HANGZHOU, China -- A boom in duty-free shopping on Hainan Island since the pandemic has convinced Alibaba Group Holding to upgrade its logistics network there.
With Chinese largely unable or unwilling to travel overseas to shop, Beijing last year widened an exemption to allow domestic travelers to buy up to 100,000 yuan ($15,645) of goods duty-free on the South China Sea island each year, up from 30,000 yuan.
Hainan's duty-free sales consequently doubled last year to 27.4 billion yuan. The figure is projected to reach 60 billion yuan this year en route to 100 billion yuan in 2022.
Officials with Alibaba's Cainiao Smart Logistics Network unit did not quantify how much it will invest in Hainan, but said they would develop a smart logistics service platform to integrate customs clearance and supply chain management and build central warehouses for luxury products, fragrances, pharmaceuticals and refrigerated goods.
Cainiao would also work with local authorities to expand air and sea freight links with Hong Kong, Japan, South Korea and Europe. The company this week launched a chartered cargo flight, to operate five days a week, between Singapore and Haikou, Hainan's capital.
Based at Alibaba's headquarters in the eastern city of Hangzhou, Cainiao handles an average 5 million parcels daily from two main domestic warehouses and ones overseas in Belgium, Malaysia, Thailand and the United Arab Emirates.
Speaking at the Global Smart Logistics Summit in Hangzhou, Daniel Zhang, Alibaba's chairman and chief executive, noted that the COVID-19 pandemic has accelerated the digitalization of the logistics industry, fueled by online shopping and demand for swift delivery.
"I no longer need to [promote] the word e-commerce anymore," said Zhang, clad in black jeans. "Virtually all businesses have adopted e-commerce, and all consumption has become digitalized, bringing tremendous opportunities for the development of logistics networks."
Cainiao was Alibaba's fastest growing identified business segment in the year ended March 31, with 68% annual growth, though it generated just 27.3 billion yuan, or 5% of total revenue. That was 58% more than a year earlier.
Cainiao also generated positive operating cash flow in 2020 for the first time since its establishment seven years earlier, though specific figures have not been disclosed.
Cainiao and the Hainan government hope to attract an additional 1,000 merchants to the island. The company's logistics service platform, which will digitize the entire supply chain from warehouse to purchase via smartphone, should halve the time required for shoppers to collect their purchases to an average 70 seconds, Cainiao said.
Hainan is home to 10 duty-free shops with a total floor space of 210,000 sq. meters. Some 650 international brands are represented now, including Estee Lauder, Cartier, Bulgari and Tiffany & Co., up from about 100 a year ago.
State-owned China Tourism Group Duty Free, which operates eight of the island's duty-free shops, applied this month to the China Securities Regulatory Commission for permission to list its stock on the Hong Kong Stock Exchange. The shares are already listed in Shanghai.
In Beijing, meanwhile, the National People's Congress Standing Committee, China's highest lawmaking body, passed a bill Thursday to accelerate Hainan's development as a free trade port. The law will simplify tariffs and taxes for imports to the island, which could also boost the duty-free sector.
Separately, Zhang defended Alibaba's group-buying business model as beneficial to China's primary industries, including agriculture.
"The development covers the digitalization of retail and the supply chain, including logistics that supports the entire network," said Zhang. "Every player within the supply chain hopes to combine both retail and logistics in a network that links rural areas and urban cities, creating change and opportunities."
Nice Tuan, a group-buying platform backed by Alibaba, was fined 1.5 million yuan by Chinese regulators on May 27 for failing to correct anticompetitive practices previously identified by the State Administration for Market Regulation, including underpricing goods to the detriment of small retailers. It was also ordered to suspend operations in one province for three days.
Additional reporting by Narayanan Somasundaram and Cora Zhu in Hong Kong