The parent company of one of China's largest department store chains said on Tuesday that it had been granted a government license for duty-free retail, as the government ramps up efforts to spur domestic consumption to cushion the economy.

The announcement by Wangfujing Group followed a notice last month by the state planner - the National Development and Reform Commission (NDRC) - that the country would relax control of the market and develop duty-free outlets in downtown areas to attract customers of imported goods.

The group, which operates more than 40 department stores including the Beijing Department Store, selling products such as apparels and cosmetics, said it would "proactively push forward relevant work" after approval from the Ministry of Finance, without disclosing details.

Compared to airport duty-free shops, downtown stores boast lower rent-to-sales ratio, better product variety, and flexibility in product pricing and promotions, Morgan Stanley said in a report on Monday.

Wangfujing shares soared on the news, hitting the 10 percent daily price limit before the market closed.

On Wednesday, the Shanghai Stock Exchange issued a regulatory work letter to Wangfujing to clarify the regulatory requirements for matters related to the company's acquisition of duty-free retail license and stock price fluctuations.

In response, Wangfujing said there was no law violation during the company's unusual stock trading fluctuations.

China's duty-free market only made up nine percent of the global share, while one-third of global duty-free sales came from Chinese consumers in 2019, Morgan Stanley said.