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Travel & Leisure

China duty-free shoppers turn Hainan into tourist hub

Businesses cater to travelers deterred by prolonged pandemic abroad

Hainan duty-free sales are expected to exceed 50 billion yuan this year. (Photo by CK Tan) 

SANYA, China -- Eagerly snapping up bargains, Zhang is typical of the crowds of shoppers who have made the Chinese island of Hainan a key hub for global duty-free retail amid the coronavirus pandemic.

"It's cheap," said the housewife from Guangzhou, who did not give her full name but spent 13,000 yuan ($2,012) on two Burberry bags and cosmetics -- enjoying discounts of up to 40% -- during a visit to the island's duty-free outlets last month.

With some of the world's best known resorts struggling to reopen to visitors, Hainan stands out. Chinese holidaymakers who have been put off by the pandemic beyond their borders have flocked to the southern province -- dubbed China's Hawaii because of its tropical climate -- to sate their desire to travel.

Thanks to a big push by public authorities and the private sector, the island of 10 million welcomed 64 million visitors last year, according to official data, earning 87 billion yuan in tourism revenue, compared with 83 million visitors and 106 billion yuan in 2019. It is expected to host 110 million visitors annually by 2025.

Once on Hainan, domestic visitors turn up in droves at places like Sanya Haitang Bay Duty Free Shopping Center, touted as the world's largest stand-alone duty-free mall.

At the sprawling 120,000 sq. meter shopping mecca, managed by state-owned China Tourism Group Duty Free Corp., some 300 international brands including Hermes, Rolex and Tiffany & Co. have set up outlets which draw visitors arriving via shuttle buses from a string of 10 international resorts along Haitang Bay.

Hainan's beach resort city of Sanya was Trip.com's top summer travel package destination.    © Reuters

Another draw is Hainan Tourism Investment Duty Free, which opened in December with 95,000 sq. meter of floor space. It is wholly owned by the Hainan provincial government.

"To differentiate ourselves from competitors, we have brought in brands like Japanese premium cosmetics brand Sensai by Kao and French jeweler Djula to China for the first time," said Zhang Yimei, deputy general manager at the mall.

The opening of the store, one of six duty-free outlets opened in Hainan in 2020, brought the island's total to 10. Beijing also abolished a purchase limit of 8,000 yuan per item and widened an exemption to allow domestic travelers to buy up to 100,000 yuan of duty-free goods annually, up from 30,000 yuan.

Hainan duty-free sales doubled last year to 27.4 billion yuan. Sales are expected to double again this year and reach around 300 billion yuan in 2025, according to the government estimate.

Chinese took 169 million overseas trips in 2019 before COVID, a lucrative market for local businesses to seize amid travel restrictions.

"Our focus now is on customers who used to go Japan, Europe, Australia and New Zealand by offering them high-end products," Jane Sun, chief executive of online travel agency Trip.com, told Nikkei Asia.

Trip.com lists Hainan packages with themes including golf, honeymoon and diving, for up to 78,888 yuan a person for a four-night package.

Sanya, at the southern tip of Hainan, topped the company's bookings for this summer, accounting for a quarter of family packages.

Planners hope the island can match Hong Kong and Singapore in attracting investment and visitors following the passing of the Hainan Free Trade Port law last month. The province aims to import most goods to the island free of tariff by 2025.

"Hainan's development as an international tourism destination is steadily progressing despite the challenge of the pandemic," said Zhou Anwei, chief planner at Hainan's tourism promotion department, at a recent industry forum.

Trip.com CEO Jane Sun said her company aims to steer Chinese who would have traveled overseas toward high-end Hainan flight packages. (Photo by CK Tan)

Foreign retailers are also attracted by the chance to share a larger pie. Japanese cosmetics group Shiseido, which opened its first duty-free counter in Hainan in 2010, now has 34 and is expected to operate over 50 counters by the end of the year. Amid a 19% annual drop in the company's total net sales last year, China logged an 11% uptick to 235.8 billion yen ($2.14 billion).

Hainan was long best known for its fishing villages and as an outpost for officials banished by the country's medieval dynasties. It is also the ancestral home for many ethnic Chinese in Southeast Asia.

Before the recent tourist frenzy, duty-free outlets were confined largely to the island's two international airports. The recent speed of growth partly accounts for the shortcomings faced by Hainan in its quest to be an international tourist hub.

"I wish they have more seats for visitors," complained a middle-aged man who sat on the floor munching a burger with two other family members at Sanya Haitang Bay Duty Free Shopping Center. Long lines formed at the two fast-food outlets in the mall during lunch hour on a recent weekday.

Hainan Tourism Investment's Zhang acknowledged that, "Compared to other established tourism destinations such as Japan, Hong Kong and Singapore, there is a gap in terms of talent pool, language barrier and service providers' brand knowledge."

Hainan is also battling a negative image associated with professional shoppers, known in Chinese as daigou, who buy in bulk for resale. With their bulk purchases, they are criticized for distorting demand and fueling a market for knockoffs.

"Daigou is a serious issue that we are facing," said Zhang.

On Monday, Chinese health officials reported a local COVID case in Haikou, Hainan's capital, among 55 new cases nationally. Amid intense worries about the delta variant, the case led the local government to step up alerts and for the time being, discourage travel to and from the island.

"This year, the summer travel boom may have to end earlier due to the recent COVID resurgence," wrote Citigroup analyst Lydia Ling in a client note. "The tightening travel restrictions and local confirmed cases could affect traffic flow to Hainan Island as well as to duty-free stores."

In any case, Hainan's tourism sector is still underdeveloped compared with Hong Kong.

"Hainan has a long way to go before it can match Hong Kong's attractiveness as a shoppers' paradise," consultancy Fung Business Intelligence said in a report last month.

But for now, Hainan is satisfying the travel lust of Chinese tourists like Guangzhou's Zhang. "I plan to go back during the next Lunar New Year break," she said.

Additional reporting by Cora Zhu

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