Trouble in China’s Shopping Paradise as Hainan Duty-Free Spending Falls 29%

Duty-free spending in China’s island province of Hainan, where global luxury players from LVMH to Kering have set up shop, slumped 29.3 percent 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 percent from a year earlier.

The number of shoppers visiting Hainan fell 15.9 percent 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 percent in November from a year earlier, far less than the 4.6 percent expansion expected by analysts.

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”.

By Ryan Woo; Editor: Lincoln Feast

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