16 May 2017

China Cross-border Ecomm: Intentions Become Clearer

This article was written by Mark Schaub (International Partner) and Chen Bing (Partner).

Many international companies that have seen sales of product rocket via Chinese ecommerce celebrated the March 17 Announcement by MOFCOM (i.e. a press release regarding the supervision of products imported through cross-border ecommerce (“CBEC Products”) during and after the extended grace period) as a signal that the good times will continue to roll. As stated in our previous article[1]we had concerns that many were reading too much into the March 17 Announcement and in particular the Chinese authorities would continue to have concerns about ensuring consumer safety.

Recently, Xiaoming Yuan, the Deputy Director-General of the Financial Department of the Ministry of Commerce (“MOFCOM”) in an interview with Oriental Outlook provided useful background about the context and implications of the March 17 Announcement.

The comments by Mr. Yuan are particularly relevant as MOFCOM has been taking the lead in formulating supervision arrangements for CBEC post grace period since the issuance of the new policies in April 2016. Further MOFCOM’s Financial Department is the key department responsible in this regard.

During the interview, Mr. Yuan provided 5 main points in respect of the March 17 Announcement:

The March 17 Announcement provides a supervision arrangement but does not determine the nature of CBEC products

The March 17 Announcement provides that CBEC products will temporarily be treated as personal items from a supervision perspective. However, he clarified this only relates to supervision measures for a transition period and does not provide a definitive determination as to the nature of CBEC products.

CBEC products will not be supervised like personal items

The March 17 Announcement did emphasize that treating CBEC products like personal items from a supervision perspective was a temporary measure. The March 17 Announcement also indicated the authorities will monitor the safety risks inherent in CBEC products and will need to take measures to further optimize supervision measures. Accordingly, it can be strongly expected that after the grace period CBEC Products will not be supervised like personal items but will evolve their own practices.

Positive list and purchasing quota might be adjusted in the future

  • Positive List: The List of Commodities Importing through Cross-Border E-Commerce Retail (“Positive List”) provides a list of products which can be sold through CBEC model.
  • Purchasing Quota: Currently, for purchasing through CBEC, the value of each purchase should not exceed RMB 2,000, and the annual purchase for each individual shall not exceed RMB 20,000.

There has been a lot of debate as to how the Positive List would interact with treating CBEC products as personal items and also whether the current annual purchasing quota of RMB 20,000 is too strict. We understand that the authorities have been collecting opinions from a number of interested parties and are considering adjusting requirements in this regard. However, this will need to take into account a variety of interests including consumer demands, safety, obligation to supervise products and the development of the CBEC sector.

CBEC enterprise responsibility for quality and safety

The interview does clarify that CBEC enterprises will shoulder responsibility for the quality and safety of CBEC products and also be responsible to inform and warn consumers in case of issues arising. It appears that in the future the responsibility of different companies in the CBEC sector will differ depending on their roles (i.e. third party platform, international company or domestic service provider).

Let’s develop the CBEC sector … but sensibly

Based on the article it is clear that the Chinese authorities do value the continued development of the CBEC sector but also the need to balance this with consumer safety. In this regard it should be noted that the preliminary supervision policy was initially formulated in 2016 and that two extensions to the grace period were granted in order to allow for the continued development of the CBEC sector. The authorities did highlight that they intend to issue detailed new supervision measures in the near future. These supervision measures will attempt to balance the legitimate concerns of a variety of stakeholders but will also seek to allow for a smooth transition from the old policies to the new ones.

Summary

The new background provided by MOFCOM can provide comfort to those who feared a hard stop to the CBEC growth story. It is clear that the Chinese authorities have a strong interest to see CBEC to continue to grow and be part of China’s world beating Ecomm landscape. On the other hand those who hope that no change would ever happen and it would be sufficient to load up the containers and ship them off to China without any supervision may be disappointed by future developments that will likely complicate that business model.


[1]Respite or False Dawn: MOFCOM Hints at Softening of Tough PRC E-commerce Policies. March 27 2017 

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