China to slash clothing, beauty tariffs to raise domestic spending, boon for international giants say analysts

It’s news major European cities may be dreading – China is to slash import duties by 50%, on average, on a wide range of goods including Western-style clothing, footwear and beauty products in a bid to boost domestic spending.

The Ministry of Finance announced Monday that it will cut import duties from June 1 with tariffs for clothing reduced to 7-10% from 14-23% while taxes on ankle-high boots and sports footwear will be halved to 12%. Import tariffs beauty products will fall to 2% from 5%, according to the ministry.

Some industry watchers said the cuts are a big win for global companies although clothing retail giants such as Gap and Hennes & Mauritz said they were still evaluating the changes.

The tax cuts come as China’s government looks for ways to boost spending within its borders. The country’s retail sales growth has been sliding and its economy grew 7% year-on-year in Q1, its worst performance in six years.

The slowdown has swayed policy makers who had once worried that a duty reduction might hurt tax revenue, analysts say.

The goal of the duty cuts is to encourage consumers to spend more domestically. Chinese tourists travelling abroad often buy goods as diverse as diapers and handbags to avoid import and consumer taxes back home. Chinese duties can make some luxury goods about 20% more expensive than they are overseas, analysts say.

The yuan, which has strengthened against the euro and many other currencies, has also made shopping abroad even more appealing. Because of both rising tourism and increased shopping, China’s tourists spent about $165bn overseas in 2014, up 28% from 2013, according to the State Administration of Foreign Exchange.

“This would be good news for international players in China, as the lower tariff would entitle the imported products to apply relatively more competitive prices in China than before,” Linda Li, a senior research analyst at market-research firm Mintel Group told Dow Jones.

Mintel said 90% of Chinese consumers who went abroad in 2014 bought personal-care products and cosmetics and 85% bought clothes and footwear.

The new policies should boost Chinese stores that have lost customers to French and South Korean cosmetics counters, Erwan Rambourg, head of consumer and retail research at HSBC, said in a report on China’s tax overhaul.

“It is understandable that instead of losing business to Galeries Lafayette in Paris, Harrods in London, or shopping malls in Hong Kong, China’s administration may want to tap into the power of domestic consumption,” Rambourg said.

* French beauty giant L’Oréal said it will also cut prices of products imported into China to boost sales, following to import duty cut. L’Oréal’s China division said Monday the company will cut the “price of most of our imported products” to encourage Chinese shoppers to buy more. The custom duty reduction will have a “very limited impact” on the retail price so L’Oréal is reducing prices further, the statement said. It didn’t provide details on products or pricing.

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