China duty cuts will hurt Hong Kong

Mainland China’s import duty cuts which take effect on Monday could potentially decimate the cross-border trade, already down as much as 25 per cent after last month’s visa clampdown.
Retail comentators say the cuts on goods like daipers and cosmetics will result in pricing being somewhat closer to parity on both sides of the border.
That could cut the population of ‘border runners’ even further – which is precisely the intent of the mainland government’s duty cut plan – to increase domestic consumption and stop the flow of money out of the country.
While Hong Kong is part of China, its economy is different; domestic consumption by definition means within the mainland’s border.
On another front, the cost of luxury goods should fall from Monday after the removal of duties on imported clothing and accessories – again a measure to encourage mainland Chinese to buy luxury goods at home rather than from duty free stores abroad, or in Hong Kong.
The China duty cuts were first flagged early this month as Beijing’s lawmakers sought a way to revive flagging retail sales growth and encourage locals to spend more at home rather abroad.
The duty cuts average 50 per cent and will go a long way towards addressing an imbalance where mainlanders can pay as much as 40 per cent premium on foreign made goods due to import duties and other taxes.
Import tariffs for Western-style clothing will be cut by between seven and 10 per cent from 14 to 23 per cent.  On ankle-high boots and sports shoes, as an example, the tariff halve to 12 per cent.
And on diapers and skincare products, the duty will fall from 7.5 per cent and five per cent to just two per cent. according to government sources.
One retail specialist told the Hong Kong Standard that after retail prices are adjusted western-style clothing will be six to 10 per cent cheaper than now.
Cosmetics will cost three per cent less and diapers five per cent.
While the biggest impact of the duty cuts will be on luxury goods, Hong Kong’s border traders and cosmetics and personal care chains will take a significant hit. The mainland government has already clamped down on cross-border runs, limiting mainlanders to one trip a week to Hong Kong. That has reduced sales of nappies, cosmetics and infant milk formula in Hong Kong, for resale in Shenzhen and beyond.
Hong Kong General Chamber of Pharmacy committee member Cheung Tak-wing told the South China Morning Post that local pharmacies had seen sales drop by one-fifth in April year-on-year. Drugstores in the northern district were hardest hit by the loss of bulk buyers from across the border.

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