Plans to boost luxury spending

The mainland is considering boosting domestic luxury spending by opening more duty-free shops in urban areas rather than cutting import tariffs on luxury goods.

China Duty Free Group yesterday said it had signed a letter of intent with Beijing's Chaoyang district government to establish the city's first duty-free shop in the central business district.

A spokeswoman said the group was also in talks with Shanghai to build similar shops there.

Industry experts expect the government to open more duty-free shops selling high-end handbags, cosmetics and clothing in key cities as a way to keep consumer spending within the local market.

'On one hand, the government hopes people will spend their money locally,' said Shi Chunfang, a researcher of luxury goods and services at the University of International Business and Economics in Beijing.

' On the other hand, it's not willing to launch any policies to drive up overall luxury spending too much.

'So the government is less likely to cut the import tax. But duty-free shops are a good option.'

The shop to be built in Beijing will only accept 'foreign visitors', and the Beijing government said it might study the possibility of opening it to mainland consumers.

The shop will offer hundreds of luxury brands, Chinese tea and silk at prices similar to duty-free shops at airports. Last April, Sanya, the leading tourism city in Hainan province, became the first place on the mainland to offer offshore duty-free goods.

Visitors to Sanya are allowed to buy up to 5,000 yuan (HK$6,120) of goods at the 7,000 square metre duty-free shop in the downtown area, which used to accept only foreign shoppers and visitors from Hong Kong, Macau and Taiwan.

The shop operator said sales revenue over the past year had reached 1.67 billion yuan.

Bain, a consultancy, estimates that the Chinese splashed 270 billion yuan on luxury goods last year, and this amount may rise by 18 to 22 per cent this year.

A large proportion of mainlanders' luxury goods purchases are made in Europe, the United States and Hong Kong, where prices are often a fraction of those at home.

Shi said the government departments had different opinions on the proposal to cut the luxury tariffs.

The Ministry of Commerce intends to enact the plan to encourage domestic consumption, while the Ministry of Finance said the move might reduce the nation's tax revenue, Shi said.