As of January 1st, 2019, China will implement a new e-commerce law further regulating the sale of products for international retailers. These new laws are set to strengthen protection for consumers and retailers, as the Chinese government works to change the countries reputation as a source of fake goods.
The new laws aim to regulate daigou buying and the way they conduct business. Daigou, otherwise known as personal shoppers or buying on behalf of, is when a person outside of China purchases products (usually luxury goods or groceries) for a consumer in mainland China. Until now, daigou buying has been a largely unregulated industry.
Under the January 1st laws, daigou traders will be required to:
- Register with and obtain relevant licenses from the Administration for Industry and Commerce
- Always pay taxes
- Comply with advertising laws and guidelines
Local e-commerce players such as JD, Alibaba, Vipshop etc. will be held more accountable for daigou traders utilising their platforms. Platforms are being asked to carefully asses the safety and authenticity of goods, along with reporting any sellers believed to not be in compliance. E-Commerce players who fail to report this information will be held directly accountable by Chinese regulators.
Further to this, the introduction of these laws will see the current tax exemption limit for cross-border purchases increased. The single purchase limit will increase from US$288 (RMB 2,000) to US$720 (RMB 5,000), and the yearly purchase increases from US$2,900 (RMB 20,000) to US$3,780 (RMB 26,000). As of January 1st, cross-border purchases under these limits will be exempt from duties and receive a 30 per cent discount on consumption tax and VAT.
Under the current daigou model, traders’ profit from the markup between overseas products and those sold in China. For retailers, this presents an opportunity to drive traffic and increased conversions directly to their e-commerce site, as the margin for daigou traders will be significantly reduced and is likely to result in the closure of many daigou businesses.
The changes coming into play are positive for retailers and the industry. Not only do these laws aim to regulate the daigou industry and reduce the number of fake goods being sold and minimise reseller activity, the tax implications for international retailers are set to stimulate consumer appetite for these products.
In addition to this, the changes provide international retailers with the opportunity to optimise consumers inclination to their brand and drive consumers directly to their site. From here, retailers can employ a variety of strategies to encourage repeat purchases and generate brand loyalty.
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