Trouble in China’s shopping paradise as Hainan duty-free spending falls 29%

BEIJING (Reuters) – Duty-free spending in China’s island province of Hainan, where global luxury players from LVMH to Kering (EPA:PRTP) have set up shop, slumped 29.3% last year as a weak economy saw a sharp drop in domestic visitors.

Shoppers visiting Hainan, known for its glitzy seafront hotels and sandy beaches, spent 30.94 billion yuan ($4.24 billion) on duty-free goods in 2024, local customs data showed on Thursday, falling 29.3% from a year earlier.

The number of shoppers visiting Hainan fell 15.9% to 5.683 million, the data showed, from 6.756 million in 2023.

While the retail spend in Hainan is not significant to the national economy, the declines deal a blow to foreign luxury brands counting on a post-pandemic boom that tripled sales to 43.76 billion yuan in 2023 from 2019, helped by a policy move in 2020 to raise duty-free purchase limits in Hainan’s 12 duty-free malls.

The 2024 slump also bodes ill for plans to turn the entire island, roughly the size of Belgium, into a duty-free shopping zone in 2025. As part of the expansion, brands would be able to run their own duty-free stores rather than rely on partnerships with local players such as China Duty Free Group.

There are also hopes that a wholly tax-free Hainan would draw Chinese consumers away from competing foreign duty-free hubs such as South Korea’s Jeju Island and help kick-start a consumption engine in China’s south.

Domestic consumption has resumed a lower trajectory particularly in the second half of 2024 as a wave of “revenge spending” after the enforced frugality of the COVID pandemic faded. Overall retail sales grew just 3.0% in November from a year earlier, far less than the 4.6% expansion expected by analysts.

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Late last year, top officials of China’s ruling Communist Party said China ought to “vigorously” boost consumption in 2025 and seek to expand domestic demand “in all directions”.

($1 = 7.2994 Chinese yuan renminbi)