In 2024, the number of domestic tourists sharply declined due to the weak economy, leading to a 29.3% decrease in duty-free consumption in China’s Hainan Province. The number of shoppers also dropped by double digits, highlighting the predicament faced in the development of the Hainan Free Trade Port by the Chinese Communist Party. The entire transformation of Hainan Island into a duty-free zone may also face obstacles.
According to data released by the Haikou Customs on Thursday (January 2), shoppers visiting Hainan spent 30.94 billion RMB (4.24 billion USD) on duty-free goods in 2024, a decrease of 29.3% compared to the same period last year.
The data shows that the number of shoppers visiting Hainan decreased by 15.9% from 6.756 million in 2023 to 5.683 million in 2024.
The decline in retail spending in Hainan poses a challenge for foreign luxury brands. These international brands had hoped that post-pandemic, Chinese consumers would splurge on shopping. International luxury companies such as LVMH and Kering had opened stores in Hainan.
The decline in duty-free consumption in Hainan in 2024 also indicates that the plan to transform the entire island into a duty-free shopping area by 2025 may face difficulties.
In April 2018, after the Chinese Communist Party’s leader personally announced the related plan in Hainan, the State Council of the Communist Party of China in the same year set up the entire Hainan Island as a special economic development area, namely the Hainan Free Trade Port. According to the Hainan Free Trade Port plan, barriers to foreign investment in areas such as finance, education, and medical services are relatively low. The island will also become a place where foreign tourists from nearly 60 countries can visit visa-free and purchase duty-free cosmetics, imported cars, and even yachts. In 2020, authorities raised the duty-free shopping limit in 12 duty-free shopping malls in Hainan.
Furthermore, official data shows that in the first three quarters of this year, Hainan Province’s economy grew by 3.2% year-on-year, far below the local government’s annual target of 8% and the national growth rate of 4.6%. From January to September of this year, the number of newly established foreign-invested enterprises in Hainan increased by 10% year-on-year, but the actual use of foreign capital decreased by about 20%.
Xie Tian, a professor at the University of South Carolina Aiken School of Business, said in an interview with Epoch Times that a series of poor economic data indicates that Hainan has become a destination for domestic tourists with “budget travel” and “downgraded consumption.” Although the number of investment enterprises has allegedly increased, the significant decrease in actual capital usage signifies a dim outlook for the future economic development of Hainan.
Xie Tian also stated that the Chinese Communist Party’s increasingly stringent economic controls and suppression of private enterprises, coupled with a lack of freedom and rule of law, render the Hainan Free Trade Port merely a name.
Authorities had hoped that the fully duty-free Hainan would attract Chinese consumers away from duty-free centers in Jeju Island, South Korea, Japan, and other foreign destinations, to help kickstart the consumption engine in southern China. However, the sharp decline in duty-free consumption in Hainan last year puts this plan in a predicament.
In addition to the significant drop in annual duty-free consumption, during the National Day holiday, the average sales of duty-free shops in Hainan decreased by 32.5% compared to the same period last year, with per capita spending dropping by 8.9%.
In contrast, Nikkei Chinese reported that China’s largest tourism booking website, Ctrip, released rankings of Chinese tourists’ overseas travel destinations during the National Day holiday, with South Korea ranking third, Thailand second, and Japan topping the list.
The Matsuzakaya Nagoya store in Nagoya City reported a significant increase in the popularity of high-end brands, with duty-free sales on the 1st and 2nd growing by 63.9% year-on-year, surpassing the 2019 level. Among customers at duty-free counters, 52.5% were Chinese, compared to 34.7% in the same period last year.
The Nagoya Marriott Hotel reported that the usual proportion of Chinese visitors among foreign tourists is around 10%, but during the National Day holiday period, it increased to 40%.
Additionally, domestic consumption resumed at a lower trajectory in the second half of 2024. In November, overall retail sales increased by only 3.0% year-on-year, far below analysts’ expectations of a 4.6% growth.