Changes to China’s E-Commerce Regulations

By Ray Huang | 20 Apr 2016

Earlier this month, China announced some changes to its e-commerce regulations, leading some retailers to questions the clarity of the regulations.

Earlier this month, China introduced a new tax policy relating to e-commerce imports. As of April 8th, most goods bought and sold online through China’s free trade areas will be subject to new duties. According to Ryan Manuel, postdoctoral fellow at the Australian Centre on China in the World, at Australian National University, “the new regulations are just the latest in a series of measures aimed at regulating China’s booming e-commerce market.”

One significant regulation change that will impact many overseas sellers is the last-minute “positive list”, which allows some foreign products to be imported more easily via China’s free trade zones and then sold on e-commerce platforms. The list includes some 1,142 items including, wine, pet food, vitamins and baby formula.

Retailers with products not included on the list may be facing some uncertainty. For example, some major import items, such as liquid milk, have not been included on the list, which has led Tmall to stop selling Murray Goulburn’s long-life milk products.

According to the Australian Financial Review, Murray Goulburn managing director, Gary Helou, said he understood why Beijing had tightened the regulation around imported goods coming through the free-trade zones.

“There has been rampant growth … and you’d expect the regulators to put some checks and balances into it, so that piece is not a surprise,” he told the AFR.

“What we are seeking, though, is clarity on exactly what that list has on it, and should have on it.”

However, despite the short-term disturbance caused by a lack of prudence from the government, things are not as bad as they seem.

  1. It’s not a one-time list, meaning that the list will be amended according to demands. The list currently includes many strong selling Australian items. The listed products are described as “those consumer goods which have a market demand among Chinese consumers, and are suitable to be shipped in parcels.” This standard encompasses many items that Aussie retailers sell into China. Furthermore, according to the tax authority, the list will be expanded in the future according to the market demand.
  1. Products that do not appear on the positive list can still be sold into China in other ways. The list and the recent tax revamp apply to the bonded warehouse model and the B2C direct shipping model. However, there is another route that is not affect by these changes — UPU personal parcels. This shipping route is used mainly by personal correspondence between countries and is usually provided by state-owned postal companies in various countries. This is standard mail shipping (e.g. when you send a postcard to a friend in another country, you are using this shipping route). Although it’s mainly for non-commercial use, many cross-border e-commerce companies choose this route to send their parcels. The UPU personal parcel route is still a significant part of China’s import retail e-commerce, and represents a legitimate way of circumventing the bonded warehouse model.

According to Manuel, the new e-commerce regulations are not so much a “crackdown”, as closing a loophole in regulation.

While the full effects of the so-called positive list remain vague — especially for products like milk powder, vitamins and baby formula, which may require products to be licensed or relicensed — there are some steps that can be taken to better address the regulation changes:

  1. Don’t rely too much on “hot” items. Many retailers reduce costs by hoarding hot items in bonded warehouses. However, it’s not sustainable. Since the new tax policy has pushed up the prices of most items, there remains little space for price competition on these items. Focusing more on long-tail products is a more practical way. Observe the market, analyse what customers need and introduce new items to the market before your competitors do. This will help you strengthen your market presence without price competition. However, adopting this strategy requires a local partner who can help you educate customers and create market needs that didn’t previously exist.
  1. Diversify your shipping routes. The UPU personal parcel route has an advantage of being less affected by the regulations and policy changes. The bonded warehouse route enables retailers to ship parcels very quickly and thus improve efficiency. The B2C direct shipping route is conducive to persuading uncertain customers who want to make sure that they are buying directly from abroad. Choose the most suitable routes based on the characteristics of your products. If you can’t decide, consult with a local expert.

 

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