Hainan’s location in the warm waters of the South China Sea has long made it a haven for fishing and agriculture and, in more recent years, tourism. However, over the past couple of years, a series of beneficial import and trade policies have made China’s southernmost province a consumer hotspot and put it on the radar of companies looking to grow their business in China.

Foreign and domestic travellers departing from Hainan (but not China) have an annual duty-free shopping allowance of RMB 100,000 (£11,458) – the most generous in the world. The allowance covers product categories such as cosmetics, luxury goods, alcohol and even electronics (when purchased from dedicated duty-free stores). With a saving of up to 35% on prices in the rest of China, there has been a strong incentive for consumers to make Hainan their main shopping destination.

“Consumers are entering a new era of duty-free shopping,” says Rocky Chi, head of planning at Emerging Communications, a leading Chinese marketing consultancy. “The Chinese government will continue to push for duty-free shopping, and as for consumers, they are spoiled for choice by such an easy way of shopping.” Indeed, the Chinese government plans to make the whole island duty free by 2025, not just the select malls currently offering the perk.

Certainly, the island’s appeal doesn’t seem to have waned since the lifting of Covid-era travel restrictions. During the 2024 Lunar New Year holiday, duty free spending in Hainan reached a record RMB 2.49 billion (£274.75 million) according to Haikou Customs, with shoppers spending an average of RMB 8,358 (£922) per person. “With projects around the island still being developed, there is definitely potential for Hainan to attract even more attention,” says Ran Guo, Director, Consumer Economy China, CBBC.

Hainan may be taking a greater share of travel and duty-free spending than five years ago, but Chinese consumers are still keen to travel abroad and plan to spend when they do. According to Dragon Trail Research’s recently-released Chinese Traveler Sentiment Report, 64% of survey respondents are planning to travel outside of China in 2024, and a similar proportion spend at least RMB 2,000 (£220) on shopping during a single outbound trip. During the recent Labor Day holiday from 1-5 May, Japan and Hong Kong – both popular for shopping – were among the most-visited destinations.

So, what does all of this mean for British companies? Certainly, Hainan’s continued appeal presents an opportunity for British consumer brands, especially those with an established presence in the market. “Hainan may not be a market to build brand loyalty, but it is a good place to launch new products,” says Ran Guo. The fact that people are visiting the island for leisure makes them open to trying new things or treating themselves to something they wouldn’t normally buy.

To tap into this willingness to buy, brands could consider creating an exclusive product or promotional packaging for the Hainan duty free market, especially around festivals like Lunar New Year or shopping events like Singles’ Day.

Going forward, British consumer brands will have to keep Hainan in mind when they consider their China market strategies. As KPMG and The Moodie Davitt Report’s 2024 Hainan Travel Retail Whitepaper points out, for Chinese consumers, “there are no barriers to visiting Hainan. And many incentives.”

The post Is Hainan still a duty-free hotspot? appeared first on Focus - China Britain Business Council.

Hainan’s location in the warm waters of the South China Sea have long made it a haven for fishing and agriculture and, in more recent years, tourism, but in the early 2020s, a series of beneficial import and trade policies began to put it on the radar of companies looking to grow their business in China.

In this article, we review some of the main reasons why Hainan has become such a hotspot and why consumer companies in particular should be thinking seriously about their footprint in the province.

CBBC and our expert panelists will also discuss the Hainan opportunity in more detail during day one of CBBC’s China Consumer conference 2023 on 4 July.

Hainan in a nutshell

Hainan is the smallest and most southern province in China. Made up of many small islands in the South China Sea, the largest, Hainan Island itself, accounts for 97% of the landmass. The province has 10 major cities and 10 counties, of which Haikou and Sanya are the largest.

Hainan’s economy was traditionally dominated by primary industry, with fishing and tropical cash crops (e.g., rubber, coconuts, palm oil, and fruit) contributing significantly to provincial GDP, but the tertiary sector has developed rapidly in recent years, accounting for 61.5% of the economy in 2021. The province has a history of economic liberalisation, especially during the Deng Xiaoping era, and has been a special economic zone (SEZ) since 1988.

Incentives to invest and manufacture in Hainan abound

The Chinese government released the Overall Plan for the Construction of the Hainan Free Trade Port (FTP) in June 2020, with the aim of liberalising investment procedures, reducing tariffs across a range of products and industries and improving customs clearance procedures.

As Dezan Shira’s China Briefing explains, the goal of Hainan’s FTP policies is to set up a “first line” to overseas countries and regions and a “second line” to the Chinese mainland. In regards to the “first line”, goods, except those on List of Goods and Articles Prohibited or Restricted from Import and Export at Hainan FTP, can be freely imported and exported between overseas regions and Hainan FTP under customs’ special supervision. The “second line” will be more tightly controlled – goods entering the Chinese mainland from Hainan will go through procedures in accordance with relevant import regulations, customs duties and taxes.

Enterprises registered in the Hainan FTP can also enjoy three major corporate tax relaxations:

• Corporate income tax at a reduced tax rate of 15%
• Income from new overseas direct investment derived by enterprises in the tourism, modern services and high-tech industries may be exempted from CIT
• Eligible capital expenditures can be allowed one-off pre-tax deductions or accelerated depreciation and amortisation.

Hainan has one of the world’s most generous duty-free policies — and consumers are taking advantage of it

Foreign and domestic travellers departing from Hainan (but not China) have a duty-free shopping allowance of RMB 100,000 (£11,458) on product categories such as cosmetics, luxury goods, alcohol and even electronics (when purchased from dedicated duty-free stores). With average savings on prices in the rest of China at around 15-35%, there is a strong incentive for consumers to make Hainan their main shopping destination, even with China’s borders back open.

During the seven-day Spring Festival holiday period in early 2023, the Hainan Department of Commerce reported that online and offline duty free sales reached RMB 2.572 billion (£294.7 million), a 329% increase on pre-pandemic levels.

Hainan is also home to the world’s largest duty-free mall, which opened in Haikou, the provincial capital, on Friday, 28 October 2022. Owned by China Duty Free Group, the 3,000,000-square-foot cdf Haikou International Duty Free City is home to more than 800 international and Chinese luxury brands.

“Consumers are entering a new era of duty-free shopping,” says Rocky Chi, head of planning at leading Chinese marketing consultancy and full service agency, Emerging Communications. “The Chinese government will continue to push for duty-free shopping, and as for consumers, they are spoiled for choice by such an easy way of shopping.” Indeed, the Chinese government plans to make the whole island duty free by 2025.

For UK brands looking to the Hainan market over the next couple of years, a key consideration will be levels of market saturation, something that has already become an issue for the skincare and cosmetics segments. Brands are advised to move away from price-based competition (a strategy that drove strong sales during the pandemic) and focus on branding and differentiation by, for example, introducing new packaging styles or product lines exclusively for the Hainan market or creating co-branded campaigns with local hotels or attractions.

Now is also the time to experiment with digital tools and phygital retail, something that Chinese consumers have so far proven more receptive to that Western consumers. James Herbert, managing director of Hylink UK, emphasises that “interactive digital events, gaming, social commerce and non-fungible tokens (NFTs) are evolving trends that all brands need to be aware of.”

Even with borders open, Chinese tourists are still choosing to holiday in Hainan

During the recent May Day holiday period, 3.2 million domestic tourists visited Hainan, an increase of 55% on 2019, the last year prior to Covid. Perhaps more notably, spending by visitors to Hainan was up 80% compared to 2019. 

While there can be no doubt that there is a huge appetite for international travel among Chinese consumers now that Covid restrictions have been lifted – a recent report from Gusto Luxe and Global Blue found that 92% of travellers were planning an overseas trip in 2023 – the May Day holiday numbers demonstrate that Hainan has established a strong foothold as a domestic travel destination. In addition to the aforementioned duty free policies, the islands’s popularity has been driven by the availability of increasingly good-quality hotels (Hainan is home to 94 international brand hotels and 78 well-known hotel management firms), which offer services targeted at domestic Chinese tourists, and, crucially, savvy marketing via Chinese digital platforms like Douyin and Trip.com.

For UK brands, this demonstrates the importance of adapting not just marketing strategies but service offerings to meet the needs of Chinese consumers.

China Consumer 2023

This article was produced as part of a series for China Consumer 2023.

Learn more about CBBC’s flagship consumer event of 2023 here.

The post Why Hainan should be on your company’s radar in 2023 appeared first on Focus - China Britain Business Council.

On Friday, 28 October 2022, the world’s largest duty-free shopping mall opened in Haikou, the capital of China’s Hainan Province. Owned by China Duty Free Group, the 3,000,000-square-foot cdf Haikou International Duty Free City is home to more than 800 international and Chinese luxury brands, including over 300,000 square feet allocated to beauty alone. This is not the first time that Hainan has claimed the title of the “world’s largest duty-free shopping mall” (there are already huge malls in Sanya on the south of the island and Bo’ao on the east coast) signifying the importance of the island for consumer brands in China.

Join CBBC for the first in a new China Chat series on 17 November to discuss Hainan’s role in China’s commercial layout and the blueprint for the country’s consumer market development going forward.

Click here to register

Over the past couple of years, the tropical island off the coast of southern China has recorded a rise in visitors and duty-free sales. “Visitors to Hainan have grown from 11 million in 2012 to 21.6 million in 2021, and duty-free sales have grown from £267 million in 2012 to £5.8 billion last year,” says James Hebbert, managing director of Hylink UK. The duty-free allowance for travellers departing Hainan (but not leaving China) is currently RMB 100,000 per person per year.

Since China closed its borders at the beginning of the Covid-19 pandemic, James notes that some of Hylink’s clients have seen the revenue that was previously gained in Europe from Chinese tourists replaced by domestic sales in China. Despite the occasional uncertainty caused by lockdowns and restrictions on domestic Chinese travel, money is being poured into Hainan’s duty-free malls and once the tropical resort is back in full swing, it is likely that middle-class Chinese residents will be the first to return.

“Consumers are entering a new era of duty-free shopping, and this is not going away even if the international travel restrictions [are not yet] easing,” says Rocky Chi, head of planning at leading Chinese marketing consultancy and full service agency, Emerging Communications. “The Chinese government will continue to push for duty-free shopping, and as for consumers, they are still quite spoiled for choice by such an easy way of shopping.”

“For UK brands, I think it’s time to keep options open and be open-minded and proactive in capturing opportunities, especially when the categories now are way beyond just traditional luxury goods and cosmetics,” adds Chi.

Many of the world’s leading companies have remained active in Hainan despite the setbacks caused by Covid-19. Luxury behemoths such as Richemont, L’Oreal and Estée Lauder have all continued to show their commitment by hosting large exhibitions and presenting new products. Hebbert argues that brands should use the popularity of duty-free shopping in Hainan and embrace digital tools to stay top of mind with Chinese consumers, even if regional lockdowns mean they can’t reach Hainan.

Hebbert adds: “Interactive digital events, gaming, social commerce and non-fungible tokens (NFTs) are evolving trends that all brands need to be aware of. To illustrate this point, the number of Chinese NFT platforms grew from 100 to 500 from February to June 2022; Morgan Stanley predicts that, by 2024, the metaverse industry will be worth £6.7 trillion in China; metaverse, gaming and NFTs could represent 10% of the luxury goods market by 2030.”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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