Trouble in China’s shopping paradise as duty-free spending on Hainan falls 29 percent Reuters

BEIJING (Reuters) – Duty-free spending in China’s island province of Hainan, where global luxury players from LVMH to Kering (EPA:) opened up shop, fell 29.3% last year as the weak economy saw a sharp drop in domestic visitors.

Shoppers visiting Hainan, known for its glitzy waterfront hotels and sandy beaches, will spend 30.94 billion yuan ($4.24 billion) on duty-free goods in 2024, local customs data showed on Thursday, down from 29 .3% compared to the previous year.

The number of shoppers visiting Hainan fell 15.9% to 5.683 million, the data showed, from 6.756 million in 2023.

While retail spending in Hainan is not significant to the national economy, the declines are hitting foreign luxury brands as they count on a post-pandemic boom that has tripled sales to 43.76 billion yuan in 2023 from 2019, helped by a 2020 policy move to increase duty-free shopping limits in 12 duty-free shopping malls in Hainan.

The fall in 2024 also bodes ill for plans to turn the entire island, roughly the size of Belgium, into a duty-free zone by 2025. As part of the expansion, brands could run their own duty-free stores instead of relying on partnerships with local players such as China Duty Free Group.

There are also hopes that a fully tax-free Hainan would lure Chinese consumers away from rival foreign duty-free hubs such as South Korea’s Jeju Island and help jump-start China’s southern consumption engine.

Domestic consumption resumed a lower trajectory, particularly in the second half of 2024, as a wave of “revenge spending” after the forced austerity of the COVID pandemic faded. Total retail sales rose just 3.0% in November from a year earlier, far less than the 4.6% rise expected by analysts.

Late last year, top officials of China’s ruling Communist Party said China should increase consumption “strongly” in 2025 and seek to boost domestic demand “in all directions.”

($1 = 7.2994 renminbi)