China's gray luxury market threatened by new tax regime

Fri Apr 1, 2016 12:22pm EDT
 
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By Farah Master and Astrid Wendlandt

HONG KONG/PARIS (Reuters) - China is raising fees on packages ordered from abroad and cracking down on smugglers who carry in suitcases full of luxury goods, in a concerted effort to encourage shopping at home and squeeze a gray market that shoppers use to avoid tax.

Although 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 rest are purchases made abroad -- either ordered 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.

That costs the Chinese government tax revenue, and also discourages the domestic consumption sector, particularly for higher quality goods, that Beijing has long been trying to boost to rebalance its economy away from exports.

"China wants to attract the outbound purchases back and cultivate a domestic luxury consumption market which is also consistent with the target to develop a consumption driven economy," Yating Xu, an economist for HIS Global Insight said.

Luxury items like the latest Dolce & Gabbana bag can be around 50 percent cheaper in Milan or in Paris than in mainland China, although some brands like Chanel lowered Chinese prices last year to close the gap.

Some Chinese also prefer to buy expensive items abroad because they can be more certain the goods are genuine, and can get better choice or service than at home.

Luxury firms have invested in opening boutiques in China, but they sometimes sit idle, potentially damaging their brands.   Continued...

 
Dolce & Gabbana accessories are seen on display at a shop in downtown Rome, Italy in this March 1, 2016 file photo. REUTERS/Max Rossi/Files