Trouble in China’s shopping paradise as Hainan’s free spending slumps By Reuters

BEIJING (Reuters) – Tax-free income fell 29.3% last year in China’s Hainan province, where global luxury players from LVMH to. Dry (EPA:) have set up shop, as the weak economy has led to a sharp drop in the number of domestic visitors.

Consumers visiting Hainan, known for its glitzy seaside hotels and sandy beaches, spent 30.94 billion yuan ($4.24 billion) on non-performing assets in 2024, Traditional data showed on Thursday, down from 43.76 billion in 2023.

Their numbers fell by 15.9% to 5.683 million, according to the data shown, from 6.756 million in 2023.

Kenneth Chow, principal at consultancy Oliver Wyman said: “The fall in foreign currencies, such as the Japanese yen, combined with attractive travel policies such as free entry in Malaysia, has led to buyers many Chinese look for cheaper prices abroad.”

While retail spending in Hainan is not important to China’s economy, the decline is affecting foreign brands.

Such products were based on the increase of the post-pandemic epidemic that had tripled sales to 43.76 billion yuan in 2023 from 2019, helped by the increase in 2020 of shopping limits at 12 duty-free shops in Hainan.

Major global beauty players such as L’Oreal and Estee Lauder (NYSE: ) is also exposed to Hainan, where beauty products will make up more than 40% of free sales by 2023.

“The decline in consumer confidence has greatly affected Chinese consumers’ willingness to spend on luxury and optional goods,” Chow added.

“This is especially true for high-end beauty products, which have seen significant declines.”

The collapse of Hainan in 2024 also means that plans to turn the entire island, which is roughly the size of Belgium, into a shopping center by 2025 are not working.

That expansion would enable businesses to run their own duty-free stores, rather than relying on partnerships with domestic players, such as China Duty Free Group.

It is also hoped that fully tax-free Hainan will draw Chinese consumers away from overseas competitors such as Japan, Singapore and South Korea, helping to boost consumption in the south. in China.

Domestic consumption has returned to a low level, especially in the second half of 2024, as a wave of “revenge money” after the ineffectiveness of the COVID epidemic.

Total retail sales increased by just 3.0% in November of the year, well short of the 4.6% expansion analysts were expecting.

Last year, top officials of the ruling Communist Party made a “strong” appeal to raise consumption by 2025 and to grow domestic demand “in all directions”.

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