21 September 2019
Tempus has pioneered an offline-to-online retail outlet in Qianhai. Photo: Tempus Group
Tempus has pioneered an offline-to-online retail outlet in Qianhai. Photo: Tempus Group

New tax-free stores in Guangdong threaten Hong Kong tourism

The Shenzhen city government has just published its budget report for the first half of the year and its spending plans for the second half.

“We must quickly develop large local e-commerce platforms and achieve total e-commerce sales for the year of 1.2 trillion yuan [US$190 billion],” it said.

“We must explore tax-free trading platforms in Qianhai, Shekou and bonded areas to attract more high-end consumers who go to Hong Kong to come back.”

Tempus, the first of these outlets in Qianhai, opened on March 27.

It attracted 9,000 people in its first four days.

Customers choose goods in the physical store and place orders online. Delivery is done within three days.

In 400 square metres of space, Tempus sells food, cosmetics and baby products, like milk powder and diapers.

Prices are similar to those in Hong Kong.

The goods are stored in duty-free bonded zones in Shenzhen.

Customers welcomed the new store, saying it saved them from going to Hong Kong to buy the same items or from parallel traders.

This is the tip of the iceberg.

Qianhai is one of six places in the mainland permitted to develop inward cross-border e-commerce; it received approval in July 2014.

This is a B2C model, under which the consumer buys directly from overseas manufacturers through electronic platforms.

Qianhai is one of three places in Guangdong, along with Nansha and Hengqin, that is part of the province’s new free trade zone.

This allows it to offer preferential policies, including a bonded port area.

In the Qianhai bonded zone, customs charge a tax of only 10 per cent on daily necessities imported from abroad, including baby products, compared with the standard 17 per cent value-added tax levied elsewhere.

Other firms are following Tempus.

Ma Xuefei, an associate professor in the department of management at the Chinese University of Hong Kong, said graduates from the busines school had set up BDF Mall in Qianhai, a one-stop e-commerce solution for overseas brands aiming to enter the mainland market.

“This electronic platform provides an online shop while using the Qianhai Bay bonded port area to store the goods imported from overseas, manages the inventory, processes customs clearance and fulfills customer orders,” Ma said.

Thanks to Tempus and BDF Mall, “consumers in the mainland don’t need to go to Hong Kong to buy their daily goods.

“This is the result, not the purpose.”

All this is bad news for Hong Kong.

In the first seven months of this year, tourist arrivals numbered 34.5 million, up just 1 per cent on the same period last year.

In July, the number fell 8.4 per cent year-on-year to 4.92 million, with overnight visitors from mainland China down 14.7 per cent to 1.639 million.

A large proportion of the mainlanders come to buy branded goods, gold, jewellery, milk powder, cosmetics, mobile phones and other electronic goods, for two main reasons.

One is that they are tax-free, and the second is that they have confidence in the authenticity of the products.

If these new stores in Guangdong can provide the same goods at comparable prices and earn the trust of consumers, then the shoppers will no longer have to come to Hong Kong and spend their money here.

Under construction in Qianhai is the Qianhai (Hong Kong) Global Shopping Center, with 11,000 square metres and an investment of 300 million yuan.

It will have four floors with a combined 20,000 square meters of retail space.

Of this, 6,800 sq meters will be available by the end of this year, and the whole complex will be completed by April next year.

The Qianhai Authority said the center will include an offline bonded product exhibition and trading store and an online e-commerce website that is expected to become a B2C platform.

Hua Tao, director of the Shenzhen Retail Business Association, said whether Qianhai can establish a successful tax-free shopping mall for overseas products will depend on the implementation of tax exemption policies.

The only good news for Hong Kong in all this is that the new outlets in Qianhai will sell imported goods at the lower end of the value chain – cosmetics, baby products, daily necessities and Chinese medicines.

Many are those which the parallel traders carry with them across the border.

For the moment, Hong Kong will keep the higher-value items – gold, jewellery, jade, diamonds and luxury brands.

But if the import tax regime in Qianhai, Nanhai and Hengqin were to change, these, too, could be under threat.

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Hong Kong-based writer, teacher and speaker