Chinese Tourists Are Spending Less on Luxury Goods, But New Duty-Free Rules Could Change That

The U.S. may be doubling down on its trade war with China, but luxury brands are eager to keep transactions flowing between the two nations.

Worries about a customs crackdown in China, along with cooling spending and a weakened Chinese economy have spooked investors in the last months of the year. On Wednesday, Tiffany & Co. became the latest casualty as the company reported weaker than expected earnings and sales growth for the third quarter due to “lower spending attributed to foreign tourists, primarily Chinese, in certain regions.”

It follows the downward trend seen at Europe’s two biggest luxury houses, Kering and LVMH, both of which have seen their stock fall more than 17 percent since early October. The shares first took a hit after photos and videos circulated on Chinese social media platforms of customs officials searching travelers’ luggage and slapping taxes of 30 to 60 percent on undeclared goods above the duty-free allowance of 5,000 yuan ($719). Many speculated that the government was taking aim at the practice of daigou; this involves Chinese tourists buying goods abroad to resell for a profit back home, where luxury brands tend to be more expensive.

Beijing is, however, easing up on a different method of importing foreign goods: As of Jan. 1, 2019, the annual duty-free allowance for e-commerce purchases will increase for Chinese shoppers to 26,000 yuan ($3,739) from 20,000 yuan ($2,876), the government said Wednesday following a meeting of the State Council. Individual purchases under 5,000 yuan ($719) will also be exempt, up from the previous limit of 2,000 yuan ($287). The latter move, in particular, could be a boon to luxury sneaker sellers, for whom $500-plus styles have become the norm.

An additional 63 categories of products will also be available to shop tax-free, which expands a list of tariff-exempt consumer goods first compiled in 2016.

In China, retail imports purchased online reached 56.6 billion yuan ($8.1 billion) in 2017, up 75.5 percent over the previous year.

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