China has introduced a nationwide tax refund policy for the first time to encourage spending by more overseas tourists.
But a closer look at the plan suggests that the country has a lot more to do to achieve this goal, according to observers.
Overseas visitors will soon be able to claim tax refunds on purchases across China, the Ministry of Finance said over the weekend.
Tourists from overseas and those from Hong Kong, Macao and Taiwan who have lived on the Chinese mainland for no more than 183 days will be eligible for a rebate of 11 percent on consumer goods bought at designated department stores.
The minimum purchase to qualify for a tax refund is 500 yuan (about $81) at any one store in a day.
A pilot tax refund program was launched in Hainan province on Jan 1, 2011. The new policy announcement increases the products that are eligible for refunds and the purchasing sites.
According to experts and expatriates, the biggest problem the policy faces is that most foreign tourists, unlike their Chinese counterparts visiting overseas countries, do not come to China to buy well-known brands.
Wendy Fung, a 28-year-old US citizen who has lived in China for more than 5 years, said most first-time tourists to the country tend to buy Chinese-inspired souvenirs or Chinese antiques, for example porcelain tea sets, intricately painted fans, or panda hats and T-shirts.
“It would be great if these souvenirs or antiques can be included in the designated shops,” she said.
But Fung said that many international visitors, regardless of the number of times they have been to China, are bargain-hunters.
They want to buy Chinese-made clothing or accessories from vendors’ stalls at flea markets where they can get good deals, which are not available in the designated stores, she said.
A manager at a duty-free shop in Shanghai said the policy may not prove that popular, as international tourists do not have much enthusiasm for products they can buy more cheaply at home.
Leading retail industry expert Ding Haozhou, chief executive of Zonfa Commercial Management Group, said duty-free shops should come up with more brands that consumers can find only in China. Otherwise, they will buy the same products at home much more cheaply.
According to Fitch Ratings, the Chinese retail industry has been hit by a downturn since the second half of 2013, and the outlook will remain negative for 2015.
The challenges faced by Chinese department stores last year, including stiff competition, growing consumer preference for other retail formats, and growth shifting to lower-tier cities, will persist in 2015.
Meanwhile, the number of overseas visitors to China, which has grown steadily in recent years, is still relatively low.
Ctrip, China’s largest online travel agency, told China Daily, “The new policy will not boost sales of any internationally known luxury brands in the short term, as Chinese retailers do not enjoy any advantages in terms of price or design.
“However, local high-end brands are very likely to see their sales increase, including sales of silk, tobacco and liquor.”