As we welcome the Lunar New Year, Australian businesses may wish to consider China for their “new e-resolution”.
“The whole world will witness the power of Chinese consumption …[on] November 11”, remarked Daniel Zhang, CEO of Alibaba, the Chinese e-commerce giant. Indeed, Alibaba made history on the country's biggest online shopping day of the year — possibly the biggest in the world — the 2015 11.11 Global Shopping Festival. It was reported that consumers spent a total of RMB 91.2 billion (AUD 19.66 billion) during the 24-hour event. The 11.11 Global Shopping Festival is conducted annually by the Alibaba Group, which features significant discounts intended to entice savvy online Chinese consumers. The term "双十一" (meaning "Double 11") is registered as a trade mark in China by the Alibaba Group in classes 35, 38 and 41.
Can Australian businesses tap into this huge pool of online Chinese customers? Some already have. A search in Chinese business to consumer (B2C) e-commerce trading platforms readily reveals products of all kinds with Australian brand names offered for sale, including apparel and shoes, cosmetics and skin care products, vitamins and natural supplements.
However, the means by which Australian businesses can access such markets are opaque. This article is therefore intended to provide an overview of some of the considerations for Australian businesses contemplating the export of their products directly to consumers via Chinese cross border e-commerce trading platforms.
The rise of cross border e-commerce in China
Traditionally, Chinese consumers wishing to purchase foreign goods would purchase such goods directly from foreign websites. However, those shopping experiences were generally compromised by language barriers (e.g. shopping on websites in foreign languages), logistics issues (e.g. acceptance of Chinese credit cards when processing payments) and unpredictable delivery times. An alternative method for Chinese consumers to order goods abroad was to purchase via a “representative shopper” (代購模式), essentially a small-scale importer able to source foreign goods.
Both models raised issues such as a lack of buyer protection (as most warranties for items bought abroad are not valid in China) and risks of potential seizure of goods by Chinese customs where relevant customs declaration requirements are not being met.
In 2012, the Chinese government designated five cities as pilot zones for cross border e-commerce. These initial pilot cities included Shanghai, Zhengzhou, Ningbo, Hangzhou and Chongqing. Shortly afterwards in 2013, Guangzhou was designated as a pilot city, followed by Shenzhen in 2014. Xian, Qingdao, Yantai and Wuhan are each also currently in the application stage for pilot city status. Importantly, the Chinese government has designated certain areas within each pilot city as “free trade zones” (FTZs). This means that Chinese consumers are able to purchase foreign goods via a cross border e-commerce trading platform in these FTZs. Some examples of such online trading platforms are listed in the table below.
|FTZ||Example Cross-Border E-Commerce Trading Platform|
* website offering information for cross-border e-commerce, not a shopping platform
The cross border e-commerce platforms have been warmly welcomed by businesses and customers alike. Chinese consumers are now able to purchase goods via these platforms, which only offer genuine foreign sourced goods, and be confident their consumer rights are protected by the Chinese national consumer law, such as laws applying to return of products and after sales services. There are reportedly other benefits, including more relaxed quarantine inspection in accordance with the requirements of the relevant FTZ, and lower customs duty. Under China’s “Official Notice  No. 59 on Matters Concerning Duties for Goods Imported via Cross Border E-Commerce” issued by the General Administration of Customs of the People’s Republic of China (GACC), foreign goods purchased by Chinese consumers in the FTZs within the pilot cities via cross border e-commerce platforms are taxed in accordance with the lower rates of the “luggage and postal tax” (行邮税) instead of import duty, value-added tax or consumption tax. However, some trading platforms may require that the seller takes responsibility for any duties that need to be paid.
How does cross border e-commerce work?
Australian businesses wishing to sell their goods to Chinese consumers on cross-border e-commerce trading platforms in a FTZ are able to adopt one of the following logistics solutions:
- Bonded warehouse, drip shipping method (自贸模式). Foreign sellers may cooperate with a logistics provider or local e-commerce operator to use a bonded warehouse located in the relevant FTZ to store goods, prior to distributing the goods to consumers who place an online order. Where this method is used, the products may be imported tax-free and stored in the bonded warehouse. The retailer will then only pay tax when the product leaves the FTZ.
- Direct to consumer method (直邮模式). Foreign sellers may utilize certain services offered by the relevant trading platform and directly mail the ordered goods from overseas to the individual consumer in China (with a barcode generated by the trading platform).
It appears that different FTZs may have different logistic solutions for each of the above primary methods, and some of the trading platforms do not offer both methods of shipment. Foreign sellers should actively research the requirements of the relevant cross border e-commerce platform when formulating their logistic solutions.
Other considerations and resources
Although cross border B2C e-commerce in China is expected to continue its growth in the near future and offers opportunities to foreign sellers, Australian businesses should exercise due caution when entering the Chinese e-market in light of slower economic growth in China and a number of other factors. One factor is the imminent expiry of the trial period in the Shanghai FTZ. The zone’s three year trial period expires in late 2016 and at this stage, no information is available as to what will then happen. It was also reported that reforms on the luggage and postal tax (行邮税) regime are also on the agenda for the Chinese government, although again, there is no further information at this stage. The differences in tax and inspection standards between conventional trade and cross border e-commerce do raise the question as to whether the favourable policy for cross-border trade is sustainable in the long term. It is important that Australian businesses wishing to benefit from the China e-commerce marketplace stay on top of developments in this area.
We will continue to monitor and provide updates on any developments as they occur. Please feel free to contact us should you have any queries or need assistance when conducting business in the e-commerce marketplace in China. The Australian government also provides resources with respect to conducting e-commerce in China via AUSTRADE.
Authors: Philip Heuzenroeder, Principal; Sylvie Tso, Special Counsel; Sarah McKeith, Solicitor.
Sylvie Tso has assisted Australian businesses in gaining access to the Chinese market through the preparation and negotiation of licences, supply agreements and manufacture agreements with Chinese entities. Sylvie reads and writes Chinese and speaks both Cantonese and Mandarin. She is the author of the article “Partner or perish – Five tips you must know before taking your technology into China”.