May 30, 2019

The Impact of New Chinese e-commerce Laws

January 1st of this year saw China’s new e-commerce laws take effect. These laws are in response to an e-commerce market estimated to be worth over a trillion dollars, and figuring out regulations in this latest format has been in the works for at least three years. And while these new laws are a major step in the right direction, there are still some inconsistencies that may allow online sellers to slip through the gaps.

What are the new Chinese e-commerce laws?

The new Chinese e-commerce laws cover:

“e-contracts and e-payments; guarantees for e-commerce transactions; data protection and promotion of consumer protection, fair competition and mechanisms for dispute resolution; cross-border e-commerce; and the provision of substantial civil and criminal penalties.”

Cross border e-commerce (CBEC) is the aspect most relevant to foreign businesses, though much of the impact will be felt by local Chinese online retailers. For example, with the exception of farmers, the new law states that all e-businesses must be registered as formal businesses. This is a lengthy departure from the former environment where Daigou – Chinese locals making online purchases for their friends – were allowed to do so without being registered as legal entities. This meant they paid no taxes, something that is technically no longer allowed under the new legislation.  

Other highlights from the new Chinese e-commerce laws include the following:

  • Display their business licence and any other certificates
  • Issue a tax invoice
  • Display accurate and transparent product/service information
  • Establish a clear refund policy
  • Large businesses are permitted to use bonded warehouses or purchase from domestic distributors

The laws also impact e-commerce platform operators such as TMall and Alibaba.  

  • Prohibit the launching of “unreasonable fees and restrictions” on merchants
  • Platforms and sellers must take responsibility for late shipments
  • Keep a record of all transactions on its platform for up to 3 years
  • Must use the General Administration of Customs (GAC) integrated system for data collection

The new laws also hold e-commerce platforms much more liable for the distribution of counterfeit products or misleading advertising. It also stresses that these platforms must properly filter merchants on its platforms to ensure the suitability of the brand and quality of its offerings.

Read more: What you should know about China’s new e-Commerce laws

What does this mean for Canadian businesses trying to get into the Chinese market?

First, foreign companies looking to be part of one of China’s e-commerce platforms will be under additional scrutiny. You’ll have to provide a multitude of paperwork and certificates to verify your standing as a reputable business. That said, perhaps the biggest impact felt by foreign e-commerce businesses is the mandatory business registration of all local e-sellers. This one aspect of the new law will, in theory, significantly diminish the daigou market. Because they are now required to pay taxes on foreign goods they sell to “friends,” their profit margins all but evaporate. Chinese consumers previously counting on professional daigou’s for products at low cost will now turn to more official sources for their shopping.

While daigou’s are expected to still play a role in Chinese consumerism, the fact that the law states that e-commerce platforms (TMall, etc.) are also responsible for any illegal activities makes the existence of daigou’s precarious.

Route86 can help your business navigate Chinese e-commerce laws

Through our Access China program, Route86 will help your business enter one of the largest and most complex markets in the world. If you want to know more about how your business may be impacted by these laws, contact us today.