"Regulating" China Crossborder eCommerce: Posturing and a Policy of Appeasement

Takehome

• In my opinion there is no doubt that China will institute an extended grace period for CBEC sale of foodstuffs that don't comply with China's food safety law and the various requirements in China's national food safety standards and product standards. Health foods, nutrient supplements, infant formula and other key commodities will continue to sell on China's CBEC platforms for the foreseeable future given the extreme importance of this sector to China's economy and the role China's food industry will play in its future economic development plans 
• The current regulatory uncertainty on CBEC regulatory requirements stems from AQSIQ's ambiguous requirements for customs clearance certification, State Council discussions on grace periods and release and amendments to the 2 batches of CBEC positive lists.
• This regulatory posturing may appease groups that have raised concerns relating to the development of an anti-competitive marketplace with one food safety law for traditional sales and another one for CBEC. It will also help to address food safety concerns centering around the lack of testing and basic compliance requirements for CBEC food products and justify the billions spent on food safety administrative restructuring and capacity building, new legislation and regulation.
• At the end of the day its likely to be ...business as usual and a greenlight for international products without Chinese labels, with functional claims and ingredients outside the regulated scope and everything else in between. 
• There is a loud and strong lobby from bricks and mortar sales channels that have suffered great financial losses due to the growth in CBEC. However their influence pales in comparison to the importance of CBEC as a tool to realize China's economic development plans as it transitions to its new normal growth.

Rest at Ease CBEC Investors and CBEC Traders: New Normal Growth to the Rescue

Similar to the Mayan calendar 2012 doomsday pronouncements, the grave forecasts made on China's economic outlook in 2016 by many high level economists have so far proved largely unfounded. While" preppers" gathered cans of beans and other non perishables to make ready for 2012, with a similar logic many economists warned investors to make provisions for the upcoming collapse of China under the weight of clandestine deals undertaken in the murky world of China's shadow banking system. Sure there's been a "slowdown" but as an Irishman I reckon I can recognize a collapsed economy when I see one and the signs of economic strife just aren't present here in China. While 6-7% growth overall will have to do, other sectors of China's economy are thriving as it transitions into its new normal growth phase. One of those sectors is China's imported food sector (+15% growth) which China has earmarked for special attention. Double digit growth in this sector coupled with the massive growth of CBEC make these two sectors a perfect economic development tool for China to transition away from its reliance on primary and secondary industries and channel energy towards growth of a consumer driven economy. 

China's Food Industry and CBEC

I've written extensively on the reasons for China's food safety issues, the strategy the government is adopting to rectify its biggest food industry problems and the overall impact new reforms, laws and regulations have had and will have on international trade. The food industry's relationship with CBEC is a match made in heaven. China can boast one of the most digitally integrated consumer shopping environments in the world. Its a world of ultra efficient logistics, QR codes, online and mobile payment, Wechat Hongbaos, Taobao, Tmall, YHD and JD.com and roughly 600 million mobile consumers using mobiles to shop, pay, track, collect, return, follow and engage. Its hard to do it justice but I've not seen close to this level of integration anywhere else in the world.

The development of China's unmatched digital sales environment combined with food scandals precipitated the current unrelenting demand for imported foods such as infant formula and health foods. With strong technical barriers to trade in place international health foods and infant formula became extremely hot commodities in China. This paved the way for the organic development of a huge online network of individual sellers using China's vast and powerful social media networks to sell illegal imported goods imported through black and grey market channels. The development of CBEC is really just the Chinese government harnessing what was already happening in the food market, applying a modicum of administration and most importantly a nice markup in the form of tax. 

Dr Jekyll and Mr Hyde: Traditional Sales and CBEC

CBEC will be ultimately regulated but not until the ink has dried on contracts and mergers and acquisition deals between Chinese enterprise and relevant multinational companies in the health food and infant formula sector. Until that time regulation will just divert imports to black market channels and refuel growth in this sector which could derail China's economic development plans.  At the end of all this upheaval the non compliant health foods/supplements , infant formula and some other important products will still be on sale and China's Dr Jekyll-Mr.Hyde regulatory requirements for traditional sales and CBEC sales channels will continue. The current posturing is just an appeasement strategy aimed at a strong lobby from traditional sales channels, and a justification for billions spent on food safety legislative reforms and administrative restructuring in China's food sector. 

Further Reading

• Closing the Can of Worms
• China Crossborder eCommerce: Lean Market Access
• China eCommerce : A Crocodile in the Yangtze or a Fish in a Bowl ?
• AQSIQ CBEC Facilitation Measures