The Bank of Korea Warns of Worsening Recession in Jeju Duty-Free Shops and Casinos... Concerns Over Negative Impact

Duty-Free Shops Increasingly Rely on Chinese Proxy Buyers, Leading to Brokerage Fee Competition
Casinos Classified as Gambling Businesses, Excluded from Employment Retention Subsidies and Others

Partially reopened Lotte Duty Free Jeju Branch Photo by Yonhap News

[Asia Economy Reporter Kim Eun-byeol] Due to the sharp decline in the number of foreign tourists caused by the spread of the novel coronavirus infection (COVID-19), the downturn in the duty-free shop and casino industries in the Jeju area has intensified. The sales of duty-free shops and casinos in Jeju account for 3.9% and 1.3% of the total sales in the local service industry, respectively.

According to the Bank of Korea's 'Regional Economic Report' on the 28th, the retail sales index of duty-free shops in Jeju decreased by 69.5% year-on-year from January to September. Although two downtown duty-free shops that had been closed since June partially resumed operations, except for some Chinese proxy buyers (daigongs, business operators who purchase duty-free goods at Korean duty-free shops and resell them in China), there are almost no customers.

Jeju casinos have also seen a halt in visits from foreign tourists, including Chinese, and this year's sales are expected to fall short of even one-third of last year's 190.3 billion won. In particular, sales since March have been only 15-20% of the same period last year. The only users are foreign residents such as Chinese residents living in Jeju. As of December, four out of eight casinos in Jeju are closed, and the remaining operators are implementing shortened hours or unpaid leave.

A Bank of Korea official explained, "The duty-free shop and casino industries will find it difficult to recover fully until COVID-19 ends and air routes return to normal." Although domestic sales of duty-free inventory and third-party returns have been permitted, most of these are being implemented in the Seoul metropolitan area where the headquarters are located. Duty-free purchases on non-landing international tourist flights have also been possible since last month, but most flights are expected to depart from and arrive at Incheon International Airport.

In particular, the Jeju duty-free shops are increasingly dependent on proxy buyers who act on behalf of Chinese tourists' consumption demand. The Bank of Korea pointed out that competition among duty-free shops to attract proxy buyers has intensified, causing brokerage commission rates to soar and worsening industry difficulties. The casino industry is classified as a gambling business and is effectively excluded from government support such as employment retention subsidies.

The Bank of Korea expressed concern in the report that "the severe downturn in the duty-free shop and casino industries could negatively impact the Jeju regional economy," adding, "In particular, the poor sales performance of the casino industry makes it difficult to raise the Jeju Tourism Promotion Fund, which may disrupt support projects for tourism development in Jeju." Casino operators in the province bear about 70% of the Jeju Tourism Promotion Fund annually, but this year they are unable to pay their contributions.

Meanwhile, the Bank of Korea evaluated in the report that despite the ongoing impact of COVID-19 in the fourth quarter, manufacturing production and exports showed slight improvements, and most regions maintained the same level as the previous quarter.

In the fourth quarter, manufacturing production slightly increased in the Seoul metropolitan area, the southeast region, the Chungcheong region, the Daegu-Gyeongbuk region, and the Gangwon region, while the Honam region and Jeju region remained flat. Service industry production slightly decreased in the Daegu-Gyeongbuk and Gangwon regions compared to the third quarter, while other regions such as the Seoul metropolitan area remained flat. Consumption temporarily increased in October due to the easing of social distancing but declined slightly in the Seoul metropolitan area and Gangwon region after mid-November due to a surge in COVID-19 cases, dampening consumer sentiment compared to the third quarter.

Regarding future regional economic conditions, the Bank of Korea added, "As manufacturing production and exports continue to improve, a gradual recovery is expected." However, the pace of recovery in service industry production and consumption is expected to be significantly influenced by the progression of COVID-19.

This content was produced with the assistance of AI translation services.