Fitch: Curbs on Overseas Buying to benefit Chinese retailers

Golden Eagle Retail

08/04/2016 05:14

(The following statement was released by the rating agency)

HONG KONG, April 08 (Fitch) Tighter restrictions on 'daigou' and overseas 
purchases may narrow the price differential of luxury goods between China and 
the rest of the world, encouraging Chinese consumers to spend more domestically, 
says Fitch Ratings.

China Customs recently announced higher taxes on a range of goods sent into 
China by mail, effective 8 April 2016. Shortly after, it also announced tighter 
restrictions on the quantity of goods purchased abroad that can be brought back 
tax-free in personal luggage. In addition, news reports suggest the rules are 
being enforced more strictly.  

Fitch says domestic department store operators and luxury goods retailers, 
including Golden Eagle Retail Group Limited (Golden Eagle, BB-/Negative), 
Hengdeli Holdings Limited (Hengdeli, B+/Stable) and Parkson Retail Group Limited 
(Parkson, B/Negative) are among the key beneficiaries of the restrictions. The 
measures may create a more level playing field for domestic retailers if 
enforcement is strict and not short-lived.

'Daigou' refers to purchases made abroad and brought back into China through 
'personal shoppers', who bring the products back in their suitcases or send them 
back by mail. The main benefit for this is price - luxury products are taxed 
heavily in China and are therefore more expensive than in the rest of the world. 
In addition to using 'daigou', Chinese consumers are also travelling abroad more 
frequently and making more luxury purchases overseas, motivated by lower prices, 
wider product selection and lower risk of counterfeits. 

By some estimates, 78% of Chinese luxury good purchases in 2015 were made 
outside of China. This boom in overseas spending comes at the direct expense of 
China's department stores and luxury goods retailers, with most major department 
store operators seeing declining same-store-sales and shrinking margins over the 
past few years. 

This may change following the Chinese government's tighter restrictions on 
purchases made abroad. That said, other structural issues remain, such as the 
emergence of e-commerce and shifting consumer preferences. 

Contact: 

Yee Man Chin

Director

+852 2263 9696

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central, Hong Kong

Yi Zhang

Analyst

+86 21 5097 3390

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

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