China backs cross-border e-commerce to boost consumption

In the last three to four years, the Chinese Government has implemented measures to encourage consumers to use the internet to buy from overseas retailers in its efforts to transition to a consumption-driven economy. Such moves include lower duties on goods ordered online and the introduction of bonded warehouses, where merchants can bulk store merchandise in China, taxed at special rates, which allows for faster delivery of goods. In a further boost for China's cross-border e-commerce, Alibaba's logistics provider, Cainiao, has become the first company to fully integrate its customs process; all information required by Chinese customs can be submitted online to speed up the shipping process even further.

|

Since 2012, the Chinese government has put in place a number of measures to boost cross-border e-commerce, not least the lowering of import duties on products that are purchased online. But Alibaba Group’s logistics provider, Cainiao, is at the center of a development that is arguably just as important: streamlining the customs process to speed up cross-border delivery.

Where once the process was largely handled offline—still with paper forms, no less—Cainiao now has a direct digital link to Chinese customs that allows for more accurate tracking and faster handling of goods that Chinese online shoppers purchase from overseas retailers. That’s because Cainiao, which runs a logistics information platform that links a network of logistics providers, warehouses and distribution centers, is a relay point for the three pieces of information that customs requires for every order: the transaction, payment and shipping data.

Up until now, getting that information to customs has been somewhat akin to herding cats. Typically, the merchant submitted the transaction and payment information to customs, while the logistics provider sent in the shipping data, again, often in hard copy. This slowed the overall delivery time to consumers. But when consumers buy cross-border using Alibaba Group’s ecosystem of e-commerce sites such as the Tmall.com shopping website, online payments provider Alipay and Cainiao, this information becomes digitized and available within the latter’s centralized data system so it can be delivered to Chinese customs for speedier processing.

“This kind of thing is very complicated,” said Cainiao Vice President Wan Lin said. But there’s a payoff in reduced delivery times. With other improvements in international logistics channels, nowadays goods ordered online from Western companies can be delivered in a matter of days instead of weeks, helping to make cross-border shopping a lot more practical and popular among ordinary consumers.

Three to four years ago, only a small segment of China’s population bought overseas goods via the Internet. “Now every college girl can buy cross-border,” said Dennis Zhang, founder and CEO of U.S. e-commerce service provider VoyageOne, which helps companies sell into China. “They don’t feel this is an adventure anymore.”

The integrated customs process has been in a testing phase for about 16 months now, and other companies have since followed suit with their own software links to customs. Only Cainiao is able to submit all of the information required by customs in one shot.

Cainiao’s freight-forwarding partners overseas are noticing the difference. John Hu, vice president at Los Angeles-based GELS Logistics, said his customers’ orders now “take a shorter time and go through more easily.” There are other benefits as well. Because the information goes directly to customs from a trusted partner in Cainiao, GELS no longer has to submit supplementary data such as transaction receipts. The receipts were used to guarantee prices so that customs could calculate the proper tariff, but Hu said that slowed down the shipping process even more.

The system is one piece of a larger push by the Chinese government to encourage the country’s consumers to use the Internet to buy from overseas retailers, which Beijing considers an important step in transitioning the economy from its old manufacturing base to one driven by consumption. Other moves implemented by Beijing include lower tariffs on goods ordered online and the introduction of bonded warehouses dedicated to e-commerce.

Richmond, California- based Nutiva, which sells organic health foods such as coconut oil and chia seeds, stores its products in China using Cainiao’s bonded warehouses, which allow merchants to bulk ship merchandise without being subject to standard commercial import duties when the goods enter the country. The benefits are twofold: lower prices and faster delivery. “Using cross-border [e-commerce] we’re able to more easily get products into the country,” said Vivian Shin, Nutiva brand director for e-commerce and International. The company had been selling in China through U.S. membership warehouse merchant Costco, which has a store on Tmall Global, but began taking orders directly from customers just before Alibaba’s 11.11 Shopping Festival in November.

By storing merchandise inside China, shipping times to consumers’ doorsteps are reduced from about a month to just seven days. In addition, imports channeled through bonded warehouses are taxed at special rates. China’s value-added tax on cross-border e-commerce orders is waived entirely, and the customs duty, which for conventional imports ranges from 0 percent to 100 percent of a product’s price, now ranges from 10 percent to 50 percent depending on the product category.

And in instances where the duty owed on an e-commerce import is RMB 50 ($7.71) or less, fees are waived entirely. That means consumers can buy, say, a RMB 499 handbag, which would regularly carry an RMB 49 duty, without having to pay tax on it.

Cainiao has nine bonded warehouses in China: two in Guangzhou, two in Hangzhou, three in Ningbo, one in Shanghai and one in Chongqing. That’s equal to 1.6 million square feet of space, and plans for further expansion are underway. Wan said the company also is considering warehouses in Shenzhen and Zhengzhou, the other cities chosen by the General Administration of Customs for cross-border e-commerce pilot projects. (Xinhua hasreportedthat the government is planning new pilot zones in several cities, including Tianjin.)

Ron Wardle, the Shanghai-based China CEO for ExportNow, a company that helps retailers sell online in China, says the bonded warehouses are making a marked difference in the efficiency of cross-border e-commerce. “Previously it took two to three weeks for customers to get their products from in-country warehouses, now they’re getting stuff in two to three days if they’re nearby in Hangzhou or Nanjing. Maybe four to five days if they’re in Beijing or Guangzhou.”

Zhang, the VoyageOne CEO, agrees that the improvements in cross-border delivery he’s seen over the past few years have been significant. VoyageOne also partners with Alibaba and Cainiao to get products to Chinese consumers. “This is absolutely helping our overall cross-border business,” Zhang said.

China’s push for more cross-border e-commerce is still a work in progress, however. The government has yet to formalize regulations governing e-commerce imports. Instead it has only set out loose guidelines that customs officials implement as they see fit. The goal is to find the right combination of procedures to best develop and add efficiencies to the import process.

ExportNow’s Wardle called for a flat tax rate for all product categories as another way to boost cross-border e-commerce. Currently the tax rate on cosmetics is 50 percent, while food is just 10 percent. Lower those higher rates, he said, and online sales will grow. He also said that allowing new products into the program, such as liquor, would “open up a whole other world.”

There is some indication that official rules may soon be put in place. Wan and others have said the government is expected to announce standards and procedures early this year, though an exact date isn’t yet known. Wan said Cainiao has been engaged in discussions with the Chinese government to share its knowledge and experience and that he expects, whatever the changes, for the progress in cross-border e-commerce seen so far to continue.

“The opportunity is not just to lower the custom duty and tax,” Wan said, “it’s about achieving a more efficient global supply chain.”