China's consumers want quality products, not just tax cuts

PUBLISHED : Tuesday, 05 May, 2015, 12:57am
UPDATED : Tuesday, 05 May, 2015, 8:43pm

You would not know it from the crowds of mainlanders in Hong Kong for the Labour Day holiday, but the city's retailers face another potential brake on cross-border shopping, on top of China's economic slowdown, a crackdown on corruption and anti-mainlander sentiment. To boost spending at home and counter the economic slowdown, the State Council has announced that the mainland will cut tariffs on imported consumer goods that account for much discretionary buying by visitors to the city. This would narrow the price difference between Hong Kong and the mainland.

An increase in domestic consumption is important to Beijing's goal of stabilising economic growth at a sustainable rate. This was noted by the council, chaired by Premier Li Keqiang , in urging departments to come up with detailed plans soon for implementing the new policy.

Meanwhile, Li is pressing departments to launch a trial run by next month of tariff cuts for imports in high demand, as well as calling for a review of consumption tax policy on everyday items such as cosmetics and clothing.

The move is bound to have an impact on Hong Kong's retail sector eventually, depending on how quickly the wheels of bureaucracy turn. One reason mainlanders come to the city is to buy cosmetics, jewellery and clothing amid a range of other goods regarded as luxuries upon which China has imposed high tariffs, and also collected a consumption tax of up to 30 per cent introduced in the 1970s and 1980s, to help protect mainland industries. Now that it is the world's second-largest economy, reports of mainlanders heading overseas to buy household goods as well as big-ticket items have raised concerns over domestic product quality and triggered calls for lower tariffs. Even though they are foreign brands, most of these products are made in China or imported, but tariffs, consumption taxes and layers of fees collected by various authorities during the import process make them dearer.

Their removal is to be applauded for the sake of competitiveness and efficiency. The likely impact on Hong Kong is yet another sign that boom times for city's retail sector may run their present course before too long. That said, Hong Kong and other foreign markets still meet mainlanders' demand for product quality and safety.

This is a reminder that the mainland has much to do to boost consumer confidence in local products on these counts.