China to reduce import tariffs on some consumer goods to boost domestic spending

By Nathaniel Taplin and Kazunori Takada

SHANGHAI, April 29 (Reuters) – China will reduce import tariffs on some consumer goods by the end of June to help boost domestic spending and support the slowing economy at a time when record numbers of cash-rich Chinese tourists are splurging overseas.

The State Council, China’s Cabinet, said the decision was made in order to satisfy rising consumer demand but did not specify which consumer goods would benefit or how much tariffs would be reduced.

Consumers in China generally pay 20 percent more for luxury goods than their counterparts in Europe, while Japan and South Korea are also much cheaper shopping destinations due to their weaker currencies, according to analysts.

The move comes as annual economic growth in the world’s second biggest economy slowed to a six-year low of 7 percent in the first quarter, hurt by a housing slump and a downturn in investment and manufacturing.

The statement, released late on Tuesday, also said the government would help Chinese consumers buy foreign goods by increasing the number of duty-free stores at the border, expanding the selection of products sold there and increasing the cap on how much consumers can purchase.

But some analysts said the move may not be enough to spur domestic spending as many Chinese perceive goods purchased overseas to be of higher quality, while others are eager to seek out new destinations or adventures.

“Mainlanders really don’t like to consume on the mainland as they feel like it’s not classy enough. They think it’s more classy to shop in Milan than in Shanghai for the same product,” said Walter Woo, an analyst at Sunwah Kingsway Research in Hong Kong.

A crackdown on corruption and extravagant spending has also made Chinese more wary of buying more expensive items at home.

Analysts at UBS said in a research note that while the impact of the moves remains unclear, a lower import tax could lure more global brands to China, adding pressure on domestic companies.

“To defend their turfs, the surviving domestic brands must invest more on product innovation and brand building, leading to lower profitability,” they said.

Chinese consumers have flocked to Hong Kong, Japan and other markets to purchase foreign goods given China’s high import tariffs.

For example, Apple Inc’s iPhone 6 is being sold in China for 5,286 yuan ($852) compared with HK$5,588 ($721) in Hong Kong.

Mainland Chinese tourist departures are expected to soar from 98 million in 2013 to 200 million by 2020, according to CLSA, driving growth in sectors such as airlines, casinos and retail.

Earlier in the month, state media reported China will limit the number of visits that residents of the southern city of Shenzhen can make to neighbouring Hong Kong, to ease the flow of mainland visitors in the former British colony that have stirred up tensions. ($1 = 6.2042 Chinese yuan) ($1 = 7.7502 Hong Kong dollars) (Additional reporting by Chen Yixin and Donny Kwok in HONG KONG; Editing by Anne Marie Roantree & Kim Coghill)

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