An Analysis Of The Reflux Effect Caused By Dwindling Tariffs On Luxury Consumption

In recent years,Chinese consumers show their consumption strength all over the world.According to the Ministry of Commerce statistics,Chinese spent over 1 trillion RMB at abroad in 2014.Especially the luxury consumption,nearly half of the global consumptions are made by Chinese so that Chinese become the world's largest consumer market.But more than 70% of total consumptions didn't occur in the domestic market,which reveals the serious outflow of Chinese luxury consumption.The serious outflow of luxury consumption will cause great losses to our government,and doesn't meet the current requirements of expanding domestic demand to promote economic development,thus pushing our government to find solutions.To solve this problem,the first thing we have to do is exploring the reasons behind it.Two of the most important points are:(1)huge price gap(2)different shopping experience.From the government point of view,adjusting tax is operable,and it can guide the market to adjust the retail price by cost-price mechanism.Moreover,most of the luxury merchandises are imported,so the fierce discussion is focused on whether dwindling tariffs can achieve the reflux of luxury consumption and some relevant effects.Since June 1st,2015,China reduced the import tariff rate of some merchandises,including clothing,shoes,boots,skin care products,paper diapers and so on.The average reduction is over 50%.According to classification by HS code,some of the goods that are influenced by dwindling tariffs belong to the luxury sector.Meanwhile,some luxury brands lowed their price after the tariff reduction,which build the foundation for this research.Prior to this,the relevant researches are mainly from the theoretical level to analyze the relevant effects,so this research will try to fill the gaps in the empirical research and supplement the qualitative research at the same time.Based on the literature review of the relevant aspects,this research systematically reviews the development and status of China's luxury industry.Next,this research does both qualitative and quantitative analysis,aiming to examine the reflux effect of dwindling tariffs on the luxury consumption.To achieve this aim,the most direct way is observing the change of consumers' purchase behavior,but due to the retail data can't be obtained,so this research will choose consumers' purchase intention and import quantity to do the work.For purchase intention,it has close relationship with purchase behavior and can leads purchase behavior.Therefore,to a certain extent,the change of consumer's purchase intention can predict the change of consumer's purchase behavior.As for import quantity,it's usually decided by the retail demand so that the change of it can reflect the change of consumer's purchase behavior to a certain extent.For the study of consumers,this research aims to know whether consumers' purchase behavior and intention will change significantly due to the price reduction.Firstly,indifference curve is used to analyzes how price change influence consumers' luxury purchase behavior,finding price cut can drive some consumption backflow so that increasing the consumption in the domestic market.Secondly,questionnaire was used to investigate the consumers' awareness of import tariffs reduction and price cuts,the change of purchase intention and the different response of consumers who have different price sensitivity.The result shows that,64.41% of respondents didn't know the existing price cuts,and 54.24% of the respondents will increase purchase intention in China mainland if there is no price gap between Chinese mainland and HK.The different reaction is affected by price sensitivity,gender and income.For the study of import,this research aims to know whether luxury goods import quantity will change significantly due to the dwindling tariffs.In the definition of luxury goods,this research learns from existing empirical research,using relevant chapters in the HS code,including 33,34,42,43,61,62,64,65,66,67,71 and 91 chapter(12 chapters in total,5 of them impacted by tariff reduction).In the choice of the model,this research learns from relevant study in the field of import and export.As for specific variables,this research selects 12 chapters' import data from January 2007 to December 2015 as explanatory variables and uses dummy variable CHANGE to test the effect of the tariff reduction,while RGDP and REER are used to be control variables.After this research chooses the fixed effect model,and estimates the coefficients by LSDV method,and then shortens the length of the panel to test the stability of the regression results.Ultimately find the tariff reduction increase import quantity 15%-23% in average.Followed,same method is applied to study import price,finding there is no significant effect on the import price.Finally,based on the change of tax rate,import price and quantity,the change of tariff income is calculated quantitatively.Through the calculation,it is found that the reduction of tariffs reduces the import tariffs,but because of the import expansion effect caused by the dwindling tariffs,the added-value tax and the excise will increase.Moreover,as long as there is a price gap between the domestic and abroad market,the outflow of the luxury consumption can't be completely eliminated.And the outflow is not only caused by the price gap.Therefore,some other measurements should be taken at the same time.Only by changing the whole environment of luxury consumption,the outflow situation can be solved more effectively.So this research comes up with some relevant advice in the end.