SHANGHAI/BEIJING: A crackdown on China's booming cross-border online shopping trade has created commercial panic and prompted local consumers to seek ways to skirt the increased tariffs and stricter rules that have led to some products being yanked off shelves.
China raised taxes on goods bought on overseas e-commerce platforms on April 8, but sparked more confusion with a last-minute list that restricted some products from being sold through these channels, leading to sharp share price gyrations by firms in close trade partners like Australia.
The new rules and stepped-up enforcement have also spooked China's army of informal travelling shopping agents who have reportedly been dumping goods at customs checkpoints to avoid paying taxes.
The moves threaten to put the brakes on China's fast-growing cross border e-commerce market, which had lured domestic shoppers with lower tax rates than conventional imports and less red tape over which products could be bought and sold.
"A lot of players from express logistics providers to brands themselves and platforms like Tmall, nobody is really clear what's happening right now," said Robin Kerawala, Shanghai-based partner at consultancy SmithStreet, whose firm works with brands in China on e-commerce strategies.
He said China's customs agency has increased inspections, which could raise costs for delivery firms.
While the measures will boost China's coffers, the country's finance ministry says they are designed to "level the playing field" for tax and regulation of offshore and onshore e-commerce platforms as well as bricks-and-mortars stores.
This imbalance had been noted in the past: US infant milk powder maker Mead Johnson Nutrition Co said in January that China had a "tilted playing field" in favour of cross-border e-commerce channels.
China's cross border-retail sales – referring to goods either shipped directly to shoppers from overseas or from warehouses in free-trade zones within China – is set to hit 432bil yuan (RM261.19bil) this year, from 259bil yuan (RM156.59bil) in 2015, according to McKinsey & Co.
The tougher regulations mean firms were forced to act fast to stay compliant with the new rules. Milk goods, a popular import for Chinese consumers, have been hit particularly hard: Australian dairy firm Murray Goulburn said on April 12 its Devondale brand milk products had been removed "temporarily" from some websites.
The official list said that milk powder products needed approval by China's food and drug regulator, while long-life liquid milk was not included on the list at all.
"We have to comply with every regulation from the government, so on the day the list came out some goods referred to were taken off the shelf," said Richard Liu, chief executive of China's second largest e-commerce site JD.com Inc.
He added it was still unclear how much prices would rise after the tax hike as the firm was still waiting for greater clarity from regulators on how the rules would actually work.
A spokesman for Alibaba Group Holding Ltd, which operates cross-border e-commerce platform Tmall International, said the firm "always follows the laws of the countries in which we operate and this tax policy is no exception."
A Reuters' analysis of prices of milk powder to health supplements on the platform suggested shoppers will now pay an 11.9% import tax. Many of these products would have been tariff free under the previous "parcel tax" system.
The abruptly imposed "positive list" – released only hours before coming into effect last week – also underlines a major risk of doing business in a China, where new regulations can often be sudden and opaque, changing market dynamics overnight.
For e-commerce platforms, brand owners and consumers, the main response to the new regulations was uncertainty.
The curbs are also scaring Chinese "daigou" – unofficial shopping agents who bring back suitcases of goods from abroad.
Though the new rules don't directly target this grey market trade, photos of goods being dumped at airports to avoid taxes have circulated widely on Chinese media over the last week.
A senior sales executive at a multinational consumer goods firm said many firms were "scrambling", with some companies flying senior management into China to work out how to respond.
The Shanghai-based executive added his firm was looking to coordinate with others in the industry to "lobby" local regulators and get greater clarity on the rules.
Resourceful consumers, meanwhile, circulated posts online, discussing ways to get around the restrictions.
Dai Yingshan, 23, a student in western Sichuan province, said a friend outside China helped her re-wrap purchases such as calcium tablets and then sent them on to China as if they were a "personal present" – thereby avoiding taxes.
"If you use your brain, you can always find a way," she said. — Reuters
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