The world's second-largest market for luxury goods is considering lowering tariffs for high-end products, a move that has become hotly debated by consumers, economists and government officials across China.
Prices for luxury goods sold on the Chinese mainland, which are higher than those found in Hong Kong and abroad, will likely see decreases in the near future as government officials continue to state that the country is considering slashing import duties on luxury products.
On June 15, Ministry of Commerce spokesman Yao Jian said during a press conference that manufacturers of high-end goods can expect to see cuts in import duties, which has been interpreted by the media as an official confirmation that the tariff reductions will occur before long.
However, the government has seemed to have divergent opinions on its tariff policies at times. An article that appeared on the Ministry of Finance's website on June 30 argued that import duties should not be reduced, but in fact increased, in order to protect the interests of the public.
The article was written by Liu Shangxi, vice president of the research institute of China's Finance Ministry.
BOOSTING DOMESTIC CONSUMPTION
A market research report by CLSA Asia-Pacific Markets, one of the Asia-Pacific region's largest and most highly rated independent equity brokers, shows that China's luxury market will grow by a stunning 25 percent annually over the next few years. The CLSA report also estimates that 55 percent of luxury purchases by Chinese people are made outside the Chinese mainland.
Hefty import taxes mean that prices for luxury watches, suitcases, clothes, liquor and consumer electronics are 45 percent higher in China than they are in Hong Kong, and the same goods are priced 51 percent higher in China than in the United States, according to a study by China's Commerce Ministry.
It is widely believed that the tariff reductions will bring down prices for luxury items and keep the country's well-heeled shoppers at home, aiding in the country's overall plan to boost domestic consumption.
"A growing demand for luxury goods in China will encourage larger brands to expand their business here, which will help to fuel the development of the country's service sector," said Ouyang Kun, chairman of the China office of the World Luxury Association, a non-governmental organization.
However, those who are against the decrease argue that the prices of luxury goods will not necessarily drop after the tariff reductions occur.
Liu said in his article that high prices are one of the criteria that distinguish luxury goods from ordinary ones, and that consumers who are eager to flaunt their wealth are actually attracted by higher prices.
Therefore, it is possible that some retailers will maintain their high prices even if tariffs are reduced in order to protect their high-end brand image, Liu said.
Those who are against cutting the tariffs also argue that even if prices do end up dropping, many consumers will still prefer to shop abroad because of larger selections and increased discounts.
UNHEALTHY CULTURE
Liu also cautioned that tariff reductions may further widen the country's already yawning wealth gap.
"The purpose of taxation is to redistribute social wealth and to narrow the gap between the rich and poor," Liu said.
"Cutting tariffs on luxury goods will only benefit wealthy people, which is unfair to the poor and will deepen social inequality," Liu said.
Liu added that Chinese people that are only moderately wealthy are continuing to go out of their way to purchase luxury items in order to improve their social standing. By cutting tariffs on luxury goods, the government will help foster an unhealthy consumer culture, Liu said.
However, Tong Minqiang, general manager of the Hangzhou Mansion, a high-end shopping center in east China's Zhejiang Province, said that a love of luxury can actually be a positive force for social development.
"Luxury goods are characterized by high quality and rich branding. The love for luxury goods represents the pursuit of excellence, which will stimulate creativity and encourage people to produce more wealth. Increased social affluence ultimately benefits both the rich and the poor," Tong said.
TAX TROUBLES
Opponents of the tariff reductions worry that decreasing the tariffs will create a loss in the government's tax revenue and endanger the livelihoods of local businesses.
However, proponents of the reductions believe that they will simply create more demand, which will lead to more imports and ultimately more tax revenue.
"There will be a growing demand for luxury goods if prices are lowered, which will accordingly increase import volumes for the luxury goods. The government's total tax revenue will not necessarily be reduced," Tong said.
Although the expansion of foreign brands in China will inevitably bring some losses for local enterprises, it will also push local companies to move up the economic ladder and sharpen their competitive edge, Tong added.
Ouyang believes the government should categorize luxury goods before introducing any tariff reductions.
"The government should cut import duties on comparatively cheaper luxury items such as cosmetics, as these items are more likely to be purchased by ordinary people," he said.
