Fashion and cosmetics, as well as 187 other consumer goods categories in China, have had their import tariffs slashed by to encourage greater local consumer spending.
It is a bold move from the Chinese. The slashing of import tariffs on a broad range of consumer goods will increase the opportunities for overseas companies. It will allow them to sell more products such as fashion and cosmetics by making them more affordable to local consumers.
The policy started from December 1, 2017, with most of the affected tariffs being slashed by 50% or more. Overall, the import tariffs across the affected consumer goods decreased from 17.3% to 7.7%. Examples of import import tariffs cuts of specific items include:
- Cashmere items was 14% and is now range from 0% to 5%
- Silk items was 20% and is now range from 0% to 5%
- Lipsticks and eye makeup was 10% and is now 5%
Improvement of Chinese living standards
China’s Ministry of Finance sees a need to help shoppers access quality and specialist products that are locally available. They know Chinese consumption demands are continuing to grow and the import tax cuts will improve their supply of quality and specialist products at lower prices.
During the recent Communist Party Congress, Chinese president Xi Jinping said he and his government are concentrating on “the people’s ever-growing needs for a better life.” He made it clear that he is determined to improve the nation’s living standards. This strong government backing is a major factor for a coming increase in the world’s biggest consumer market. It is obvious how this makes for a great opportunity for overseas companies importing into China.
Eliminating the grey market of “daigou” shopping agents
Heavy import taxes are effective at maintaining high prices for overseas fashion and cosmetics within China. However, this has resulted in consumers spending less locally and more when traveling overseas. Further, the large price difference has brought about the grey market of “daigou” shopping agents. These agents profits while saving the local customer money. They do so by avoiding import duties when buying goods overseas and selling them back to people in China.
The import tax cuts on fashion and cosmetics will help the Chinese government curb the “daigou” practice. Alice Wong, the president of ImagineX Group stated that the large difference in price between fashion and cosmetic sold in China to those same products sold overseas is the only driving factor for the “daigou”. The lowering of import taxes on these items will reduce the price difference for Chinese customers and make the “daigou” unviable for agents. ImagineX Group is a distribution group that imports fashion and cosmetics for international brands such as Salvatore Ferragamo and will benefit from this move.
The slashing of import tariffs will greatly improve the ability of overseas companies to sell their international fashion and cosmetic brands into the Chinese market as they will be significantly cheaper. There is excitement in some overseas fashion and cosmetic companies. The manager of luxury goods at Exane BNP Paribas, Luca Solca, said “The import tariffs will open the domestic Chinese market to more international brands — which will be able to reduce their retail price in China.” This will rise the level of competition to local brands and make them the value of their products. Consumer brands should gain the most from this move. It is expected that local consumption of these products will increase at a faster rate as compared to those same products being purchased from abroad.
Reducing import tariffs is part of major economic strategy
Transforming from an investment and export-led growth
The slashing of import import tariffs is also part of a major economic strategy for China. It will help transform their economy from an investment and export-led growth model to one based more on domestic consumption. For example, the clothing and footwear spend in China is forecasted by BMI to grow by an average of 9.5% pa from 2017 to 2021. That is from approximately $271 billion USD to $385 billion USD.
Reducing import tariffs China will grow clothing and footwear spending 9.5% pa from 2017 to 2021
BMI research has found that most luxury brands in China depend on imports from Europe and North America. Heavy import taxes have always made it harder for them to compete against local competitors and brands which have a large manufacturing Chinese base such as H&M. So luxury brands such as Prada and Versace are imported into China are set to benefit from the slashing of import taxes on apparel.
China to avoiding a USA trade war by lowering import tariffs
The move shows that China is well on the way to opening up its economy, especially to the USA. President Donald Trump has often complained of high import import tariffs into China and that it was important for China to help reduce the trade deficit with America. Luca Solca of Exane BNP Paribas noted that “One could see this as an olive branch that China is extending to the White House — among other things”.
A slashing of import tariffs will help the USA. However, it is not likely to have a great impact in re-balancing the trade deficit. The head of investment strategy at AMP Capital Investors, Shane Oliver, has mentioned that the main cause of the trade imbalance is that the USA spends more than it earns while the China do not.
What is important is for China is to avoid a trade war with the USA. The USA accounted for nearly 20% of China’s total exports in the first three quarters of 2017. Any trade war would likely cause some form of disruption to the Chinese economy. Shane believes the import import tariffs cut was a strategic move to decrease the chance of a trade war with the USA.
Importing into China to grow
The long-term goal of the Chinese government is to increase its domestic consumption and improve the lifestyle of its citizens. China’s consumers are behaving in line with this goal by continuing to grow their demand in wanting to buy better products as well as buy more products. The slashing of these import taxes will drive this demand even further and result in an importing growth into China.
It’s good times for overseas companies with international fashion and cosmetic brands selling into China. However, in the long-term, it is looking like good times for all overseas companies that can sell high quality and luxury products into China.
Contact us if you need help to capitalise on this great import into China opportunity.
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