China import tax cuts no remedy for retail slowdown

AmorePacific Holdings

01/06/2015 24:30

By Adam Jourdan 
    SHANGHAI, June 1 (Reuters) - China's economic policymakers 
clearly didn't consult mother-of-one Chen Xuejun when they 
decided to try stimulating consumer demand by slashing import 
tariffs on sneakers to skincare. 
    The 28-year-old speaks for many Chinese shoppers when she 
says the move last week won't make her shift her purchases back 
home from overseas, suggesting the economic upside may be less 
than Beijing has bargained for. 
    "Even with the tax cuts and discounts, it's still not as 
good value as buying abroad," said Chen, a worker at a 
state-owned enterprise in Shanghai. And anyway, she said, 
quality and design were just as important as price. 
    The tariff cuts, effective from June 1, are the latest in a 
string of measures to stimulate domestic consumption and bolster 
economic growth, which hit a 24-year low last year. Private 
consumption now accounts for over half of China's GDP growth, 
but lags far behind levels in markets like the United States. 
    A Reuters analysis suggests shoppers may be right to be 
sceptical. High Street prices of imported goods can be about 40 
percent higher in China than overseas, and data shows the tariff 
cuts are unlikely to make much difference.  ID:nL3N0YG1D0  
    Indeed, even after an average 50 percent cut in import duty, 
retail prices for skincare products will actually fall by less 
than 2 percent and diapers just over 3 percent - pocket change 
for China's almost 1.4 billion consumers. 
    Such price falls will barely scratch the mark-up Chinese 
shoppers pay on certain products. A 30 ml bottle of L'Oreal SA 
 OREP.PA  skincare product Lancome Advanced Genefique costs 780 
yuan ($125.79) in China, between 40 percent and 60 percent more 
expensive than in Hong Kong, France and the United States. 
    "We understand the policy will have limited impact on retail 
prices," said a China-based spokeswoman for cosmetics firm Estee 
Lauder Companies Inc  EL.N , adding the firm would respond to 
the move by adjusting its prices in the market. 
    French cosmetics giant L'Oreal and Korean brand AmorePacific 
Group  002790.KS , which will both adjust China prices, said the 
move may have a positive impact on domestic sales. 
     
    HARD BARGAINS 
    High prices mean Chinese shoppers now do about 70 percent of 
their luxury spending abroad, according to Bain & Co, driving 
the global market even as domestic luxury spending slows. 
    But those prices stem from more than just steep import 
taxes. The lion's share of the mark-up comes from the 17 percent 
VAT, distribution and department store costs, according to a 
price breakdown compiled for Reuters by consultancy SmithStreet. 
    "It's a good sentiment from Beijing, but the impact on the 
price consumers will actually see is going to be diluted," said 
Robin Kerawala, the firm's Shanghai-based co-founder. 
    Retail prices of smart Western-style suits, fur clothes and 
boots would fall 3 percent to 6 percent even after import 
tariffs are slashed in half, the analysis showed. 
    Companies are eager to cool talk of lower prices, saying 
many of the goods they sell in China are already made locally. 
    "The majority of our products sold in China is also being 
produced in China. Therefore, the reduction of the import 
tariffs does not have a direct impact on our business," said a 
spokeswoman for Nivea owner Beiersdorf AG  BEIG.DE . 
    U.S. firm Kimberly-Clark  KMB.N , which makes Huggies 
nappies, said the majority of the diapers the firm sold in China 
were made in the country. Rival Procter & Gamble Co  PG.N  said 
it was currently "evaluating" the situation. 
    "It depends how much lower the prices really go, but if 
prices are still 5-10 percent cheaper abroad then I think I 
would still buy any more expensive items overseas," said Yang 
Jiaqi, 22, a student in Shanghai. 
 
($1 = 6.2008 Chinese yuan renminbi) 
 
 (Additional reporting by Martinne Geller in LONDON, Pascale 
Dennis in PARIS, Kirsti Knolle in FRANKFURT, Nandita Bose in 
CHICAGO, Navan Das in BENGALURU, Hyunjoo Jin in SEOUL and 
SHANGHAI newsroom; Editing by Stephen Coates) 
 ((adam.jourdan@thomsonreuters.com; +86 21 6104 1778; Reuters 
Messaging: adam.jourdan.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA CONSUMERS/