Island shopping spree
▶ Hainan hits new record for new year duty free sales
The week- long Spring Festival holidays have triggered another shopping spree for the dutyfree shops, as latest data from Hainan island, the “Hawaii” of southern China revealed the island’s windfall profits over the past week.
According to the Hainan commerce department, from February 11 to 17, the 7- day sales of outbound duty- free shops in Hainan exceeded 1.5 billion yuan ($ 231 million). Sales exceeded 280 million yuan on February 14.
The data followed the previous month’s expanding performance as Hainan has reaffirmed as the leading duty- free region in China, with the total sales of duty- free shops in the province’s in January coming in at 4.05 billion yuan, a year- on- year increase of 168 percent.
Data from travel platform qunar. com on Thursday showed that the hotels with stars have the highest booking in China, with the average price of 1,501 yuan, and information provider VariFlight said Sanya Phoenix International Airport has an average 157 daily inbound flights during the week- long holidays.
The upward trend in performance is also in line with official data, which showed China’s consumer market demonstrated “robustness” and “vitality” under temporary pandemic control measures and the request for people not to travel during the holidays. Total revenue generated by key companies in retail and catering sectors rose 28.7 percent year- on- year during Spring Festival holidays reached around 821 billion yuan, according to China’s Ministry of Commerce ( MOFCOM) on Wednesday. The figure exceeded the Spring Festival holidays spending in 2019 by 4.9 percent, prior to the COVID- 19 pandemic.
Rising sales
The rising sales of Hainan dutyfree products are seen as vindication of China’s opening- up policy, as the resort island offers greater visa- free access and duty- free shopping for tourists backed by an air transport network.
As the COVID- 19 pandemic damped the tourism and retail sectors, Hainan has focused on reigniting big- spending bargain hunters with the island positioned as an international tourism and consumption destination.
The duty- free shopping boom has been accelerated by a big jump in shopping quotas for non- locals and disruption to overseas travel.
In July 2020, the duty- free shopping quota in Hainan was raised to 100,000 yuan per person per year from the previous 30,000 yuan, while the purchase limitations were significantly cut and more duty- free products were offered.
At the end of 2020, six new dutyfree shops were permitted to open in Hainan, and five new duty- free shops opened in Sanya and Haikou. At present, there are nine outbound duty- free shops on the island.
Sales of offshore duty- free shops in the province have exceeded 31.58 billion yuan in 2020, according to data released by local department.
The booming duty- free sales also triggered another giant’s performance.
Share prices of duty- free related companies surged as the business grows. China Tourism Group Duty Free Corporation’s valuation grows by around 600 billion yuan.
In 2020, total company revenue is projected to have been 52.618 billion yuan. In the fourth quarter, the company’s net profit reached 3 billion, almost the total sum from the previous three quarters. It also registered a 6 fold increase in year- on- year growth.
However, dampened by the declined global travel, it is still hard to see a full- recovery of duty- free shops in China, and duty- free shops in other countries are still under the fallout of the COVID- 19 pandemic.
Duty free shops contribute little to airports’ profits. In 2019, Sunrise branded duty- free shops contributed around one third of the total duty- free revenue in China, but only one tenth of profits, due to the fees charged by the airports, according to data published by 21st Century Business Herald.
In 2019, Sunrise duty free shops in Shanghai paid more than 5 billion yuan to Shanghai’s airport, around half of the total revenue of the airport’s revenue.
In 2020, the airport duty free shops also take a hit from the reduce in passenger numbers, which dropped drastically to 240 million.
Shanghai Pudong International
Airport reported 1.156 billion yuan in duty free business revenue in 2020, a plunge of 77.81 percent year- on- year, a drastic drop compared to the prepandemic level.
Yonhap News Agency also reported in 2020, the sales of duty free shops plunged 37.7 percent in South Korea largely blamed on by the pandemic.
As fewer South Korean residents leave the country, the percentage of foreigners patronizing in the dutyfree shops climbed to 94 percent in 2020 from 83 percent in 2019. Total number of shoppers was recorded at 106.69 million, only around 22 percent of the number in 2019. In December, the sales figures dropped 16.6 percent from the previous month, the report said.
TAV Airports Holdings has reported a 67 percent fall in revenues from duty free concessions to 14.9 million euros ($ 17.9 million) year- on- year in 2020, according to trbusiness. com.
Western media reports about a potential Chinese restriction on rareearth exports seem to have bolstered active market performance of some Australian rare- earth producers over recent days. But it is far from certain whether the interest in sourcing the crucial raw materials – that are widely used in producing electronic components for electric vehicles, motors and even advanced weaponry – outside China could sustain and translate into actual additional capacity.
Australian rare- earth miner Ionic Rare Earths is set to raise
A$ 12 million($ 9 million) in new funding from both local and foreign institutional investors to develop its Makuutu Rare Earth Project in Uganda, while Australia- listed Lynas, known as the world’s largest non- Chinese producer of rare- earth materials, surged to close with a nearly 12 percent gain on Wednesday.
These days, growing signs have been pointing to a deepening market impression that Australia will likely benefit from the hyped threat of China’s dominance of rare- earth supplies by positioning itself as an alternative to China when it comes to securing rare- earth supplies to the US. And such perception is not unfounded. Statistics showed that China accounted for almost 80 percent of the world’s rare- earth production, followed by Australia, meaning that the country, one of most loyal allies of the US, has industrial players with capacity to produce the crucial minerals.
With US- China relations at a delicate phase, even though China hasn’t imposed any restriction on rare- earth exports, it seems justified for US to guarantee their own supply security of strategic raw materials by pushing its ally to set up an industrial chain independent of China. In early February, Australiabased Lynas just received a new US government funding to build a Texas facility for processing light rare earths, according to media reports.
Meanwhile, it is no secret that
Australia has always been seeking to strengthen economic ties with the US. While the US is Australia’s biggest source of foreign investment, they don’t share close relationship in terms of trade. Under such circumstances, Canberra could see rare earth as a strategic opportunity to secure greater benefit from bilateral trade exchanges.
But there is a premise for all such diversification plans, that is, Australia can build a rare- earth industrial chain that is large enough to support US demand in lieu of Chinese supplies, or they are in for a big disappointment. Given China’s dominance in the global rare- earth sector, this type of blue sky thinking is too grandiose to pull off, at least in the short term.
In the long run, great uncertainties lie ahead. China’s rare- earth processing technology is the real foundation behind its dominant position in the global market, which comes at the expense of environment pollution which extends back more than a decade. It is doubtful whether Australian producers could be so determined to play catch- up. Moreover, it takes time and heavy investment in building the industrial supply chains, which is incomparable compared with what the US government has so far spent on seeking its rare- earth security. And it is extremely challenging for both the US and Australia to pour large amount of money into an economically unsustainable program over the long term merely on geopolitical grounds.
In this sense, Canberra’s desire to use rare earth to promote greater economic cooperation with the US is likely to remain akin to a mirage.