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Mainland Cross-border E-Commerce Opportunities for Hong Kong Businesses podcast

As demand among mainland Chinese consumers for imported goods grows, many consumers are buying foreign products by way of overseas online shopping or overseas agents. However, problems have often arisen from making purchases this way – there is no guarantee of products’ quality or authenticity, there may be no way of returning goods, and there are opportunities for tax evasion. In a move to further protect consumer interests, strengthen monitoring of product safety and safeguard national tax receipts, the Chinese government has set up cross-border e-commerce import services pilots in seven mainland cities[1]. Meanwhile, free trade zones and qualified cities can also conduct cross-border e-commerce import business.

In view of the rapid development of cross-border B2C e-commerce[2] in China, many cross-border e-commerce import services platforms[3] are proactively looking for foreign goods suppliers, agents and brand owners in order to meet the demand from mainland consumers for new brands and new products. As Hong Kong companies have accumulated years of experience in cooperating with foreign traders, they are knowledgeable about foreign products and also have a good understanding of the demand from mainland consumers. Hong Kong traders, importers and agents therefore possess advantages in bringing foreign goods onto the mainland market and may wish to consider using cross-border e-commerce platforms to expand the mainland B2C consumer market.

Cross-border B2C e-commerce import services pilot cities

According to estimates from the China E-Commerce Research Center (CECRC), the number of people carrying out overseas online shopping[4] in China will rise from 18 million in 2014 to 35.6 million in 2018, while the value of overseas online shopping transactions will jump from Rmb150 billion to Rmb1,000 billion. This shows that demand among mainland consumers for foreign products will continue to increase. However, when consumers purchase foreign goods directly from overseas websites or via overseas agents, problems can arise relating to language barriers, a lack of guarantee of product quality, delays in delivery, loss and seizure of products and tax evasion.

In order to protect consumer interests, strengthen monitoring of product safety and safeguard national tax receipts, eight government departments – including the National Development and Reform Commission (NDRC), the People’s Bank of China (PBOC) and the General Administration of Customs (GAC) – jointly issued the Circular on the Work of Promoting the Healthy and Rapid Development of Electronic Commerce (Fa Gai Ban Gao Ji No.226 [2012]) in 2012, coinciding with the launch of cross-border e-commerce[5] pilots at e-ports in selected cities. Currently, there are seven cross-border e-commerce import services pilot cities in the mainland – namely Shanghai, Hangzhou, Ningbo, Zhengzhou, Chongqing, Guangzhou and Shenzhen – where cross-border B2C e-commerce can be conducted, either via “bonded import” or “direct purchase import” modes. According to GAC, as at the end of 2014, a total of over 4.11 million parcels, worth around Rmb1.01 billion, had been inspected and released under these pilots.

Aside from the seven pilot cities approved by the State Council, import sales via cross-border B2C e-commerce may also be conducted in free trade zones and qualified cities. These include the Fujian and Tianjin free trade zones, as well as Nanjing, Qingdao, Pingtan and Yantai.

Under the Supervision of Goods and Articles Entering and Exiting the Country via Cross-Border E-Commerce (GAC Announcement No.56 [2014]), such goods and articles are under the supervision of Chinese Customs and enterprises conducting cross-border B2C sales business must submit information on orders, payment and logistics to Customs in real time via cross-border e-commerce platforms approved by Customs and linked to the Customs network.

Although at present the State Council only allows certain cities to conduct cross-border B2C e-commerce on a pilot basis, consumers all over the mainland can make purchases on cross-border e-commerce platforms. For instance, while consumers shopping on Chongqing’s igetmall.net e-commerce platform are mainly local to the municipality, or Sichuan province, this platform also attracts shoppers from Beijing, Jiangsu province and Zhejiang province. Hence, cross-border e-commerce platforms’ potential consumer base spans the whole Chinese mainland.

 

Pilot CitySelected cross-border e-commerce platforms
Shanghaiwww.kjt.com, www.ftzmall.com.cn, www.usashopcn.com
Hangzhouwww.tmall.hk, www.xianlife.com, seaany.com
Ningbowww.kjb2c.com, www.hoyshop.com, www.yanglego.com
Zhengzhouwww.wgyp.com, www.jumei.com, www.kaola.com
Chongqingwww.igetmall.net, www.kjyp360.com, www.sjgo365.com
Guangzhouwww.funsens.com, www.sd020.com, www.meijoybest.com
Shenzhen
www.ewj.hk, www.kxg.com, www.haidaowang.com

 

“Bonded import” and “direct purchase import” modes of operation

Currently, the import business of cross-border B2C e-commerce platforms is conducted under two modes of operation: bonded import and direct purchase import. Some cross-border e-commerce platforms, such as Shanghai’s ftzmall.com.cn and Chongqing’s igetmall.net, operate under these two modes.

Bonded import (B2B2C): This mode adopts the “stock first, order later” model, whereby large quantities of foreign goods are stored in special customs supervision areas or bonded customs supervision areas (such as bonded zones, bonded port areas, bonded logistics centres) within Chinese territory. After a consumer has placed an order with a cross-border e-commerce platform linked to the Customs network, the e-commerce platform will make a real-time declaration to Customs based on the particulars of the order, payment and logistics, and will complete customs clearance procedures. After Customs has checked the particulars, the product will clear customs directly at the bonded zone and be delivered to the consumer. As the product is stored in a special customs supervision area within Chinese territory, under the supervision of the Customs and Inspection and Quarantine Bureaus, fast-track customs clearance applies and the consumer can normally receive the product within 3-4 days. This has greatly shortened delivery times. However, since the company concerned has to keep large quantities of goods in stock at the customs supervised warehouse, the variety of goods available under bonded import may be less than that under direct purchase import.

Chart: Bonded Import
Chart: Bonded Import

Direct purchase import (B2C): This mode adopts the “order first, delivery later” model. After a Chinese consumer has placed an order with a cross-border e-commerce platform linked to the Customs network, the platform will submit particulars of the order, payment and logistics to Customs in real time, while at the same time the product will be directly dispatched from a warehouse overseas and delivered, by an international logistics service supplier, to a designated cross-border e-commerce area under the supervision of Chinese Customs. Upon completing customs clearance, inspection and quarantine procedures, the product will be delivered to the consumer. Under normal circumstances, the consumer will receive the product within 7-15 days. Owing to the fact that under “direct purchase import” the product is directly dispatched from overseas, the logistics costs involved are higher and the transportation time is also longer.

Chart: Direct Purchase Import
Chart: Direct Purchase Import

Personal postal articles tax on imported goods purchased via cross-border e-commerce platforms

Mainland consumers buying foreign products through cross-border e-commerce platforms are required to pay import tax, which is calculated based on the actual retail price, in accordance with the Classification Table of Import Goods of the People’s Republic of China (GAC Announcement No.15 [2012]). Meanwhile, personal postal articles entering the country are, under the Adjustment of Management Measures for Inward and Outward Personal Postal Articles (GAC Announcement No.43 [2010]), subject to import tax in the form of personal postal articles tax. According to GAC requirements, consumers placing orders with cross-border e-commerce platforms must present their identification documents for authentication. GAC will apply the “reasonable quantity for personal use” principle in calculating tax on goods purchased. For the purchase of a number of products in a single order, if the order value is under Rmb1,000, the products can go through customs clearance according to personal postal articles tax regulations. If the order amount exceeds the maximum value of Rmb1,000, the products must go through customs clearance according to regulations governing import under general trade – in other words, duty and VAT are levied. Where the value of a single integral item, such as a handbag or a pram, exceeds the Rmb1,000 limit, if Customs determines that it is for personal use, the product can go through customs clearance procedures in accordance with personal postal articles tax regulations.

Personal postal articles tax rates are lower than the rates of duty and VAT (17%) levied on imports under general trade. For articles with an import duty payable amount of Rmb50 or less, tax will be waived by Customs. Currently, four tax rates apply to personal postal articles: 10%, 20%, 30% and 50%. For example, if a consumer buys one pack of disposable diapers with a sale price of Rmb130 via a cross-border e-commerce platform, the personal postal articles tax rate of 10% applies and the tax payable is Rmb13, which is less than Rmb50 and therefore waived. If the consumer buys four packs of disposable diapers in one order, however, the personal postal articles tax of Rmb52 must be paid.

Table: Rates of Personal Postal Articles Tax on Selected Personal Articles
Table: Rates of Personal Postal Articles Tax on Selected Personal Articles

Characteristics of cross-border O2O e-commerce platforms

While growing numbers of Chinese consumers are keen on shopping online, many still like to visit bricks-and-mortar stores where they can come into contact with a product before deciding to buy it on an online platform. Some foreign goods sold on cross-border e-commerce platforms may be new products or brands not yet available on the mainland consumer market – and hence, some of the products at the “experience” stores of cross-border e-commerce platforms are for display only. Consumers can place orders online at the experience store but cannot normally take away these goods on the spot – they are delivered to them by courier service later. Some experience stores do sell taxed products for consumers to buy and take home, however.

One company that does this is funsens.com, a cross-border e-commerce platform which has set up an “overseas products area” and a “duty-paid area” at its foreign products direct purchase experience centre in Nansha, Guangzhou. It is understood that consumers buying products at this “overseas products area” are required to pay personal postal articles tax. After taking a look at a product on the spot, they can purchase it, via funsens.com, on the spot – the product will then be delivered to their home by courier service. At the “duty-paid area”, however, the price of the products already includes duty and VAT – consumers can therefore pay directly at the counter and take the purchased product away with them. The price of products on offer at the “duty-paid area” is slightly lower than that of like products on the mainland market, mainly due to cost savings where distribution, agents, logistics and transportation are involved.

Cross-border e-commerce platforms are under the supervision of a number of government departments, including the National Development and Reform Commission (NDRC), the People’s Bank of China (PBOC), the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and the General Administration of Customs (GAC). Systems are in place for product quality and safety assessment, product random inspection, defect products recall and disposal, product flow traceability management, and consumer interests protection. Consequently, mainland consumers buying foreign products via cross-border e-commerce platforms have stronger protection and greater convenience where returning or replacing goods is concerned. Moreover, many cross-border e-commerce platforms have experience stores, allowing consumers to gain a better understanding of the products on offer.

Photo: Products on display at the overseas products display area
Products on display at the overseas products display area: Consumers are required to take product information cards to a cash counter and place their order. A courier company will then make delivery to the consumer.
Photo: Products on display at the overseas products display area
Products on display at the overseas products display area: Consumers are required to take product information cards to a cash counter and place their order. A courier company will then make delivery to the consumer.
Photo: Products on display at the duty-paid area
Products on display at the duty-paid area: Consumers can take the products directly to a cash counter, make payment and take their purchases home with them.
Photo: Products on display at the duty-paid area
Products on display at the duty-paid area: Consumers can take the products directly to a cash counter, make payment and take their purchases home with them.

 

Inspection and quarantine of cross-border B2C e-commerce products

Opinions on Strengthening the Role of Inspection and Quarantine to Promote the Development of Cross Border Electronic Commerce, issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), sets forth a plan to accelerate the establishment of a cross-border e-commerce inspection and quarantine mechanism. Support is also in place to develop the China (Hangzhou) Cross-Border E-Commerce Pilot Zone, including encouraging its first-mover role, further delegating examination and approval authority to local inspection and quarantine organs, and promoting the replication of the model in other cross-border e-commerce zones. Meanwhile, it has been established that inspection and quarantine organs will manage cross-border e-commerce operators[6] and their products by record filing, and implement quality safety traceability and accountability. Under Norms for the Administration of Record Filing of Electronic Commerce Import Enterprises and Products by the Entry-Exit Inspection and Quarantine Bureau of Hangzhou, enterprises engaged in cross-border e-commerce import business must carry out record filing before their products can be put online for sale. The procedures include filling out the “Cross-border E-Commerce Enterprises Inspection and Quarantine Record Filing Application Form” and “Quality and Integrity Pledge”.  Basic information about the enterprise, as well as descriptions of the products handled – including brand name, HS code, specifications, model number, country of origin and supplier – are all required to be filed.

The inspection and quarantine procedures for imported products sold on cross-border e-commerce platforms are simpler than those for products imported under general trade. Generally speaking, products not falling under the cross-border e-commerce “negative list”[7] may enter the country smoothly, although currently operation procedures in different pilot schemes may vary. Certain products, such as imported food products and cosmetics, are not required to be given a new product label. AQSIQ is reported to have devolved part of its examination and approval authority to the entry-exit inspection and quarantine bureau of Zhejiang, helping to shorten processing times. For example, the quarantine licence examination and approval time for imported food products, animals and plants, and for animal and plant products, has been shortened from 20 working days to five working days, and some products can even obtain application approval in one day. At the same time, 3C certification risk assessment for imported products has been waived. Since the China (Hangzhou) Cross-Border E-Commerce Pilot Zone is the first mover among cross-border e-commerce services pilot cities, these practices may be replicated and promoted in other cross-border e-commerce zones.

Benefits of shopping on cross-border e-commerce platforms

It is understood that when mainland overseas online shoppers set out to purchase foreign products, they must first log on to a foreign shopping website, then – after placing an order – find a forwarding company. The product will then be mailed or couriered by an international logistics service supplier to China, where the product may be randomly checked, held and/or or taxed by Chinese Customs. For mainland consumers, shopping on foreign websites may involve cumbersome processes in terms of negotiating language barriers, delivery and payment in a foreign currency. In view of this, some consumers prefer to make purchases via overseas agents. The disadvantages of this means of buying foreign goods are that mainland consumers often have no way of returning or replacing their goods. Moreover, product quality is not guaranteed.

On the other hand, mainland consumers making purchases on cross-border e-commerce platforms are protected under the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests[8], which dictates that they are entitled to return goods within seven days of receipt without having to give a reason (with the exception of certain goods such as made-to-order products, personal care/intimate products, periodicals and weekly publications). If the product has problems with quality or functional failure, the consumer can opt to have it replaced or returned. Furthermore, the supervision of such government departments as NDRC, PBOC, AQSIQ and GAC means cross-border e-commerce platforms are safe and lawful channels for mainland consumers to buy foreign products.

Cross-border B2C e-commerce opportunities for Hong Kong companies

As the Chinese government devotes significant efforts to developing cross-border e-commerce, launching first-movers and encouraging the formalisation of overseas online shopping, it is obvious that the sector has huge development potential. Meanwhile, in view of Hong Kong companies' years of experience in cooperating with foreign businesses,  good knowledge of the products offered by foreign suppliers, and understanding of mainland Chinese consumers, Hong Kong traders, importers and agents are clearly in an advantageous position to further develop this market.

Inspection and quarantine procedures for products sold through cross-border e-commerce platforms are simpler, relative to those associated with general trade, meaning the time required for product examination and approval is shorter and overall import and supply chain costs are lower. This allows Hong Kong companies to bring in a greater variety of products to the mainland market. Currently, the products sold via cross-border e-commerce platforms mainly include mass consumer goods such as mother and child products, personal care products, imported food products, health products, and cosmetics and beauty products. It is reported, however, that the majority of consumers using cross-border e-commerce platforms are experienced online shoppers and have an appetite for new products and brands not yet available in the Chinese mainland. These consumers are covetable customers for medium to high-end Hong Kong companies and products. Currently only a few mainland cities are permitted to conduct cross-border B2C e-commerce; however, consumers all over the country can shop on cross-border e-commerce platforms in these pilot cities. As such, the potential reach of cross-border e-commerce platforms encompasses the entire mainland consumer market.

Hong Kong companies wishing to develop cross-border B2C e-commerce business in the mainland but not well-versed in e-commerce or online sales may consider cooperating with cross-border e-commerce companies such as Deep Blue eCom. Some of these companies provide services covering customs declaration and commodity inspection, marketing, O2O sales, and logistics and delivery, as well as product traceability. Others can even function as agents, assisting Hong Kong companies in managing their operations on different cross-border e-commerce platforms so that they can focus their time and resources on developing new products and enhancing the competitiveness of their core business.

 


[1]  In cross-border e-commerce, four types of customs clearance models apply: general import, bonded import, general export, and bonded export. As B2C (business to consumer) sales here refer to import, this article deals with the “general import” and “bonded import” customs clearance models only.

[2]  Cross-border e-commerce operators are companies operating cross-border e-commerce platforms handling both B2B and B2C sales. This article only concentrates on B2C sales.

[3]  Cross-border e-commerce platforms refer to third-party websites or companies’ own websites which sell foreign products to mainland Chinese consumers.

[4]  Overseas online shoppers refer to mainland consumers who make purchases by directly placing an order   with a foreign website, the product will then be mailed or couriered to the consumer in China by an international logistics or forwarding company.

[5]  Cross-border e-commerce generally refers to a commercial activity involving parties in different customs territories which conclude a transaction, settle payment, dispatch/receive a product through a cross-border logistics service supplier, and complete a deal.

[6]  Cross-border e-commerce operators include: cross-border e-commerce enterprises, cross-border e-commerce platform enterprises, and cross-border e-commerce logistics and warehousing enterprises.

[7]  The negative list refers to the list of products not allowed to be imported for sale under the cross-border e-commerce model, examples include radioactive products, dangerous chemicals, and waste and used articles.

[8]  The revised Law of the People’s Republic of China on the Protection of Consumer Rights and Interests came into effect on 15 March 2014.

Content provided by Picture: Alice Tsang
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