Hainan as an International Tourist Destination

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By Yao Lu

Oct. 26 – Hainan Island, China’s smallest and southernmost province, has lagged far behind others in the region in terms of economic development. In 2011, the region’s GDP reached RMB252.26 billion, making it the fourth smallest economy in the entire country. However, the province boasts enormous economic potential.

Labelled as the “Oriental Hawaii” and representing China’s only tropical province, Hainan has already developed into a popular travel destination for both domestic and foreign tourists, and still has room to grow in this regard. The island’s natural geographic advantages and tropical scenery have endowed the province with a regional and international edge in tourism development. Furthermore, in order to fully tap the region’s tourism potential, the Chinese central government ambitiously set up a comprehensive plan to develop the province into an international tourist destination by 2020.

Tax–free policy to boost tourism

Attracting tourists from all over the world

The tax-free policy for tourists departing from Hainan Island is the most valuable and influential part of the government’s preferential policies to boost the province as an international tourist destination. From April 20, 2011, tourists who purchase tax-free commodities at tax-free stores in the province and leave the island by air can take advantage of the policy.

So far, the policy has greatly facilitated tourism and shopping consumption in the province, as well as increased the tourist flow. Through October this year, the two tax-free stores in Sanya and Haikou have sold a total of 4.08 million tax-free commodities worth RMB2.67 billion to tourists coming from different parts of the world, with daily sales reaching approximately RMB5 million. Additionally, the tourism flows saw a 16 percent year-on-year increase to 30 million in 2011.

Having recognized the tremendous benefits brought into the economy by the policy, the Chinese central government recently made a positive move. The minimum age threshold for purchasing tax-free commodities under the policy has been lowered to age 16, with the upper value limit of tax-free commodities increasing from RMB5,000 to RMB8,000. Moreover, three additional categories of commodities have been added to the tax-free list, including beauty and health care equipment, tableware and kitchen appliances, and toys; expanding the scope of tax free commodities to 21 categories. All these adjustments are to promote high-end consumption and the position of Hainan as an international tourist destination.

Construction of a tax-free shopping center

In an effort to bring the huge potential of the tax-free policy into full play, construction of the world’s largest duty-free shopping center has begun in Sanya. The Haitang Bay International Shopping Center, in which RMB3.45 billion was invested, is set to attract a vast number of top-end and flagship stores to its 125,000 square meters complex after being completed in 2014. The new shopping center will take tax-free shopping as its main focus and is looking to attract high-end consumption on a global scale.

Bringing overseas shopping flow back to the mainland

In recent years, Chinese tourists have grown used to making luxury purchases overseas rather than in Hainan. For example, during the “National Day Golden Week” this year, Chinese tourists spent at least RMB2.55 billion in Paris and RMB1.1billion in South Korea, while this number only stood at RMB0.63 billion for Hainan.

Given the amazing purchasing power of the domestic market, it will certainly be economically beneficial to guide overseas tourism flows back to China. In 2011, overseas spending on luxury goods by Chinese tourists reached US$60 billion, accounting for 1 percent of the national GDP. Insiders believe that the tax-free shopping policy will play a vital role in attracting this overseas shopping flow to return back to the country, however it remains to be seen if lifting the consumption threshold from RMB5,000 to RMB8,000 will have the desired impact.

Visa-free entry policy

The visa-free policy is also part of the Chinese central government’s plan to turn the island into an international tourist destination.

In October 2000, China’s State Council allowed visitors from 21 countries to travel to Hainan visa-free, and in December 2009, the State Council added five additional countries to the visa-free list. Tourists from these 26 countries are able to join tour groups to the province and register with authorities just one day ahead of their scheduled departure date, saving both time and money.

So far, the policy has proven a great success, with a large number of foreign tourists visiting the island through the visa-free policy. In 2011, about 90 percent of the province’s overseas tourists used the visa-free access, with overall numbers increasing by 21 percent from 660,000 in 2010 to more than 800,000 in 2011, according to the sources within the provincial tourism commission.

Thanks to these tax-free and visa-free policies, the province’s tourism industry has grown tremendously over the past decade. The road ahead for Hainan to become an international tourist destination is both promising and challenging, and with joint-efforts between the central and local government, it is not hard to see the region as a world-class tourism spot by 2020.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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