For many Chinese mainlanders, Hong Kong is a shopping paradise. Its streets are lined with big-name brand outlets and small, independent stores all offering quality goods at bargain prices. But experts predict the city's status as the country's No 1 shopping destination could soon come under threat - from Hainan Island.
Already popular for its picturesque mountain landscapes, tropical temperatures and golden beaches, this sleepy province is to establish several "duty-free zones" aimed at luring more tourists, including those who traditionally head to Hong Kong.
The State Council announced the move along with an initiative for "gaming zones" in January as part of a renewed effort to push the island to the forefront of the global tourism scene over the next decade.
"The strategy marks a new era. It will bring more investment to the island," said Zhang Qi, director of the provincial tourism bureau, who cited the success of duty-free shopping in Singapore, Bali and Hong Kong.
The shopping zones will be in the capital Haikou, as well as Sanya, Qionghai and Wanning, said Wei Liucheng, Hainan Party chief. Although Wei, would not reveal the exact locations for the zones, he said the project was well into the planning stage.
Hainan, once a sleepy island in the South China Sea, attracted 22.5 million tourists last year to its five-star hotels and golf links, a 9-percent increase on 2008. Visitors are predominantly Russian, Korean and Japanese. Many local officials and consumer experts have welcomed the duty-free move.
"Duty-free shopping is a great way to stimulate visitors' spending and is what the island needs to put it alongside its potential international peers," said Ricardo Siu, associate professor of economics and international finance at the University of Macao. "It will definitely help the island in its aim to become a world-class destination."
DFS Galleria, a Hong Kong-based luxury brand retailer, already has an outlet in the departure halls of Haikou Meilan International Airport. A spokesman for its parent company, Louis Vutton Moet Hennessy, which also owns such veritable brands as Dom Perignon, Fendi, TAG Heuer and Donna Karan, declined to comment on whether it planned to expand into any of Hainan's duty-free zones.
Gebr. Heinemann, a major international duty-free retailer based in Hamburg, Germany, is also staying tight lipped about any future plans for Hainan.
China Duty Free Group, however, was quick to take up the opportunity and opened an 8,000-sq-m outlet in Haikou shortly after the State Council announcement. The group, whose parent company Zhongmian Co is based on Hainan Island, sells leading Chinese and foreign brands, including fashion and perfume house Christian Dior and cut crystal glass specialists Swarovski.
"Shopping on the island accounts for just 12 percent of all tourism income, compared to the domestic average of 21 percent and international average of 31 percent," said Antonio Hao, director of marketing for the China Duty Free Group.
China International Tourist Services will also open a 400,000-sq-m duty-free store by 2012 as part of its 30 billion yuan ($4.3 billion) investment plans, according to the provincial foreign affairs office.
Despite the moves, retailers and shoppers in Hong Kong yesterday said they expect the city to keep its crown as a shopping paradise for some time yet.
Like most years, the city is teeming with tourists looking for a pre-Spring Festival bargain, including many middle-class mainlanders. About 300,000 visitors crossed from the mainland to Hong Kong's Lo Wu checkpoint every day during last year's Lunar New Year holidays, according to the Immigration Department.
"We cater to mainlanders all year round but we get very busy during the Chinese holidays, such as golden week in October," said Bryan Mou, supervisor of the Central branch of jewelers Chow Sang Sang. "During Spring Festival customers come with the whole family."
Hong Kong already has duty-free outlets - although they cannot sell tobacco, beer and spirits - but visitors are also lured by its reputation for quality, culture and museums, as well as its Disneyland amusement park.
"When I buy something in Hong Kong it is virtually guaranteed authentic," said Peter Olaes, 71, from the Philippines. "The city's quality control efforts over the years have really paid off. I'm confident I won't be sold a fake."
Hong Kong's status as a shopping paradise also comes down to the full range of products and services it offers, as well as its festivals and culture, said a spokeswoman for the Hong Kong Tourism Board.
Hainan has several department stores, but some of the island's most distinctive retail offerings are like that of a banana republic. There are lots of local handicrafts, such as coconut shell carvings, seawater pearls and crystals, as well as Li ethnic textiles. Tropical fruit and nut stores are also scattered along Haixiu Avenue, the most bustling commercial street in Haikou.
Comparing the two islands, Hong Kong looks more than strong enough to fight off a rival less than an hour's flight away. Liao Wei, general manager of China Travel Service Group in Chongqing, disagrees.
"It'll be much more convenient to purchase luxurious goods in Hainan than Hong Kong because flight tickets and hotels are cheaper," he told Chongqing Business News. "Mainlanders also don't need to apply for an exit permit in advance or choose international flights."
Hainan will attract 20 to 30 percent more tourists year on year if the duty-free and gaming zone plans are coupled with other measures, such as relaxed visa requirements for foreigners, added Liao.
One shopper in Hong Kong who said she could be swayed to switch to Hainan in the future was Zhong Ru, a 33-year-old CEO from the mainland, who plans her holidays around the end-of-season sales.
"Hong Kong already has a great selection of the world's best brands, all within walking distance of each other," said Zhong, who was clutching bags full of cosmetics from SaSa and Bonjour stores. "On the other hand, it will be much easier for some of my mainland friends to go to Hainan because it does not have the visa requirements to enter Hong Kong. That could be a huge advantage."
Stella Lam Pui-king, a retired real estate agent who has visited more than 55 destinations, said duty-free stores that focus on distinctive local wares and good customer service always keep the customers coming.
"Aside from the obvious tax savings, duty-free stores offer remarkable opportunities for marketing, as displayed in Israel where they market their own cosmetic products containing minerals from the Dead Sea. Their representatives give out generous samples," she said, adding that she visits the store every time she flies into Ben Gurion International Airport in Tel Aviv.
However, Hainan's duty-free sector has a long way to go before it can rival Hong Kong's shopping status, said tourism experts.
"One of Hong Kong's most marketable characteristics is the level of consumer confidence people enjoy here. Mainlanders come to buy everything from property to baby powder. We have a reputation that takes years to cultivate," said Maggi Leung, assistant professor for the University of Hong Kong's geography department.
While the development of shopping would bring Hainan up to par with other tourist destinations, Hong Kong and Hainan are fundamentally very different places, she said. "Hainan has lots of natural beauty while people who come to Hong Kong are drawn by amusement parks, high-end dining and its overall character.
"It's common for Europeans coming into the area to spend one or two days in Hong Kong and another five in Bali. They are coming for some of the high-tech sights of Hong Kong and spending the rest of the week at a tropical getaway," said Leung, adding that Hong Kong already promoted multi-destination packages with other Southeast Asian countries. "On the other hand, when people travel to Europe the usually visit more than one major city or country. So it makes sense for visitors coming into the region to want to cover more than one activity."
One sector that will definitely lose out due to the plan to open duty-free stores in Hainan is Internet stores that sell goods to the mainland, said Roger Chan Yiu-kwong, chairman of the Hong Kong Internet Retail Association.
More choice for the consumer means more competition for the Web store, he said.
