Tariff reductions made to boost retail sales

Shoes, boots, cosmetics and diapers among items to have duty rates slashed dramatically

Tariffs will be reduced on June 1 on a number of imported consumer goods, including shoes and boots, cosmetics, and disposable paper diapers, the Ministry of Finance announced on Monday.

Import duties are to be cut on suits and fur garments from the current 14 to 23 percent to 7 to 10 percent. Duties on ankle boots and sneakers are being cut to 12 percent from the present 22 to 24 percent, and on diapers they will drop to 2 percent from 7.5 percent.

Cosmetics will see duty drop to 2 percent from the current 5 percent.

Damon Paling, a customs and international trade partner with PricewaterhouseCoopers, said the current average tariff in China is 9.8 percent, and higher for products such as cosmetics and clothes. The rate for apparel products is 14 percent on average, while that for cosmetics may range from 6.5 percent to 15 percent, with some even as high as 30 percent, he said.

"Import duties for these sectors are assessed based on the value of the goods.

"If you look at these sectors in China, the average duty rate is clearly much higher than the national average," said Paling. "It is also much higher than that in many other countries in Asia, some of which grant a zero percent import duty, value-added tax and goods and services tax.

"To reduce them to the national average could be one outcome. But to go to zero percent would seem ambitious and too much to achieve initially," he said. Paling noted there are other ways for retailers and the authorities, however, to reduce costs for shoppers.

The prices of goods themselves could be cut for instance, service charges could be dropped, and store rentals and wages could be reduced. China's duty-free market is seen by many as complicated, he said.

In Sanya, Hainan province, for example, he explained many goods carry huge reductions as there is no duty at all, a policy, which, if expanded, could increase domestic consumption. "But the duty-free concept associated with the free trade zones is different again," he said.

"Goods are stored in bonded warehouses, but duty and import VAT still have to be paid when the goods are imported into the domestic market, unless the items are imported under B2C cross-border e-commerce conditions or under personal parcel exemptions.

"Bonded areas offer a good supply-chain solution to retailers who wish to reduce their lead time on domestic deliveries while having the option to re-export inventory before duty is paid.

"It is unlikely that these zones will become truly duty free as the government needs to balance the interests of other domestic retailers operating under the traditional business model," he said.

Luxury brands and cosmetics companies, in particular, have pushed hard for reductions in import tariffs, in an effort to increase demand in a flagging economy.

According to market consultancy Bain & Co, Chinese consumers spent a total of 380 billion yuan ($62.1 billion) on luxury products last year.

The majority (55 percent) of spending, however, was made overseas with another 15 percent made through daigou, or overseas shopping agents.

Just a third of luxury spending was in actual brick-and-mortar shops on the Chinese mainland or through online platforms.

Statistics provided by the China Tourism Academy show that mainland tourists, meanwhile, spent $140 billion while traveling overseas last year, a 18 percent year-on-year rise, with shopping becoming one of the major purposes for trips.

"The lowered tariffs will directly affect the cost and pricing of imported goods in China," said Annie Ho, general manager of Shanghai Tang China, the international clothing chain owned by Swiss luxury conglomerate Richemont SA.

"As luxury brands such as Chanel have started to lower their prices in China, the new policy will encourage more brands to reduce prices, which should in turn increase domestic consumption.

"But we don't have any plans to change our prices in the Chinese market right now. Further plans will largely depend on the detailed regulations."

Alexis Perakis-Valat, chief executive officer of L'Oreal China, said the company welcomed the tariff reductions, and encouraged any policies that help boost domestic consumption.