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Cross-border eCommerce (CBEC) explained

09 September 2016

A mouse clicks in China; a cash register rings in Australia

CBEC continues to represent a lucrative direct-to-market avenue for SME’s across a whole range of consumer product categories. For clarity, we are talking about setting up an online shop where the Chinese can order unique Australian product and then shipping it to China. It’s counterintuitive; most of us think the opposite – Australians buying bargains online from China rather than Australians selling a product online to Chinese. However, there is a growing market for uniquely Australian products.

Asialink Business and Food Innovation Australia Ltd (FIAL), Rod Arenas, FIAL market development manager, said e-commerce is already presenting a significant opportunity to a number of Australian companies, especially in the agrifood sector. A sudden tightening in import controls and the introduction of a regulatory taxation regime on CBEC product by the Chinese government earlier this year, however, had caused industry confusion and compliance doubt for a number of Australian CBEC exporters.

However, Australian exporters should breathe a sigh of relief with the welcome news the Chinese Government has now granted a grace period for companies to meet the new mandated requirements for pre-market approvals. Australian products most in demand by Chinese e-consumers are included in the positive list.

Australian exporters are advised to register their products with Chinese authorities as early as possible before the end of the regulatory grace period on 12 May 2017.

Still, confused and wondering what this is all about? Read on…

What is CBEC?

CBEC (or Cross Border e-Commerce) provides significant advantages for Australian SME producers of prescribed products – primarily food and beverage, cosmetics, infant products, electronics and apparel suppliers and manufacturers – providing direct access to consumer markets through popular Chinese e-commerce platforms including Tmall (owned by Alibaba), Jingdong, Dangdang, Yihaodian, QQbuy and Amazon.

Yes, you can set up an online shop on Chinese platforms and do it from Australia. The specifics of how CBEC works are perhaps best explained here. In summary, there are two so-called modes…

Bonded Warehouse Mode
Products on two lists of 1,293 HS codes can be imported into one of 25 approved CBEC bonded warehouse zones across China, or shipped from an overseas distribution centre linked to Chinese customs. These ‘positive lists’ include packaged foods, UHT milk, infant formula and wine. Goods can be imported in bulk through this channel and picked and packed locally for final delivery.

Postal and Courier Mode
Products can also be shipped directly from overseas merchants (B2C) and individuals (C2C) to China via the postal and courier system. This includes products, not on the bonded warehouse positive lists. Similar to the bonded warehouse model, these products are generally exempt from the requirement to be pre-registered with Chinese authorities. No announcement has been made by Chinese authorities how long this exemption will apply.

Why bother?

The number of Chinese consumers online is now more than 32 times the number of Australians online; that’s an enormous market.

Chinese consumers value many uniquely Australian products and the positive outcome of the e-commerce changes facilitates developing a digital shopfront targeting Chinese consumers with improved ability to ship such products into China. For many businesses, if you are finding the online market for your Australian product is lacklustre in Australia – try China, it might be the golden opportunity you are looking for. To state the obvious, don’t try selling stuff they already buy and which are manufactured locally.

50% annual growth

According to McKinsey & Co*, CBEC amounted to an estimated USD $40 billion in 2015, more than 6% of China’s total consumer e-commerce, and it’s growing at an upward of 50% annually.

China currently has 10 pilot cities for CBEC including Shanghai, Hangzhou, Ningbo, Zhengzhou, Chongqing, Guangzhou, Shenzhen, Tianjin, Fuzhou and Pingtan. With the success of the CBEC channel challenging China’s local retail sector, Chinese authorities announced suddenly, in April 2016, a tightening in mandatory controls over the import of prescribed goods through CBEC channels, which will be subject to stricter quarantine and inspection procedures - and introduction of import tariffs, a Value Added Tax and consumption tax applied to goods sold through this channel.

What does it mean for Australian exporters?

The new rules set a higher benchmark for companies using CBEC channels, increasing the requirement for registration of product and increasing end-cost to the consumer.

Changes to requirements will particularly impact the export of dairy product, infant formula, speciality health foods, foods for medical purposes and medical devices, alcohol and cosmetics, which will now require product registration and pre-market approval. While all CBEC exports will be subject to the new tax regulation, on a sliding scale dependent on product classification, the Chinese Government has released a listing of “Imported Commodities for Retail in Cross-Border E-Commerce,” identifying commodities exempt from submitting licensing documentation to Chinese customs.

This included 1,142 different tariff lines covering food and beverages, clothing, footwear, hats, home appliances, cosmetics, diapers, children’s toys and other items. A further listing was subsequently released, including a further 151 items covering meat, fruit, grain, cooking oil, health food and medical devices.

But wait; they’ve extended the deadline

The grace period extends until May 12th, 2017 when exporters will be required to comply with the new regulations.

The rapid way in which the changes were announced caught a number of international businesses (and Chinese distributors) off guard. Consequently, a new Chinese Government circular released late May 2016 established a 12-month grace period until May 2017.

The grace period is designed to provide adequate time to transition to ensure compliant product registration; fulfilling all Chinese labelling, pre-market approval and inspection documentation, certification and administration requirements. Exporters using Chinese CBEC channels are advised to seek independent advice to ensure product compliance in line with changing Government regulations.

Need more help?

JWPM’s dedicated trade specialists, Steve Thompson and Greg Tunny have vast experience in a range of trade negotiations, with a particular focus and understanding of the business context in China. They are available to advise and/or personally facilitate trade negotiations with a developed network of Chinese business contacts.

Further Information

General Information on the rise of China’s Cross-border e-commerce:

Further Information on new CBEC import requirements:

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