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Cut in China’s import tax could boost retail
Published on Friday, 02 Sep 2011
Mainlanders spent some US$48 billion overseas in 2010.
Photo: Bloomberg

Over the past several years, Hong Kong's economy has received a huge boost from the ever-growing numbers of mainland tourists splashing cash in the city's high-end stores.

But it's not only local tills that have been ringing because of these roving shoppers. Retailers in Europe and the United States are also the main beneficiaries. Figures from China's National Tourism Administration shows mainlanders chalked up about 54 million overseas trips in 2010. During their jaunts, they spent a total of US$48 billion, with shopping accounting for 60 per cent of that expenditure.

One of the main reasons most of the mainland consumers' spending on luxury goods takes place overseas is the high import duties charged on these items which were first imposed two decades ago.

Now under pressure at home - and from exporters and governments abroad - Beijing looks set to cut these taxes. In June, Ministry of Commerce spokesman Yao Jian said a drop in the tariff on luxury goods was only "a matter of time".

So does this necessarily mean the outlook is grim for those working in the luxury goods sector in Hong Kong?

"Cutting the import tax on luxury goods may boost the overall retail market on the mainland," says Angus Wai, general manager for human resources at Fairton International Group. "This means the overall size of the cake would be bigger."

Wai also believes that even if mainland taxes were cut, they could still leave prices higher than those in Hong Kong. And price isn't the only reason mainlanders spend overseas.

"The shopping experience and service quality in Hong Kong are still superior, at least to a certain extent," Wai says. "I would imagine that mainlanders will still enjoy shopping sprees when they travel to Hong Kong, Macau, and places like Paris and Milan."

Fairton is already active in the China market. However, Wai thinks there are steps that those involved with the local retailing, marketing and brand management of luxury goods could take, if dramatic changes were made to tax rates on the mainland.

"It may be a good idea to maintain differences, with - if possible - two lines of fashion in Hong Kong and on the mainland. [This can] maintain a `fresh' and distinct shopping experience," he advises.

And, in a continuation of Fairton's existing policy, Wai calls for setting up personnel teams for the mainland. "It is a unique market," he adds. "It may not be so effective to just copy the Hong Kong model."

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