Hainan, the tropical resort destination known as China’s Hawaii, is on track to become the biggest duty-free market in the world in the next two years, according to a report jointly released by KPMG China and Moodie Davitt. The report illustrates how China’s policy of building a world-class shopping haven has converted overseas shopping to domestic consumption, strengthening the plan of building Hainan into a free trade port on par with Dubai and Singapore. The report said Hainan’s offshore duty-free sector has been “the rising star” of global duty-free and travel retail since its inception in 2011. The growth was further boosted by the introduction of an enhanced shopping policy in July 2020, which raised the annual shopping limit from CNY30,000 to CNY100,000 per person, bringing the offshore duty-free business to approximately USD5 billion by the end of 2020. 

China Duty-Free Group – Hainan’s dominant duty-free player – climbed to the top of the ranking by the end of the first half of 2020, ahead of Lotte Duty Free. In 2019, the Chinese player only ranked No 4 in the world behind Dufry, Lotte Duty Free and The Shilla Duty Free, according to a report released by Moodie Davitt.

The duty-free market in Hainan has a price advantage, especially when traveling abroad is still impossible amid the global epidemic. Official data showed that in the past May Day holidays, the province welcomed 2.95 million travelers, a growth of 121% from the same period last year, and travel revenue reached CNY4.1 billion, or more than three times the revenue of the previous year. In 2019, over 83 million tourists, most of them from the Chinese mainland, visited the island, driving some USD15 billion in tourism revenue. Even in Covid-ravaged 2020, the ‘Eastern Hawaii’ attracted 64.6 million visitors, down just 22.2% from 2019. Despite the reduction in arrivals, sales at Hainan’s offshore duty-free shops rose 127% year-on-year in 2020 to around CNY32.74 billion. The province aims to increase sales to at least USD15.5 billion by 2022 and USD46.5 billion by the end of 2025 in line with Hainan province’s 14^th Five Year Plan.

The blueprint to build Hainan into a globally influential high-level free trade port by the middle of the century was first released in June 2020. To achieve the goal, Hainan will boost its local industries, including tourism and consumption, as well as ease market access for foreign companies, analysts said. From premium watches and exquisite jewelry, to high-end cosmetics, luxury cars and yachts, leading international luxury brands vied for attention during the just-concluded China International Consumer Products Expo (CICPE). The fact that Chinese consumers cannot travel abroad to buy duty-free luxury goods due to travel restrictions caused by the Covid-19 pandemic has offered opportunities to luxury brands to offer their products to Chinese consumers in Hainan. 

Several executives of high-end brands interviewed by the Global Times on the sidelines of the Expo said that the Chinese market turned out to be the only market that achieved a year-on-year increase even during virus-plagued 2020. Swiss luxury watchmaker Hublot, part of French group LVMH, told the Global Times that “the Chinese mainland market is important for Hublot. Our global growth mainly comes from China, which is a miracle.” In 2010, the Chinese mainland market accounted for less than 1% of its global sales, but this rose to 15% in 2020. Having established eight specialty stores in the Chinese mainland, “we look forward to expanding to 10-11 boutiques as soon as possible this year, while further accelerating the deployment of online e-commerce channels to provide consumers with a more complete shopping experience,” the company said. Yves Morath, Commercial Counselor of the Embassy of Switzerland in China and head of Swiss Business Hub China, told the Global Times that the Chinese luxury goods market is a very dynamic one and leads the demand for Swiss watches. China became the biggest export destination for Swiss watches last year for the first time, while watch exports to other markets dropped, the Global Times reports.