Overseas companies' participation in China's duty-free business was banned before China joined the World Trade Organization (WTO) and will remain banned now that China is a WTO member.
Duty-free business is regarded by many WTO members as a specialized retail business. Therefore, the business is run like a monopoly, said Zhang Hanlin, a professor of the University of International Business and Economics.
"The country did not promise to open the business to overseas companies during negotiations to join the WTO," he said.
Since 1979, when the first duty-free shop opened, the country has run the shops on a policy of "unified business, unified purchasing, unified prices and unified management."
"That policy does not contradict WTO rules," he said.
Duty-free shops should expand, beef up management and improve efficiency to earn more foreign currencies, Zhang said.
"They should not be eager to seek overseas partners to share the profits with them," he said.
The failure of the pilot project in Shanghai's Pudong International Airport, where two foreign companies and a company based in the Hong Kong Special Administrative Region have participated in the business since 1999, suggests that the central government should not launch similar pilot projects, Zhang said.
Gai Zhixin, president of China Duty Free Group, said the country's duty-free business is facing golden opportunities.
China will open more sectors to overseas companies including banking, insurance, telecommunications, trade and tourism.
The country also will provide foreign investors with an improved market system, a more complete and transparent legal system and more efficient administrative practices, Gai said.
"This will help bring in more overseas tourists and business people - one of the most important consumption groups of the duty-free business," he said.
A report by the World Tourism Organization suggested that China will replace France as the world's largest tourist destination by 2020.
By that time, 137 million overseas people are expected to visit the country.
And more than 100 million Chinese will travel or conduct business overseas, adding another major consumption group to the country's duty-free business.
Ni Hongri, a researcher at the Development Research Centre under the State Council, said China is expected to become a world centre for duty-free business in the next several years.
The growth of the duty-free business in the Asia-Pacific region was 3 percentage points higher than the global average.
The end of duty-free business among European Union members also will benefit China.
Ni said the more regular market conditions China will experience now that it is a WTO member will fuel further development of the duty-free business.
She said China may open duty-free shops in foreign countries in the coming years.
But at the same time, both Ni and Gai said, China's WTO accession will bring challenges to the country's duty-free business.
Because China has promised to cut import tariffs year by year, the price advantages of duty-free goods will become weak, Gai said.
And China's duty-free business is not strong enough to compete with foreign counterparts, he said.
The number of duty-free shops under Gai's group is about 150, with an annual sales volume of only about US$200 million.
Including those shops under the Ministry of Foreign Trade and Economic Co-operation, the total number of duty-free shops in China is only about 200, with annual sales standing at about US$350 million.
These shops also have problems such as an inactive business mechanism and a lack of renovation initiatives, Gai said.
(China Daily January 16, 2002)
