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31 May, 2015

Will HK’s position as shopping mecca be hurt after mainland’s tax cuts?

HONG KONG, May 27 (Xinhua) — Chinese mainland announced Monday that it will cut import taxes on clothing, cosmetics and some other goods beginning June 1, a move some analysts said might undermine Hong Kong’s position as a shopping mecca.

The Ministry of Finance said that it will slash duties by half, on average, on imports including suits, fur garments and shoes. A tariff on cosmetics will fall to 2 percent from 5 percent, while a duty on diapers will decline to 2 percent from 7.5 percent, according to the ministry.

The tax cuts come as the mainland looks for ways to boost spending at home to drive the slowing economic growth.

Mainland travelers have strong purchasing power. They often buy goods as diverse as diapers and handbags to avoid import and consumer taxes back home.

Official data showed that mainland tourists traveling abroad spent 165 billion U.S. dollars in 2014, up from 129 billion U.S. dollars in 2013.

Adjacent to the mainland, Hong Kong has traditionally been a tax-free shopping destination for mainland consumers. However, analysts said the tax cuts may hurt their willingness to shop in the city.

Caroline Mak, chairwoman of the Hong Kong Retail Management Association, said, “The tax cuts will reduce price gap between Hong Kong and the mainland, possibly slowing the flow of mainland shoppers.”

Hong Kong has already been hurt as shoppers have traveled elsewhere, due to political protests, local resentment against the visiting crowds and the strength of the U.S. dollar, to which the Hong Kong dollar is pegged.

Mainland tourists will not buy lots of daily necessities in Hong Kong as before, but it remains to be seen as for the move’s long-term impact on Hong Kong’s retail sales, according to Hong Kong Department Stores and Commercial Staff General Union.

However, some analysts said the tax cuts will have limited impact on the region’s retail industry, as Hong Kong products are deemed more credible by mainland consumers.

“Hong Kong remains attractive as a shopping mecca because malls here have a wide variety of goods and offer one-stop shopping services,” Caroline Mak said.

Still, buying cosmetics in Hong Kong will remain the better deal for mainland consumers even after the tax cuts. For example, a Shu uemeura 450ml cleansing oil costs 86 U.S. dollars in Hong Kong, but is priced at around 121 U.S. dollars in Beijing.

“Even if the tax is cut, there will be price gap between Hong Kong and Beijing, thus I think I’d still prefer shopping in Hong Kong,” said a Beijing customer surnamed Li.