New regulations in China aimed at ecommerce took effect on January 1, 2019.
The updated regulations should be welcome news for both advertisers already targeting Chinese shoppers and those who are looking to test out the market in 2019. Although short-term disruption in the cross-border shopping market is anticipated, the long-term health of the cross-border shopping market in China has never been better.
What do the new regulations do?
There are three different measures that will impact cross-border shopping:
- Higher tariff exemption limits for imports on cross-border purchases
- Better regulation of counterfeit goods on Chinese ecommerce platforms
- Stricter regulation of daigou (“buy-on-behalf”, re-sellers)
How will they affect cross-border shopping?
China appears to be officially embracing the cross-border market in 2019. The new ecommerce regulations raise the limits for tax exemption on purchases made overseas and sent to China in the following ways:
- Individual purchase limit: 2000 ($288) to RMB 5000 ($780)
- Annual purchase limit: RMB 20,000 ($2900) to RMB 26,000 ($3780)
These new limits will be a boon for luxury brands and retailers. Higher limits on individual purchases translates to a wider range of products shoppers can buy and will lead to growth in AOV.
The new regulations also target counterfeit goods sold in China by holding platform operators (e.g. Tmall, JD.com) liable for individual sellers. Ecommerce platforms can be fined between $70,000 - $300,000 if their approach to fighting counterfeits is found to be lacking. Fewer fake goods means more confident online shoppers in China, leading to greater willingness to buy luxury products online. This measure, combined with the higher tax exemption, will further strengthen the cross-border market for luxury brands, providing greater revenue opportunity for advertisers in the affiliate space.
What are daigou and how do they factor in?
Daigou, directly translated, means “buy-on-behalf”, but is used to refer to Chinese gray market re-sellers in general and can take many forms. These re-sellers capitalize on the pricing discrepancy for foreign brands sold in China vs. their pricing in the US and other markets and can make significant profits. The new regulations take a stricter approach to daigou, requiring them to register with the government and pay taxes on all profits earned from re-selling.
Stricter regulation of gray market re-sellers in China is good for foreign brands, allowing them to better control pricing and brand image. However, some daigou use loyalty sites as a way of increasing their profit margin, so advertisers may see a slowdown in growth of Chinese loyalty publishers at the beginning of 2019.
What does this mean for retailers in 2019?
The new ecommerce regulations make it abundantly clear that the Chinese government values cross-border shopping. Average cross-border consumers will be empowered by higher tax-exempt thresholds while the crackdown on daigou will enhance the quality of conversions in the affiliate channel. Limited short-term softness in growth may be the one downside of enhancements to the channel’s long-term health. For brands looking to leverage affiliate and grow their cross-border sales to China, there has never been a better time!
Have questions or need help connecting with the right publishers?
Trying to tackle the Chinese market can be daunting. CJ has the resources available to help advertisers integrate with Chinese publishers and the expertise to optimize the channel for those already working with affiliates in the cross-border space. Reach out to your CJ contact to learn how to better work with the market that accounts for over half of all ecommerce transactions in the world!