If the Year of the Snake didn’t exactly hiss for travel retail in 2025, the Year of the Horse is certainly cantering along nicely within China. As the first quarter of 2026 draws to a close, the mood music around the pivotal Chinese duty free market is brightening rapidly after years of stuttering underperformance, driven by a deliberate and aggressive strategy from Beijing to repatriate luxury tourist spending.

The linchpin of China’s duty free policy remains Hainan, the island province that proved so critical to the wider travel retail business during the dark days of Covid. Last month, China’s Ministry of Finance introduced a new zero-tariff policy for residents of the Hainan Free Trade Port. Island residents as well as mainland visitors have now been granted an annual duty free shopping quota of RMB10,000 (US$1,437) on over 200 products, including spirits.

The move is likely to make Hainan prices 15-20% lower than those on the Chinese mainland and create more competition for the island’s existing duty free retailers. An earlier structural change coming into force in December last year, which made the entire island a separate customs territory from the mainland, allowing retailers to stock a broader range of products, has already led to startling results. Hainan duty free sales from mid December to mid January soared nearly 47% to RMB4.86bn (US$697.9m).

Meanwhile, on the mainland, China is doubling down on its ‘shop-at-home’ mantra. Last month, the government announced it was opening 41 new port-of-entry duty free stores at the country’s airports, ports and railway stations.

The news followed January’s landmark announcement by China Duty Free Group, the country’s largest duty free retailer, that it was acquiring the Greater China store network of LVMH-owned DFS Group in Macau and Hong Kong for US$395m.

Of potentially more significance for the drinks sector, however, was the news in January that Swiss travel retail giant Avolta had won a duty free concession at Shanghai Pudong, mainland China’s biggest international hub, to operate over 8,000sqm across 43 stores. It’s the first time an international operator has broken into the mainland Chinese airport retail sector in a generation.

For international drinks brands, this is a watershed moment. Traditionally, the Chinese duty free spirits market has been dominated by the ‘big three’– baijiu, cognac and Scotch whisky, but Avolta’s win offers more than a glimmer of hope of long-term category diversification. Brand owners will hope that their existing relationship with Avolta can persuade it to open doors for spirits like rum, gin and vodka that have historically struggled to find shelf space in China’s travel retail landscape.

Things are also looking up for one of those big three, cognac, which suffered for much of 2025 from the fallout of a protracted trade war between China and the EU. Cognac was effectively excluded from the duty free channel because of temporary anti-dumping measures, a massive blow at a time when the French spirit was already under pressure from a government crackdown on business banquet culture and more value-conscious Chinese duty free shoppers.

Promotional activities

By 2026, however, normal trading conditions have resumed and cognac houses, eager to make up for lost time, have responded with a plethora of suitably equine Chinese New Year promotional activities both within China and in popular Chinese overseas tourist destinations.

For instance, Pernod Ricard-owned Martell collaborated with Chinese artist He Datian to create special Year of the Horse editions of the house’s VSOP, Cordon Bleu and the travel retail-exclusive Noblige Noir expressions featuring calligraphic labels. The colourful designs have been rolled out to key travel locations across Asia Pacific and the US, supported by an omnichannel marketing campaign.

Similarly, Rémy Martin partnered with contemporary artist Xue Song, a seminal figure in the Chinese pop art movement, to reinterpret the house’s centaur emblem for special editions of Rémy Martin XO, Club and VSOP. To support the launch, an imaginative campaign, entitled The Centaur Paving the Way, was activated at global hubs such as Hong Kong, Dubai and Heathrow, where travellers could create personalised woodblock-printed greeting cards and receive traditional red Hongbao (gift) envelopes.

However, the jury is out as to whether the Year of the Horse will prove a winner for the travel retail business outside of China. The omens don’t look good: according to local press reports, South Korea’s duty free sales dropped 12% in the first 11 months of 2025 to levels not seen since 2015, with a combination of fewer high-spending Chinese tour group tourists and a crackdown on grey market shuttle traders both proving harmful factors.

Similarly, worsening diplomatic relations between China and Japan are already heavily affecting Chinese tourist arrivals in Japan. As a result, Japanese spirit producers are rapidly pivoting to target a wider range of travelling shopper nationalities, especially in markets such as Europe and South Korea where interest in premium Japanese products continues to grow.

The future direction of the Chinese travel retail market is clear. The brightest prospects will be built at home on Beijing’s terms, with domestic consumption the primary engine of growth. For international drinks brands, the best opportunities will come for those prepared to succeed first inside China, rather than waiting for Chinese shoppers to meet them abroad.