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How China’s New Ecommerce Law Is Impacting Retail

Posted by Tiffany Lung Tiffany Lung on Feb 20, 2019

China has enacted a new ecommerce law from January this year, which is having a ripple effect on retailers, independent sellers and consumers. Perhaps not so surprising given that ecommerce accounts for close to a quarter of all retail sales In China.

The new law has been set in place to govern the sale of products and services online and to provide protection in a wide range of scenarios and situations - from taxation to dispute resolutions as well as consumer rights aspects and intellectual property protection. The regulation applies to all e-commerce operators, whether they are a business or an independent person engaged in the selling of merchandise or services online.

 

 

Daigou sellers drawing a replica of a product to avoid being detected

Impact on independent sellers

The biggest impact of this new legislation by far has been on personal sellers or daigou that operate through social media and messaging services such as WeChat and Douyin - platforms that were the driving force behind the daigou phenomenon. Sellers are now required to register as businesses because of the new regulations, meaning they can no longer avoid paying import duties and other taxes which had kept prices low.

The overall daigou market is estimated to be worth US$15bn annually and the crackdown on the practice could have a knock-on effect on retail markets such as Hong Kong and Australia, which previously benefitted from being prime destinations for daigou sellers. On the other hand, platforms such as Tmall and JD.com will see increased demand as the price differential with this grey channel will be much reduced.

How retailers are affected

Although increased red tape is never welcomed, the new ecommerce law is generally seen as a positive for international retailers, which will now have much less competition from parallel imports brought into the country through daigou. The changes mean that consumers are more likely to purchase goods directly from brands’ websites, making it easier to drive repeat purchases and foster loyalty. With ecommerce platforms also forced to safeguard intellectual property rights, brands will also be less impacted by the counterfeit market.

Consumers come out ahead

Despite the daigou channel becoming a less attractive option for consumers, the new law does offer some benefits for shoppers in China. For instance, the amount at which cross-border ecommerce transactions are exempted from import duties whereby customers only have to pay 70% of the consumption tax and VAT. The limit on purchases has also been raised from RMB2,000 to RMB5,000 per single transaction, and an increase from RMB20,000 to RMB26,000 in overall yearly cross-border transaction purchases. Additionally, consumers will be protected against fake reviews as well as counterfeit goods. According to a survey conducted by Tofugear among 500 consumers in China, 70% found the inaccurate representation of goods to be a major frustration when shopping online.

Other elaws in APAC to note

China is not the only country in Asia Pacific where retailers engaging in cross-border ecommerce need to take note of the regulatory environment. For instance, a number of countries including Vietnam and Thailand have recently implemented higher VAT rates on ecommerce transactions with foreign sellers, in order to protect domestic businesses, while Malaysia is implementing a ‘digital tax’ in 2020.

India has of course long been seen as a major retail opportunity for some time, but it continues to be a challenging market due to its strict regulations on foreign retailers. A new law has come into force in 2019, which is banning foreign-owned marketplaces such as Amazon and Walmart-owned Flipkart from selling products which they own. Both retailers used a wholesale structure to sell products to vendors listed on their platforms, which in turn were able to offer products at deep discounts compared to domestic traders and smaller online retailers.

Tofugear Takeaway

As many benefits as there are for retailers with the newly enforced ecommerce law, the reality is that fake goods and the grey market will inevitably continue to exist. Independent sellers will come up with creative ways to avoid being caught, and consumers will find a way to get their hands on tax-free goods.

The cheaper price tags offered by parallel imports may be difficult to match, but retailers can ultimately provide a more unique selling proposition by emphasising their own brand value - whether that is through extraordinary customer service, an exclusive warranty or a product authenticity guarantee. Last but not least, an unmissable retail experience should be another area for retailers to explore so that they provide consumers with a compelling reason to visit their shop.

Topics: Insights, Blog

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Tiffany Lung

Written by Tiffany Lung

Tiffany is a retail analyst at Tofugear focusing on unified commerce, digital transformation, innovation and consumer trends across all retail sectors. Her insights have been featured in local and international media and she can often be found patrolling the streets to capture the most innovative stores for her #TiffanysRetailPatrol videos.

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