Logistics and Cross border system in China.

Today, probably more than ever, the Chinese market is open to global brands looking to sell cross-border. The market is maturing, and it is now more organized and structured than in past years, adhering to a strict set of standards.

According to China Business Intelligence Network News, all these variables have a good impact on the market size, which has experienced remarkable growth of about 20% yearly in both 2020 and 2021. In 2021, the total value of cross-border eCommerce is expected to reach 14.6 trillion yuan (2.3 trillion USD).

But if the Chinese E-Commerce market is getting more and more popular through the development of events such as Double 11 and amazing sales performances, as generated by Alibaba group, the logistic supply chain still remains an important challenge for foreign companies.

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?While considering online sales, foreign companies are given the choice to operate through domestic platforms or through Cross Border E-Commerce (CBEC).

?From a common fact, operating in China mainland has never been easy as companies are required to go through a specific process including the registration of the company’s products, Chinese trademark, and business license, just to quote a few.

However, it has never been simpler to sell to China from outside the country than it is today. The Chinese government has made a significant effort in making cross-border eCommerce operations as simple as possible, with defined channels and regulations.

?The bonded warehouse model, for example, has been more and more popular for foreign companies due to its low-cost approach, efficiency, and tax savings advantages.

In this article, we’ll determine the top 3 e-commerce platforms for Cross Border operation and analyze in-depth the bonded warehouse concept to sell your items in China from abroad.

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TOP 3 CROSS BORDER E-COMMERCE PLATFORM

1. TMALL GLOBAL

?Tmall Global, which was?launched in 2014, is the world's largest cross-border marketplace for international companies. It is run by Alibaba, the Chinese eCommerce giant that also owns TaoBao, Lazada, and the domestic?version of Tmall.

?Tmall Global, unlike Tmall, is not available to?domestic?enterprises; instead, the platform exclusively works with international companies having actual presence in foreign?countries. To open a store on?that platform, companies must have registered an international?trademark, or at least get the trademark authorization from the official brand owner.

Tmall Global has been recognized as a leading platform aiming to cooperate with?the world's top brands,?offering?high-quality items to customers. The platform intends to cater to China's high-end consumers while answering?their growing desire for high-end products and?leveraging their increasing?purchasing power.

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2. JD WORLDWIDE

?Launch by Tencent in 2015, JD Worldwide has been created as an answer to Alibaba's CBEC platform and therefore competes in the cross-border market.?JD Worldwide or also called, JD Global,?has been succeeding?by exploiting the vast user base of JD.com, which is?China's second-largest?marketplace.

JD Worldwide offers almost 10 million SKUs from nearly 20,000 different brands. As an example, we'll find there electronic products, but also nutrition and healthcare,?household appliances, and automobile-related things, just to quote a few.

?JD Worldwide is organized into several national and regional "pavilions." The present focus of the worldwide cross-border eCommerce platform is?on exports.?

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3. VIP INTERNATIONAL

VIP Shop is China's third-largest B2C marketplace and top flash-sale eCommerce platform, and its cross-border branch follows in its footsteps.

VIP International, which was founded in 2014, guarantees the authenticity of all items offered on the site. VIP International, like Kaola in its early years, is self-operated and relies on direct international sourcing as well as its own wing of delivery partners. As a result, it can transport some commodities from its metropolitan warehouses in as little as 12 hours.

However, there are indicators that cross-border eCommerce is no longer a top focus for VIP Shop, since the link to the foreign site is no longer visible on the main site.

CHINA LOGISTICS

In the past, any foreign merchant intending to sell in China faced significant obstacles due to an undeveloped and inefficient logistical system. However, in recent years, the rapid expansion of eCommerce and the government's succession of five-year plans have resulted in massive infrastructural improvements in China.

China now offers a modern logistics infrastructure, with over 240?airports and a large high-speed rail network. Furthermore, the government is now?establishing a growing number of formally approved National Logistics Hubs. In 2020, 22 more hubs were added, and?25?more in 2021, bringing the total to 70.?The government is now?aiming for 150 by 2025.

Foreign businesses willing to sell in China nowadays must be aware that Chinese customers have grown high?expectations regarding the delivery system, while we'll note "fast" and "reliable" as two main keywords. Products are increasingly likely to be delivered within 24 hours, particularly in Tier 1 cities in the East part of China, where many internet shoppers are located. Popular commodities may now be delivered within hours thanks to expanding metropolitan warehouse networks and developments in logistics technology.

It is no longer difficult to get your items from one place to another. Finding the right?logistics solution to satisfy your?customers, on the other hand, can be challenging. In the following part, we'll?go through the various import methods and the different?advantages that bonded warehouses may bring to foreign companies.

CBEC Bonded warehouse

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The logistic solutions that come along with?China's ecosystem?are constantly?evolving. Import customs clearance and restrictions are the most difficult aspects of logistic solutions. Getting your goods to the buyer isn't difficult, but factors like import licenses, product registrations, and customs restrictions may?complicate the process.

History...

Cross-border eCommerce began with sales made by Chinese people living overseas who offered foreign items on Taobao. In response to the?outbreak of these?"semi-legal" shipments, the Chinese government appointed 6 cross-border eCommerce comprehensive experimental cities in 2012. These comprehensive pilot zones were?designated locations that provided?a favorable business climate and infrastructure for cross-border eCommerce, usually near trading?ports and hubs. The fundamental element of these pilot zones is the current place defined as a "bonded warehouse".

?Ever since, the amount of CBEC?pilot zones has increased significantly, with new zones being added on a regular basis. In April 2020, we counted over?105 pilot zones spread over 30 provinces, autonomous areas, and municipalities in China.

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Import Model

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For cross-border eCommerce to China, there are now two basic import models: bonded imports and direct purchase imports. The bonded imports concept may then be separated into two categories: bonded warehouse and direct mailing.?

In China, a bonded warehouse is a structure or secured location in a special area monitored by customs?where dutiable products are stored prior to duty payment. This typically means?that goods arrive sooner.?

As defined by the bonded warehouse method, products are imported in bulk into a designated?warehouse specifically approved for cross-border e-Commerce. Then, once Chinese consumers place an order on an online?platform (example: Tmall Global), the purchased?items clear customs.

Importing products listed?on the Positive List has the advantage of quicker product registration and customs clearance. Furthermore, overseas merchants have the option of deferring import duty and VAT costs until the moment of sale.

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The direct mailing model, on the other hand, starts when Chinese customers make an order on a registered cross-border eCommerce website or platform. Following that, these platforms will send the order, shipping, and payment records to customs. The items will be released from an overseas warehouse by direct mailing once VAT and customs fees have been paid, allowing them to pass through customs more promptly before being sent to the customer.

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The flowchart above also depicts the direct purchase imports model, which is more or less applicable to items that are not on the positive lists but must be sent directly from foreign merchants via postal and courier systems. On the other hand, the speed of the process will be here one main difference. Because items imported through direct purchase imports may face a more complicated registration process and customs clearance.

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Tax Reforms

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Cross-border eCommerce has been recognized by the Chinese government as a unique import channel, and the General Administration of Customs created numerous pilot zones in 2014. The policy was then changed in 2016, and several times after then, in collaboration with the Ministry of Finance.

Prior to the policy change, personal parcel tax was applied to purchases made through cross-border eCommerce for 'personal use. However, if the payable tax was less than 50 RMB, the parcel tax was waived.

The "Tax Policy for Cross-Border eCommerce Retail Imports" was released on March 24, 2016. Following this, consumers who buy items worth a particular amount through CBEC,?and whose?information is?accessible by customs,?must pay import taxes such as tariffs, VAT, and consumption tax.

When the Ministry of Finance, the General Administration of Customs, and the General Administration of Taxation released a circular in?2018, the thresholds and parcel rates were changed once more.

When purchased under the limits of 5,000 RMB for single transactions and 26,000 RMB per person per year, the preceding items now have a reduced 70% VAT and consumption tax rate, as well as a 0% duty.

If customs are unable to obtain the details of products imported through CBEC, new parcel tax rates will apply. The parcel rates now stand at?13%, 20%, and 50%, with exemptions available for tax amounts below 50 RMB.

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Products Positive list

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In parallel with the tax policy reform, the Chinese government released two versions of the "Positive List," which replaces the previous "Negative List" and restricts the types of commodities that may be sold via cross-border eCommerce.

As per the positive lists, only commodities with HS codes can now?be imported and sold via CBEC, while all other goods must be imported via the general trade model.

Following a few modifications, the current edition of the Positive list now includes over??1,400?product categories that can be imported into one of China's 15 authorized pilot zones. The product can thereafter be housed in a bonded warehouse.?

For items on the Positive List, a Direct Selling model is also available, allowing them to be shipped from an overseas distribution center linked to Chinese customs without the need for an import license or certificate.

Would you like to know more about cross-border e-Commerce in China? Or would you be interested in knowing the most suitable platform and e-Commerce strategy for your business in 2024 ?

?Feel free to PM me!

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Reference:

“China bonded warehousing and cross border e-commerce tax reform”, TMO Group. 2022