Shanghai free-trade zone

Shanghai free-trade zone spurs China Eastern’s plans

PUBLISHED : Saturday, 14 September, 2013, 12:00am
UPDATED : Saturday, 14 September, 2013, 4:20am

Hong Kong luxury retailers beware. Shanghai-based China Eastern Airlines is likely to obtain approval for a cross-border e-commerce business in the city's planned free-trade zone that will allow it to sell upmarket items and food directly to mainland shoppers.

Liu Shaoyong, chairman of the carrier, told reporters on the sidelines of a forum hosted by the company that the business-to-customer section of the Shanghai free-trade zone was ready and set to receive the green light from regulators.

Airlines will be among the top beneficiaries of the free-trade zone
Liu Shaoyong, China Eastern

The e-commerce services offered by the mainland's third-largest air carrier will be based in the zone's business-to-customer section. The tax breaks are likely to spark a surge of purchases by locals of foreign products ranging from luxury handbags and clothes to seafood.

"Airlines will be among the top beneficiaries of the free-trade zone," Liu said. "The e-commerce licence is in the pipeline, but it's too early to say anything more."

It is believed that China Eastern's e-commerce business will eventually be allowed to deliver imported items to mainland customers outside the free-trade zone as well.

"We have plans to take advantage of the free-trade zone to bolster our logistics businesses," he said. "With the establishment of the zone, air freight will become one link in the chain of our comprehensive logistics business."

Liu's remarks indicate that China Eastern is pursuing growth by diversifying into e-commerce, a sector currently dominated by Alibaba.

Liu is a member of the Communist Party's Shanghai committee, a role that could smooth the way for China Eastern to win support from the city's government to build a "mini-Hong Kong" in the free-trade zone.

Sources said China Eastern's e-commerce business had already been included in the blueprint for the zone.

Mainland shoppers were the biggest spenders in the global luxury market last year, according to consultancy Bain & Company. Half of their purchases were made abroad, partly because of the higher prices at home amid steep import duties.

Luxury goods may be sold on the mainland at a premium of up to 40 per cent over the price in Europe.

According to the business plan, China Eastern will buy goods abroad, transport them to the mainland and then sell them to mainland shoppers through the e-commerce site.

The business potential is considerable given mainlanders' rising incomes and their appetite for luxury goods. Consultancy McKinsey estimates China will account for a third of the US$175 billion global luxury market by 2015.

It is not just the rich mainlanders that are keen to buy imported food products. Middle class families are too after a series of food safety scandals damaged the reputation of locally produced fare.