tourism centre, its retail sector has been expanding in leaps and bounds. In 2023, the growth of luxury shopping on the island was spectacular, with consumer goods sales, tourism revenue, visitor arrivals and duty free spending all surging.
In addition to the extensive network of duty free shops on the island, the rebound in visitor arrivals, further development of upmarket international and local hotel and restaurant services, and the upcoming completion of large shopping facilities are all generating huge potential for visitor spending, which will in turn serve as a key engine driving the development of the free trade port. According to the latest statistics, in 2023 duty free sales to departing travellers reached RMB43.76 billion, up 25.4%, while the number of shoppers rose almost 60%.
As the Covid pandemic ended, the consumer market in Hainan recovered rapidly. According to Hainan province’s 2023 statistics communique, provincial retail sales of consumer goods amounted to RMB251.1 billion, an increase of 10.7% over 2022, representing a record‑breaking figure. Retail sales of consumer goods included merchandise sales and catering revenue. Merchandise sales grew 7.6% over 2022, while catering revenue surged 34.4%. By product category in 2023, jewellery and communication equipment rose strongly, with the latest figures showing sales in these two categories climbing 51.8% and 46.9% respectively.
The spiralling total retail sales also benefited from the revival of tourism and rise in tourism revenue. According to the latest figures, Hainan's 2023 tourism revenue rebounded significantly to reach a total of over RMB180 billion, surging 71.9% over 2022 and accounting for 70% of the total provincial retail sales.
Hainan has long been a favourite warm‑weather and rehabilitation destination for travellers from northern China. The island, blessed with rich tourism resources and unique natural scenery, is also a popular honeymoon destination. In addition to traditional tourism activities, upmarket duty‑free imported products are also a great attraction to residents from various mainland provinces and to foreign tourists. For instance, there are long queues of shoppers at retailers selling trending imported brands.
In terms of product category, skincare products, cosmetics and perfume have been selling very well, taking up the lion’s share of duty‑free sales. It is clear that not only do northern China tourists seeking a summer retreat love to visit Hainan, but that visitors from throughout eastern China and its neighbouring provinces also prioritise it as a sightseeing and shopping destination. In recent years, travellers in general are attaching greater importance to the shopping experience and they tend to spend more on unique cultural tourism activities. In light of this, many industry players in Hainan have introduced tourist activities combining leisure, entertainment, gourmet food and duty‑free shopping in order to offer visitors a greater diversity of tourism experiences infused with tropical charm. At the same time, a number of ocean‑themed hotels and amusement parks designed to deliver family‑friendly sightseeing and shopping have also opened.
Duty-free shopping policy for departing travellers
In particular, since Hainan implemented its pilot duty‑free policy for departing travellers on 20 April 2011, adjustments have been made on a number of occasions. The offshore duty‑free shopping allowance for travellers leaving Hainan, for instance, was raised from RMB5,000 per person annually to RMB30,000 in 2018 and was further increased to RMB100,000 in 2020. At the same time, the range of duty‑free goods has also been expanded, while the relevant regulations have been fine‑tuned on a regular basis.
Current duty-free shopping policy
As part of moves to implement the Overall Plan for the Construction of the Hainan Free Trade Port, the Ministry of Finance, General Administration of Customs and State Taxation Administration jointly issued the Announcement on the Duty-free Shopping Policy for Travellers Departing Hainan (No.33 [2020]). With the approval of the State Council, the policy took effect on 1 July 2020. Among its provisions are the following:
The offshore duty‑free policy is a preferential tax policy for travellers departing Hainan (excluding leaving the country) by plane, train or ship. It applies to visitors who purchase goods within limits of value, quantity and varieties, free of import duties, pay for their purchases at offshore duty‑free shops implementing the duty‑free policy, or at approved online shopping windows, and pick up the goods at designated areas in airports, railway stations or ferry terminals. The types of taxes exempted under this policy include customs duty, import value‑added tax and consumption tax.
The term “traveller” in the Announcement refers to domestic and foreign visitors (including residents of Hainan) who hold valid identity documents (resident identity cards for domestic visitors, travel documents for Hong Kong, Macao and Taiwan visitors, and passports for foreign visitors) and have purchased air, train or ship tickets to leave the island but not the country.
The duty-free shopping allowance per departing traveller per year is RMB100,000 (up from RMB30,000 prior to the implementation of the Announcement) with no limit to the number of purchases made. The categories of duty-free goods and the limit to the quantity of a single purchase are subject to the Annex to this Announcement (the categories of offshore duty-free goods have been increased from 38 to 45 and the limit of RMB8,000 duty-free allowance on a single item of purchase has been lifted). For goods purchased exceeding the limits of value and quantity, import duties will be levied in accordance with the relevant regulations. The duty-free shopping made by travellers who leave the island by plane, train or ship is treated as one count of duty-free purchase.
New policy facilitates offshore duty-free shopping
Under the terms of a new policy relating to the collection of goods, approved by the State Council on 1 April 2023, two methods of taking ownership of goods, namely “purchase and pickup” and “guarantee and pickup”, were introduced, greatly facilitating duty free shopping by departing travellers. This new policy further boosted duty free sales, turning the island into a new hot spot for duty free shopping, while also upgrading offshore duty free spending in Hainan. In response to the strong rebound in cross province travel within the country after the pandemic, Hainan introduced a series of measures promoting consumption, while duty free shops implemented a variety of online and offline sales promotions. Against this backdrop, it is perhaps no surprise that the offshore duty free market is thriving.
At present there are six entities operating offshore duty free business in Hainan, and the number of duty free shops has risen to 12. With the opening ofSanya International Duty-Free Shopping Complex Block C, known as Global Beauty Plaza, in late December 2023, the number of brands offered by duty free shops has further increased, while consumers’ shopping experience has been enhanced. According to statistics, on the day Haikou International Duty-Free City opened on 28 October, over 44,000 shoppers visited the city, generating sales exceeding RMB60 million. Bolstered by the opening of this new duty free city, sales on Hainan’s entire offshore duty free market have been brisk.
With offline sales booming, industry players have lost no time in launching online shops for travellers. A case in point is China Duty Free Group (CDF), which has opened an online mall offering travellers the experience of fast and convenient online shopping as well as a wide range of goods at duty free prices. Travellers can order their favourite duty free products on its website or mini programmes and pick up the goods when leaving the island.
Upcoming large shopping facilities
International brands and Hong Kong property developers are gearing up for investing in Hainan. Recently, DFS Group under LVMH announced that it plans to build the first world class, seven star luxury retail and entertainment destination DFS Yalong Bay in Sanya, Hainan. The project is scheduled for completion before 2026 and is expected to attract over 1,000 luxury brands (including the main brands in LVMH's portfolio) upon opening.
Swire Properties announced in 2022 that it would join with the China Tourism Group Duty Free Corporation, to develop a landmark retail project at the heart of Haitang Bay along the coast in Sanya. Meanwhile, in 2023 Mixc disclosed plans to establish a foothold also at Haitang Bay. Its plans can help Sanya build an international tourism consumption hub featuring a cluster of holiday resorts and facilities for luxury consumption. As an example, Haitang Bay in Sanya is set to become a world holiday destination housing comprehensive retail, gourmet foods from around the globe, world class entertainment, cultural and art centres, and duty free shopping under one roof.
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