China passed new e-commerce laws to oversee product safety, optimize the taxation of cross-border e-commerce (CBEC) imports and redress an imbalance between offline and CBEC import channels.
The new laws took effect on January 1st, 2019 and it’s important to understand how these changes affect business in China.
How New Laws Impact Business in China
China’s new e-commerce laws are in response to the growing popularity of daigou, otherwise known as a consumer-to-consumer (C2C) tactic where individuals will purchase foreign product for Chinese consumers for a small fee. eMarketer estimates that approximately 25% of the Chinese population will be shopping for foreign products through cross-border e-commerce sites.
Historically, daigou merchants have reported imports as personal goods to avoid paying taxes and saved on import duties. China plans to crack down on these tactics while aiming to promote cross-border e-commerce. The new laws require daigou merchants to register as a business and pay taxes, or face fines and potential criminal prosecution. This will allow the government to capitalize on tax revenues and narrow the tax gap between daigou merchants and CBEC platforms.
Furthermore, China will increase the number of e-commerce zones to 35 cities. Within these zones, CBEC platforms benefit from more simple customs procedures and non-restrictive policies.
As Chinese consumer demand for foreign products continues to grow, CBEC platforms stand to gain the most from the introduction of these policies. Platforms like Tmall Global (Alibaba) will benefit from a larger audience of Chinese consumers that have moved away from purchasing through daigou.
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