Haikou Customs has released duty-free shopping data showing sales of 26.77 billion yuan ($4.13 billion) from January to June this year on China’s tropical island of Hainan, up 257.2 percent year-on-year. Over the same period, the island received 3.823 million travelling shoppers, an increase of 156.5 percent on the year.

Since expanding its duty free policies and seeing China’s population largely stuck at home as the pandemic raged elsewhere, Hainan has become the most popular travel retail destination for domestic consumers.

A recent report from McKinsey & Co. indicates the island’s appeal as a travel retail destination will be a long term trend, eventually worth $40 billion in annual sales for the luxury sector.

In a survey of 550 Hainan duty free shoppers conducted by McKinsey in June 2021, more than 60 percent of respondents indicated they would return to Hainan for duty free shopping even after international travel resumes.

Of those planning to return to Hainan, more than 40 percent said they would increase their spend on their next visit, compared with only 12 percent looking to spend less.

In a bid to crackdown on grey market sales emanating from the island, Hainan last week instituted a new policy that will add traceable QR codes to perfume, cosmetics, liquor and cell phones.

But parallel, daigou sales might be not be the most serious issue facing Hainan’s duty free sales, at least in the short term. A new wave of domestic Covid-19 cases in China has caused some city districts back into lockdown and seen people around the country advised by local authorities not to travel, even domestically, until the outbreak is under control. Throughout August, China has averaged nearly 100 new Covid-19 cases per day.

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China’s Luxury Bright Spot

Hainan Island, China’s smallest province, is one of the few tourist destinations on the planet that’s back in full swing as virus-related restrictions squeeze international travel.