The Chinese government said Monday it has allowed Hainan to set up a new company to conduct duty-free business in the island province as part of a trial aimed at making it a tourist hub.

The company "will help encourage proper competition, prevent a monopoly and facilitate the healthy development of the duty-free market in Hainan province," the Ministry of Finance (MOF) said in a statement.

The company, intended to be solely state owned, will be the fifth major licensed duty-free operator in China, said the MOF.

Since April, a tax-free shop in Sanya city, Hainan, has been run by China Duty Free Group, until now the only firm qualified to manage duty-free shops in the province.

The new entrant will be able to sell duty-free goods and set up duty-free stores in the province, according to the statement.

The Chinese government launched a pilot program in April to allow tourists and locals in Hainan to enjoy duty exemptions and tax refunds on certain imported products worth less than 5,000 yuan ($765) before flying to other airports in China.

The move was part of efforts to lure more tourists on trips to the tropical island, and build it into a world-class tourist destination by 2020.

After deducting customs duties, value-added taxes and consumer taxes, products sold in the trial duty-free stores in Hainan will work out at 10 to 35 percent less expensive than those sold in other stores.
Companies must be licensed to operate duty-free business in China, while the MOF levies special charges on them to moderate their profits as duty-free goods are cheaper and very competitive in the market, said the ministry.

"The government strictly controls duty-free business and will not consider approving new duty-free operators in other areas at present," it said.

Hainan is China's largest special economic zone and enjoys preferential development policies.

The province hosted nearly 26 million overnight tourists in 2010, 97 percent of whom were domestic tourists, local officials said.

Shanghai's Pudong district and the island city of Zhoushan in Zhejiang province have been mulling tax rebate schemes similar to that of Hainan.

China hopes to attract 3.3 billion tourists by 2015, up from 2 billion recorded as coming in 2010.
SOURCE: China Daily
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