CHINA LOOKS TO FIX US$60 LOOPHOLE
Beijing to harmonise rules to ensure fair competition for local retailers
SHANGHAI the regulatory issues that have stymied access to consumer products from cosmetics to Cognac. Faced with pressure from conventional retailers at home, and the loss of tax revenue, the government is now looking at overhauling the legal loophole.
“If you do not harmonise the rules for commercial imports and cross-border e-commerce, there is an advantage you give to companies overseas,” said Chan WaiChan, a retail partner at consultancy Oliver Wyman in Hong Kong.
Companies that have invested in a bricks-and-mortar presence in China feel as though they’re being usurped by businesses that haven’t gone through the same expense of setting up shop, he said.
Wal-Mart Stores Inc, Costco Wholesale Corp, Aldi Stores Ltd and Body Shop International Plc are among companies sharing in the US$60 billion of sales that make up the alternative channel, and their merchandise can be delivered from bonded warehouses in designated zones to consumers in as quickly as a day.
Cross-border e-commerce may triple to 15 per cent of the total ecommerce market within five years if it’s not curbed by new regulations, said Xia Chenan, an Internet and digital practice analyst with McKinsey & Co in Shanghai.
The cross-border channel is projected to grow 43 per cent next year, with goods valued at 758 billion yuan, according to McKinsey and iResearch. The entire e-commerce market is projected to be 6.5 trillion yuan next year.
The business is so popular that new Chinese words have emerged to describe it: “haitao,” which means to buy imported items from online sites, and “daigou,” which means to have a buyer physically in a foreign country purchase items on your behalf.
While the vast gray market was formalised in early 2015 by Chinese leaders as a way to stimulate domestic consumption, there’s now a consumer groundswell — as well as online retail behemoths like Alibaba Group Holding Ltd and JD.com Inc — behind it. And that may create difficulty for the government as it seeks to “clarify” the rules by next January.
“They opened a gap and everyone started plowing through it,” Oliver Wyman’s Chan said. “They’ve taken the genie out of the bottle, and now they can’t put it back in.’’
One reason for the popularity is that it’s enabled consumers to buy foreign-manufactured infant milk formula, health supplements and other products from categories whose safety and integrity have been challenged by a series of food scandals the past decade.
It’s also given Chinese consumers greater choice, including the ability to buy exotic produce, such as chia seeds and acai berries.
Goods sold through the route are also not subject to the myriad taxes that are levied on that same item sold through traditional channels within China, effectively allowing brands to arbitrage against themselves.
The government proposed three changes in April last year: a marginal tax increase, limits on the volume of purchases to ensure transactions are for personal use only, and a list of permissible, or “positive,” foreign products that could be bought online.
“It was growing so fast, penetrating so many different sectors and disrupting much of business in China,” said Matthew Crabbe, Mintel International Group Ltd’s director of Asia-Pacific research.
“They don’t want it to be a source of unfair competition for local retailers.” Bloomberg