China To Cut Import Duties On Western Goods To Boost Domestic Spending

Retail and Consumer Confidence
15/12/2015 11:18

Quartz reports that, "In a bid to boost domestic spending and to kickstart its slowing economy, the Chinese government has revealed plans to cut import duties again, having previously slashed them back in May." As of January 1, China will again lower prices on some 800 consumer products including bags, clothes, scarves, and sunglasses. "Given that Chinese customers are the top buyers of luxury products in the world, this might be especially meaningful to fashion’s biggest brands—if it weren’t for the fact that the cuts probably won’t dent prices enough to significantly change shopping habits. Currently, Chinese shoppers buy many of their foreign goods while traveling or through agents, or “daigou,” who purchase the goods abroad and ship them back, evading import duties.

Consulting firm Bain and Company estimates that 70% of luxury purchases by Chinese shoppers happen this way. China’s government, meanwhile, loses out on collecting taxes from such transactions. To limit the role of daigou and ensure more domestic buying, the government is also reportedly considering more severe punishments for the agents, including legal punishment. The lure of shopping abroad includes wider product selection, greater trustworthiness and prices approximately 20-40% lower. Taxes account for 70% of the price difference, according to a 2013 report on the Chinese market for luxury goods by investment bank Exane BNP Paribas. But import duties themselves are just a portion of that—China also charges a value-added tax (VAT) and a consumption tax. The other 30% of the price markup in China, however, is beyond even Beijing’s control. It’s “simply higher prices,” according to the report.