There has been much uncertainty about China’s new ecommerce laws which will launch in earnest on 1 January 2019. The unknown direction around cross border ecommerce and the daigou trade is likely to have kept a few businesses up at night.
We are thankful to finally have some clarity around the new laws. Here are some of the key highlights of the new regulations announced on 21 November:
Cosmetics, health food, infant formula and other retail products sold over cross border ecommerce will remain exempt from mainland Chinese registration, filing and certification. Speculation that cosmetics not tested on animals could not continue to be sold in China through cross border ecommerce has been laid to rest.
The new regulations state that brands selling direct to consumers in China from their website or ecommerce platform based outside of the Mainland will be required to register their platform with Chinese customs.
The single purchase limit will increase from ¥ 2,000 ($288) to ¥5,000 ($720) and the yearly purchase amount increases from ¥20,000 ($2880) to ¥26,000 ($2,745) per year. Cross border purchases that fall within the increased limits will be exempted from duties and receive a 30% discount on consumption tax and VAT.
We noted in October that the road for daigou was likely to get tougher as Beijing tries to redirect cross border sales to the legitimate channels. The new laws have confirmed that all daigou who advertise online need to register with the government and pay full import taxes. In recent months, customs have stepped up airport checks, while Chinese courts have jailed several merchants for up to 10 years for tax evasion. We expect larger daigou will continue their trade, however tens of thousands of smaller operators are may see this as just too much trouble and quit – easy come, easy go.
Overall the regulations are not surprising news. Of late, Beijing has been promoting its stance towards free trade at events such as Davos and this month’s CIIE. Closing the door on cross border commerce would have seemed hypocritical and contradictory. Similarly, tech giants such as Alibaba and JD have invested significant sums in building their cross border businesses, and would have been in Beijing’s ear about the benefits of the service. Discouraging it would have driven more purchases to the less-trackable grey trade. Many Chinese consumers have also become fans of cruelty free cosmetics, imported health and formula products; taking these options away would have caused quite a stir, which no one needs right now.
The law is positive for cross border ecommerce and will see it continue to grow. However in most cases cross border should be seen a stepping stone to a wider range of online and offline sales channels in China. This will raise awareness and accessibility for your products and decrease your exposure to law changes and other risks. China Skinny can assist in developing a strategy for this.