Overseas brands and retailers selling to Chinese online shoppers will have to adapt to new cross-border regulations that took effect today. Companies involved in that booming cross-border e-commerce trade say the new rules will make some goods more expensive, but in general should not put a big damper on their sales.
The regulations will raise the cost to Chinese web shoppers of certain products, such as food, on which the previous import duty was only 10%. But prices will decrease on cosmetics, on which China previously charged a 50% tariff.
“I don’t see the new policy as a problem,” Tao Yuan, e-commerce director of Germany-based Metro AG’s China division, tells internet Retailer. “Instead, it will wipe out those companies that were only seeking a policy loophole and operating in a gray zone.”
The new policy allows consumers to import up to 2000 yuan ($309) worth of goods from an e-commerce site outside of China and pay a flat tax of 11.9%. That’s lower than the 17% value-added tax consumers pay when making purchases in stores in China. China’s cross-border import e-retail market was $18.32 billion in 2015, up 111.9% from 2014.
Under the laws in effect since 2013, China charged an import duty on goods purchased from foreign websites, using the same rules that applied to the growing number of affluent Chinese traveling abroad and bringing foreign products home with them. Those duties varied significantly by category. For example, there was a 50% duty on cosmetics and alcohol but only a 20% duty on electronics and apparel, and 10% on food. The new flat tax will tend to raise the total cost of goods in the low-tariff categories while reducing the cost of products like cosmetics that previously were taxed at the 50% rate.
“A food product could increase by 20% in total price with the new policy, and that will hurt our business badly in the short term,” Hagard Wei, CEO of Zhejiang Zhongpan E-Commerce Co., tells Internet Retailer. Zhongpan is a Hangzhou-based service provider that helps overseas food brands sell online into China.
The new policy also eliminates a provision of the regulations that waived the import duty if the tax amount was 50 yuan ($7.73) or less. “In the past many e-retailers abused the tax exemption,” says Cao Lei, research director of the China E-Commerce Research Center, a market research firm. “For example, they would often break an order into multiple orders to avoid paying the tax.”
That change will impact some consumers making relatively small purchases on which they previously would not have paid any duty, because the cost would have been under 50 yuan.
Under the new rules, for example, diapers priced at 100 yuan ($15.50) would generate a tax of 12 yuan ($1.90), whereas there would have been no duty imposed previously, Zhang Lei, CEO of Kaola.com, a Chinese site selling imported products, said at a recent press conference. But, he added, “Chinese consumers, especially young moms, are focused on quality, not price. We are glad to see the policy finalized, and I think it will help the market grow in a healthier way.”
Along with changing the fees, the Chinese government also published a list of 1,142 categories of overseas products that online shoppers can bring into China under the rules governing cross-border e-commerce. Those cross-border rules allow consumers to buy from foreign websites small quantities of items for their personal use that Chinese retail stores cannot sell because they have not received government approval. The cross-border rules allow the importing of products that have been approved by their country of origin. That is an important exemption, for example, for cosmetics products which must be tested on animals to be approved for sale inside China, while many Western cosmetics companies do not do animal testing.
The list of approved products includes virtually all the consumer goods that Chinese web shoppers have been buying. The main goal of creating this list is to prevent the cross-border e-commerce rules being used for purchases of products not considered consumer goods, such as raw materials, according to an announcement posted on the site of China’s Ministry of Finance.
“The positive listing won’t impact the industry much as it covers almost all consumer goods,” says Alan Gu, CEO of 55haitao, a Chinese affiliate site that advertises overseas products to online Chinese shoppers. “The new policy also creates some opportunities to expand their business for e-retailers. For example, for some beauty products the new total import tax rate is 32.9%, whereas before it was 50%. Also, the old tax rate for sports shoes was 20% and now it is 11.9%.”
The government’s new policies should not slow the growth in Chinese consumers buying products from foreign websites, financial services firm UBS AG wrote in a recent report. UBS says China’s growing middle class increasingly wants higher-quality goods, especially in areas like baby and maternity products where safety is important, and that they are not overly price-sensitive.
Chinese online shoppers, however, may see a temporary delay in receiving goods ordered from abroad. Tmall Global, an online marketplace for imported goods operated by Chinese e-commerce giant Alibaba Group Holding Ltd., says orders may come into the country more slowly in the next week as China’s customs agency upgrades its systems to account for the new policies.
For a full report on the opportunities for foreign brands to sell online into China, read “Open Door Policy,” which appears in the November 2015 issue of Internet Retailer magazine.
For more Chinese e-commerce data, please click here for the new-released Internet Retailer 2016 China 500.