Is China Paving the Way for Cross Border eCommerce?
Image: Campaign Asia
The Chinese government has recently issued updated guidance on principles for cross-border e-commerce in the world's second-largest market, providing stakeholders much-needed clarity on possible changes in policy that have been suspended within the industry for the last year.
In a statement published March 17, China's Ministry of Commerce said that overseas goods bought online and dispersed through bonded warehouses might continue to get some preferential treatment, avoiding quarantine and quality checks that might have brought the import of several popular foreign products to a stand still.
Last April, Beijing announced changes to some pilot program meant to strengthen Chinese customers' ability to purchase online directly from foreign retailers via cross-border e-commerce. In the center of this program are secured warehouses, where global brands sent merchandise available to Chinese consumers without being subject to regular import duties or rules for quarantine and quality tests on products such as cosmetics, food and health supplements. The proposed changes would have improved the tariffs paid on that product and removed from preferential regulatory treatment. This caused significant upset among global brands because a number of the most popular foreign products bought on the internet - foods, health supplements and cosmetics - are also the most tightly governed by Chinese authorities.
Based on reports, the cross-border e-commerce orders plummeted as much as 60 percent in major trading hubs such as Shenzhen, Zhengzhou, Ningbo and Hangzhou per week following the statement. A month later, seemingly in response to industry concerns, authorities said they'd suspend the rollout of their new quarantine and quality check limitations until the end of this year, while leaving in place the greater import tax. In its March 17 statement, regulators extended that suspension forever, saying that all goods shipped by bonded warehouses could be considered "personal items" and so are exempt from the stricter regulations.
The government said it could issue further guidance on cross-border e-commerce before the present rules are formalized on Jan. 1, but the statement at least provides stakeholders a longer runway with which to prepare for any potential changes.
For Alibaba, by far China's biggest e-commerce participant, the news means that the internet purchase of foreign merchandise will continue unabated, with marketing research firm eMarketer forecasting the industry will reach $157.7 billion by 2020 from roughly $86 billion final year.
Cheng Ouyang, also a director at Alibaba's Cross-Border E-Commerce Research Center, called the announcement a "positive signal" for the sector. Using a favorite Chinese idiom to describe the newest statement, Ouyang said the authorities were "draining water to pools to increase fish," so that Beijing is allowing space for cross-border e-commerce to grow. In parallel, the government will still continue to fine-tune its regulations to the business, while stakeholders are able to make the most of a burgeoning revenue channel for foreign products.
A component of this ministry's announcement also included the addition of pilot zones, or testing places for secured warehouses, at Dalian, Hefei, Chengdu, Qingdao and Suzhou, bringing the total number to 15. Wardle stated the additional zones could allow for quicker delivery and reduced shipping expenses, "which is good for consumers." "We already have a powerful community and will work together with our partners in the newly announced pilot zones to continuously provide seamless cross-border logistics support and better serve both retailers and customers," said James Zhao, manager of export logistics in Cainiao.
While the government's announcement has lent stability to the industry for the moment, Fung Global's Weinswig said that there was still no certainty about what updates to the policy may look like when they're indeed issued later this year. "Will there be some imports that don't fall inside personal products? Is enrollment for imports demanded which will slow down [Reactive e-commerce] imports?"
Wardle, meanwhile, expects that any upgrades to coverage will be a hybrid of those already in place along with recommendations from major players from cross-border e-commerce, including Alibaba's cross-border shopping site Tmall Global. Such a model "would benefit both consumers and brands," he said.
Regardless of the changes, Wardle said that he doubts that authorities will backtrack about the advancement that's been created in China's cross-border e-commerce industry. Stakeholders have already made significant investments in infrastructure and resources, while customers have come to expect access to international products they can't otherwise get. "The floodgates are open," he said. "That is going to be hard to pull everything back".