Retail in Asia

In Shops

A duty-free shop run by China’s ‘shop-at-home’ motto

A duty-free shop that opened last month in Shanghai caters only to Chinese who have returned from abroad, a policy that is mystifying to some but makes sense in the eyes of a Chinese government bent on stimulating domestic demand and state-owned enterprises desperate to resuscitate earnings.

Typical duty-free shops target foreign travelers about to return home or residents heading out of their country. Goods sold there, assumed to be consumed abroad, are exempt from customs duties.

At the Shanghai store, foreigners “can’t buy anything,” said a salesclerk.

The 3,300 sq. meter shop is housed in a shopping mall in central Shanghai, operated by the state-owned China National Service Corp. for Chinese Personnel Working Abroad, or CNSC. Japanese and South Korean cosmetics fill the ground level, while the second floor is stocked with a bevy of foreign goods, from appliances and snacks to high-end Japanese ironware.

Goods at the store cost more than at airport duty-free shops, but are a bargain compared to offerings at conventional Chinese stores. At checkout, customers must show a Chinese passport demonstrating they have traveled overseas in the past six months.

The Shanghai store initially catered to just a handful of customers such as diplomats under a government measure dating back to the 1980s, and for decades did modest business at another location in the city. The new incarnation, six times larger than the old, casts its net far more broadly.

The change smacks of a state-directed project, since both CNSC and the operator of the shopping mall are state enterprises. China’s government has been pushing for a transition to economic growth powered by domestic demand. But as incomes have risen, many Chinese are doing their shopping abroad rather than face the domestic market, where counterfeits abound and low-quality goods trade at fairly high prices.

SEE ALSO: China Duty Free Group to open third Cambodia store

The government is eager to curtail this overseas drift, hoping to bring shopping by its citizens back home.

State enterprises also stand to gain from hosting duty-free shops aimed at returnees.

Shopping malls sprouted up during China’s rapid economic growth. But their numbers now do not match demand, even in the consumer capital of Shanghai. Many of the least competitive malls are run by state enterprises counting local governments as large shareholders, a source in the retail sector said.

The Shanghai store does brisk business, drawing 15,000 customers in its first six days. A similar location is already up and running in Beijing, and could catch on elsewhere as many find this business lucrative.