Travel restrictions have thrown a speed bump in the path of the fast growing duty-free sector, with both retailers and shoppers losing out. For China it’s been an opportunity to grow domestic retail. The nation’s consumers have become the driving force for duty-free retail in all key international markets. Increasingly China is trying to encourage more of those purchases to be made at home - especially now in order to boost the nation’s retail sector. To this end, China has been expanding duty-free shopping opportunities for Chinese consumers within China. “Spending will return following policies to expand duty-free stores on islands and in downtowns,” analysts Fan Junhao and Xu Zhuonan, from China International Capital Corp (CICC), said in a statement. Major players including JD Worldwide and Baiian Group moved fast to seize this new opportunity to grow sales, applying for license to operate duty-free retail stores. Department store giant, Wangfujing Group, has recently received a license for the same. Bailian’s move into duty-free is seen as an indicator of the Chinese retailer’s plans to enter this sector. The group runs a multi-format retail business that includes department stores, shopping centres, outlets, hypermarkets and convenience stores. <h3><strong>Expanding Duty-Free</strong></h3> The development of Hainan province into a centre for duty-free shopping has been a boon to both China’s retail sector and its consumers. Now there's an initiative to expand duty-free beyond Hainan island, as well as raise shopping limits for purchases made on the island. Beijing will now have two duty-free stores in its downtown, which allow Chinese citizens to buy up to 5,000 yuan (US$706) worth of goods within 180 days of returning to the country. Guangzhou city announced in June that it would seek approval to establish duty-free stores in its downtown. <strong>Future vision:</strong> Implementing duty-free policies on Hainan island will create a healthy, concentrated yet less competitive business environment, which will drive domestic consumption (CITIC Securities report). <strong>Seizing an Opportunity:</strong> JD Worldwide, e-commerce giant JD's platform for imported products, is planning to open offline duty-free experience shops in Hainan province, as China looks to transform the province into a high-level free trade port. More e-commerce sites are expected to launch duty-free stores in Hainan to take advantage of the new policy. International luxury brands are seeing this as a way to reach tourists who at least for now are not traveling overseas. A report from Morgan Stanley showed that in 2018 about 6 percent of luxury purchases were made in China. That number was predicted to double to 13 percent in 2015. However the prediction was made before the travel bans. Now luxury purchases are expected to be made at home - whether at a duty-free store, online or at a regular retail store. <strong>Opportunities for Shoppers:</strong> From July 1, Hainan increased its annual tax-free shopping quota from 30,000 yuan ($4,300) to 100,000 yuan ($14,300) per person each year. The 8,000-yuan ($1,140) duty-free limit for a single commodity was abolished, and the categories of duty-free goods have also been expanded from 38 to 45, including mobile phones and laptops. Caissa Tourism Group, a travel agency, told local media that duty-free shops and tourism are its priority businesses in Hainan province. <strong>Growth:</strong> China’s cross-border online shopping is expected to reach $1.47 trillion this year. (iiMedia) <h3><strong>Fact Sheet</strong></h3> <ul> <li>China’s duty free sales are expected to reach US$24 billion by 2025 (Morgan Stanley).</li> <li>The growth rate for Chinese duty free is much higher than the 3% CAGR for Chinese overseas luxury spending projected by Bain & Co.</li> <li>Chinese citizens bought more than 180 billion yuan (US$25.4 billion) of duty free goods overseas in 2018, compared to domestic purchases of 40 billion yuan ($4.5 billion) that year. (China International Capital Corp (CICC) ).</li> <li>Chinese spending on luxury consumer goods accounted for 33% of the annual US$294 billion global market (Bain & Co.)</li> <li>Reductions in import duties, stricter control of 'gray market' goods and international brands leveling their prices in China with their prices in other markets has led to more Chinese shopping at home.</li> </ul>