China May Reduce Import Duties on Luxury Goods

While many western luxury goods retailers are trying every way to get closer to the Chinese market, numerous wealthy Chinese shoppers still rush to the West to spend their money overseas every year. The Chinese Ministry of Commerce (MoC) worries that the massive consumption outflow may impact the country's trade balance and says a reduction in import duties on luxury goods is an inevitable trend.

At an MoC press conference on June 15, 2011, the ministry's spokesperson Yao Jian said a variety of luxury goods are being sold more expensively in the Chinese market than they are overseas. The price differences are so significant that they could impact policymakers' judgment on the current trade balance conditions. According to an MoC price survey on 20 luxury brands that produce various products including watches, suitcases, purses, clothes, wine and electronics, prices of luxury goods in Mainland China are 45 percent higher than those in Hong Kong, 51 percent than those in the United States, and 72 percent higher than those in France.

The MoC admits that while local distributers' different pricing systems may have contributed to the price divergence, the heavy tax burdens imposed on luxury goods – comprising of tariff and excise duties – have also become one of the major causes to the "price highland" in Mainland China. Yao said China's governmental departments have gained a common perception that tariffs on luxury goods should be reduced.

China's General Chamber of Commerce also believes a lower tariff and excise duty on luxury goods will be good for China, a country that is propelling its economic growth with growing domestic consumption. As it is predicted that Chinese people's annual consumption on luxury products will reach US$14.6 billion by 2012, the government should make attempts to help the domestic luxury market gain more price advantage and attract more consumers with significant consumption power.