In the latest round of conflicting messages coming from Beijing, cross border ecommerce no longer looks to be the flavour of the month.
After featuring prominently in the much-celebrated “Internet Plus” strategy, which became a key pillar of the latest Five Year Plan and has been supported by Free Trade Zones popping up across China, things are looking a little less rosy in ecommerce imports camp. From Friday, every cross border commerce purchase will be subject to a new tax rate.
The Ministry of Finance says the new taxes will address ‘unfair competition’ which allowed imports to be cheaper than locally-bought products. Although the tax will hit some lower cost imports the most, such as milk powder priced under ¥500 ($77), the taxes are unlikely to significantly affect demand for premium products, as product quality and trust remain the two most cited reasons Chinese consumers shop cross border. Nevertheless, price is always a factor in China and the new published rates are set to further increase when temporary discounts and waivers are removed.
Unfortunately, the new import duties aren’t the only signs of Beijing’s teetering support for cross border commerce. Mid-last year, the Government announced it would close loopholes which allowed consumers to import products for personal consumption not otherwise allowed in China. This has been one of the drivers of cross border commerce. They stated that cross border products such as foreign cosmetics not tested on animals would be banned, a year after Chinese companies were allowed to sell cosmetics that weren’t subject to animal testing.
More recently, Beijing has used another influential tool in its war chest – state media, and has been publishing some not-so-positive articles. For example, they identified that cross border complaints increased drastically last year – 369% – but without highlighting the context that is was just 1,059 complaints out of millions of cross border transactions and that sales in the category had also increased drastically too.
Diminishing Government advocacy for cross border commerce won’t be well received by Jack Ma and his merry men in Hangzhou, who have announced global imports as one of three key components driving its expansion this year. The company’s cross border division, Tmall Global, grew 179% last year, driving the opening of offices in Germany, France, Italy, the UK and five in the US. Last year, the company hired former Goldman Sachs vice chairman Michael Evans to lure foreign brands to the platform. Similarly, JD.com and a host of niche players have pinned their hopes on cross border commerce as a key growth driver. Even Walmart is jumping on the wagon with its new Global E-Buy app.
Whilst ecommerce imports have been championed as a way to bolster Chinese consumption rates, most of China’s leaders would rather consumers supported and bought local products – whether it be toilet seats or cosmetics. Cross border commerce will continue to grow, but it won’t be with the same unbridled support from Beijing that it has enjoyed in the past. Brands whose Chinese strategy is purely based on cross border commerce would be prudent to explore other channels and hedge their bets. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.