Hainan, China's Duty-Free Island with Increased Quota, Market Size Jumps 279%

Hainan Expected to Grow 9.5% Driven by Strong Sales
Overseas Travel Resumes but Consumption Slump Raises Sustainability Questions

The duty-free sales in Hainan, which the Chinese government has designated as a free trade zone and focused on developing, have surged over the past three years. This is attributed to the significant relaxation of regulations on restricted duty-free shopping items and spending limits.

According to the Haikou Customs of Hainan, China, from July 1, 2020, to the 30th of last month, the amount of duty-free shopping supervised by customs over three years was approximately 130.7 billion yuan (about 23.7181 trillion KRW), a 279.0% increase compared to the previous three years (July 2017 to June 2020). During the same period, the number of shoppers increased by 92.6% to 17.67 million, and the number of sales transactions rose by 272% to 175 million. China Central (CC) TV evaluated that "Hainan has played an important role in promoting the improvement of consumption quality and efficiency and attracting consumers."

A view of Sanya International Duty-Free City (CDF Mall) located in the eastern part of Sanya, Hainan Island, China. (Photo by Kim Hyunjung)

Hainan is the southernmost island of China, which President Xi Jinping announced in 2018 through the ‘Hainan Free Trade Port’ project to develop into a second Hong Kong. The shape of the island is similar to Jeju Island, but its area is over 18 times larger, reaching 33,900 km².

The Chinese government strengthened support for the Hainan Free Trade Port as a plan to boost sluggish domestic consumption amid difficulties in overseas travel due to the spread of COVID-19. In July 2020, China released a comprehensive plan for building a free trade port in this region and significantly raised the duty-free shopping limit for tourists from the previous 30,000 yuan to 100,000 yuan. This is 20 times the duty-free limit applied to Chinese people in Hong Kong. At that time, the number of duty-free product categories increased from 38 to 45, and the single-item duty-free limit (8,000 yuan) was removed. After visiting Hainan, tourists were allowed to additionally use online duty-free shops for 180 days. The Chinese duty-free tourism industry expects the airport passenger flow in Hainan to increase from 56.3 million in 2020 to 62 million by 2025. It also forecasts that the compound annual growth rate of the Hainan duty-free market will reach 32.8% over three years until 2026, expanding the market size to 243.2 billion yuan.

Thanks to strong duty-free product sales, Hainan’s regional economy is expected to grow rapidly. This year, the region has set an economic growth target of 9.5%, the highest nationwide. This is nearly double the Chinese government’s target of around 5%.

However, the future outlook for Hainan’s sales growth is somewhat bleak. With the transition to a "with-COVID" policy and the recovery of flights, overseas travel has become freer compared to the zero-COVID period, allowing shopping abroad as well. Since the duty-free market mainly involves high-income consumers purchasing luxury goods, a significant number of travelers may choose to go overseas.

Another obstacle is that China’s consumption rebound is not as fast as expected. In May, China’s retail sales increased by only 12.7% year-on-year, showing a slowdown compared to the previous month’s (18.4%) growth and falling short of market expectations (13.7%). In fact, during the recent Labor Day holiday (April 29 to May 3), Hainan’s duty-free sales (883 million yuan) decreased by 11.1% compared to the record high during the 2021 Labor Day holiday.

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