Chinese Government Cracking on Grey Luxury Market

Finance and Trade
11/04/2016 08:23

China is raising charges on packages ordered from abroad and cracking down on smugglers who carry in suitcases full of luxury goods, in a move to encourage shopping at home and diminish a grey market that shoppers use to avoid tax, according to a Reuters report. Whereas Chinese shoppers account for a third of global sales of luxury goods, sales that actually take place in mainland China account for only a fifth. The remainder is ordered abroad, either from overseas websites, bought by Chinese tourists, or smuggled in by "personal shoppers" known as daigou, who fill suitcases with luxury items and sell them back home in person or online.

Consequently, the Chinese government is losing tax revenue, and the activity of the daigous also discourages domestic consumption, particularly for higher quality goods. That goes against Beijing's long-stated aim of rebalancing its economy by moving away from exports. The attraction of buying luxury items abroad can be seen in the fact that the latest Dolce & Gabbana bag can be around 50% cheaper in Milan or in Paris than in mainland China. In addition, many Chinese prefer to buy expensive goods overseas due to the certainty that the goods are genuine.

The problem has worsened over the past year, according to figures from business consultancy Bain & Co which found that luxury consumption in mainland China fell 2% in 2015, while purchases by Chinese buyers rose 251% in Japan, by 31% in Europe and 33% in South Korea.