Posted On 2014/07/15 By In Behavior, Consumer, News, Research, Luxury, Shopping With 625 Views

Why Chinese love to spend their Money abroad

In recent years the number of Chinese outbound tourists has surpassed 100 million. They now lead the world in terms of their purchases. For example, Chinese tourists – who make up only 1% of the total passenger traffic in Heathrow airport in UK – represent about 25% of total duty-free sales. Data indicates that Chinese tourists, with their purchasing power of US$ 70 billion, have become a much sought-after ‘cake’ for foreign countries.

Why do Chinese people love spending money abroad? The main reason is that many products in China are too expensive. These high prices stem from the tax structure in China. 95% of the country’s tax revenues come from the movement of goods, while only about 5% comes from income tax. In taxation terminology, the government prefers indirect tax rather than direct tax.

The main tax in western countries is personal income tax. For example, 75% of the U.S. federal government’s tax revenues come from individual incomes, with the result that western people are very happy to make purchases, but very unhappy to pay personal income tax from their pockets. In contrast Chinese people with ordinary incomes don’t pay too much direct tax, but spending money becomes something painful. Specifically, for every dollar of goods we will pay 17% VAT. After entering the mall, we still have to pay an additional 5 to 10% in sales tax. The duties on many imported products exceed 30%. The tariff for some products, such as tobacco, alcohol, cosmetics and luxury products, is higher than 50%. This is why Chinese choose to spend money outside of China.

The second reason for high prices is the low efficiency of China’s logistics and retail system. China is improving the situation by reducing logistics costs and sales costs through e-commerce. China has improved the quality of its products, but because of high taxes, the internal price of the goods becomes less competitive. If we want to encourage consumers to spend more at home, we must reduce taxes on the movement of goods and improve the efficiency of logistics.


Learn more in our Global Ready China Seminars


Sources:

Article: People Daily / Image: Alan Cleaver

In recent years the number of Chinese outbound tourists has surpassed 100 million. They now lead the world in terms of their purchases. For example, Chinese tourists - who make up only 1% of the total passenger traffic in Heathrow airport in UK - represent about 25% of total duty-free sales. Data indicates that Chinese tourists, with their purchasing power of US$ 70 billion, have become a much sought-after 'cake' for foreign countries. Why do Chinese people love spending money abroad? The main reason is that many products in China are too expensive. These high prices stem from the tax structure in China. 95% of the country's tax revenues come from the movement of goods, while only about 5% comes from income tax. In taxation terminology, the government prefers indirect tax rather than direct tax. The main tax in western countries is personal income tax. For example, 75% of the U.S. federal government's tax revenues come from individual incomes, with the result that western people are very happy to make purchases, but very unhappy to pay personal income tax from their pockets. In contrast Chinese people with ordinary incomes don't pay too much direct tax, but spending money becomes something painful. Specifically, for every dollar of goods we will pay 17% VAT. After entering the mall, we still have to pay an additional 5 to 10% in sales tax. The duties on many imported products exceed 30%. The tariff for some products, such as tobacco, alcohol, cosmetics and luxury products, is higher than 50%. This is why Chinese choose to spend money outside of China. The second reason for high prices is the low efficiency of China's logistics and retail system. China is improving the situation by reducing logistics costs and sales costs through e-commerce. China has improved the quality of its products, but because of high taxes, the internal price of the goods becomes less competitive. If we want to encourage consumers to spend more at home, we must reduce taxes on the movement of goods and improve the efficiency of logistics. Learn more in our Global Ready China Seminars Sources: Article: People Daily / Image: Alan Cleaver

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About

Stefan

Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

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