As we start to pick up work speed post our own Western new year festivities, January 2019 has seen a new e-commerce law take effect in China that will increase regulation of luxury goods. In this article, we will look at some of the key takeaways and impacts for this new regulation.
While the general sentiment is that the rules will have an overall positive impact on the sector, they will certainly change the common business practices that the market has become so used to.
To start, Daigou buying will definitely not benefit from the law. Daigou — meaning “buying on behalf of” – is a term used for people who buy goods overseas so they can bypass China’s import tariffs and pay lower prices. While Daigou's have been hitherto advertising themselves freely on social media platforms like WeChat, they will now have to face up to greater scrutiny.
The tax exemption limit for cross border purchases will also be raised. For single purchases, it will be raised from $288 (RMB 2000) to $720 (RMB 5000). The yearly purchase amount will also go up from $2,900 (RMB 20,000) to $3,780 (RMB 26,000). Under the new limits, buyers won’t have to pay duties on cross-border purchases and will get a 30% discount on consumption tax and VAT.
Luxury brands will surely benefit, however, the overall effect on China’s E-commerce sector and brand adjustment remains to be seen.
Social E-Commerce Will Go Mainstream
Cracking down on Daigou's might be a blow to luxury brands in the short term, but it will help the way goods are marketed and sold in China going forward. And with Daigou’s shrinking influence, customers will inevitably seek out other avenues and methods to purchase luxury goods.
In part, the services provided by Daigou– price and style consultation – could be taken up by E-commerce platforms; however, they will have to insert social elements into their business models.
The implementation of KOL (key opinion leaders aka social influencers) content into e-commerce platforms’ offerings will become more common. We think we will see more e-commerce platforms working together with KOLs who have a loyal fan base to monetize their quality content.
Social media is an invaluable tool for E-commerce platforms. The partnership between the crowd-sourced review forum Little Red Book and powerhouse e-tailer Alibaba’s Taobao has made that abundantly clear. Taobao’s mobile app has a feature in the testing stage that would allow posting Little Red Book’s product reviews to online stores. Little Red Book’s reputation as an authoritative site for international luxury goods analysis made this doubly effective at influencing customer’s buying decisions.
KOL's active on social media channels like Weibo and WeChat could tailor sales content specifically for E-commerce sites in the future, instead of influencing traffic through brand promotion only. Daigou's may provide more content by following this approach. It is very likely Daigou's would give up their cross-border e-commerce business models and join forces with e-commerce platforms to become micro-influencers.
E-Commerce Platforms To Become The Gatekeepers
The standardisation of cross border trade is a key imperative of the new E-commerce law.
In a way, the government is calling on E-commerce platforms to crack down on fraud.
Before, the counterfeiters on E-tail sites were solely held responsible for fraud; the new law shares the blame with the online sales platforms. Failing to catch the culprits - " could result in a 2 million Yuan penalty for the platforms" as stated by Xinhua News.
Smart e-commerce sites have already begun adapting to these changes. According to an executive from a major E-commerce platform, they are taking action to prevent Daigou's from reselling goods. This includes an agreement with the customer that ensures any purchased products are for personal use and not for resale. This will hopefully help the government apprehend and identify Daigou's and tax evaders alike.
To quote the President of Strategic Partnerships at BorderX Lab (an E-commerce platform), Jeff Unze. “ “It’s a good thing for our platforms. We only work directly with merchants, not with wholesalers or any other third party. If anything, it helps us get rid of some of the competition on Taobao and maybe other platforms or resellers who buy directly from the outlet mall. Hence, the law favours everybody. It protects the consumer, it protects their (the government’s) tax, it protects the merchant as well by setting a fair playing ground,” Unze added.
However, as product protection and access to information grows, E-commerce platforms will only compete against each other more fiercely. “This will make consumers more focused on buying luxury within China,” said a representative at the premium lifestyle-commerce platform Secoo. “They will have higher expectations on the actual services that e-commerce provides, and that’s something every e-commerce [platform] will strive for, especially us.”
We hope this article has been informative for you and if you wish to discuss your e-commerce plans for China, please do contact The East West Chinese Marketing Agency via the contact page on this website.