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Qzone

Shanghai free trade zone launches pilot cross-border e-commerce platform

1. Experimentation and replication

Photo: E-commerce players in Shanghai FTZ can adopt the 'import through bonded warehouse' model.
E-commerce players in Shanghai FTZ can adopt the "import through bonded warehouse" model.

The establishment of the Shanghai FTZ has drawn wide attention, with an endless stream of businesses rushing to apply for registration within its boundaries. The relevant administrative departments of the state and the Shanghai Municipality – such as the National Development and Reform Commission (NDRC), the State Administration for Industry and Commerce, the General Administration of Customs (GAC), the China Banking Regulatory Commission, the central bank and the inspection and quarantine departments – have all issued detailed rules regarding the implementation of the initiative, as well as expressing opinions in favour of its establishment. The 2014 negative list with regard to foreign investment is also being agreed upon. 

While the pilot FTZ project is progressing very much according to plan, preparation work for replicating the Shanghai model is already underway. A number have media reports have suggested the possibility of establishing free trade zones at the Zhoushan Archipelago New Area, the Tianjin Binhai New Area and in the Guangdong-Hong Kong-Macau region. Such plans are already said to have been submitted to the State Council, with the value of some FTZ-concept related stocks increasing as a result.

2. Support policies launched on pilot basis

Earlier, the NDRC and GAC jointly launched a pilot project focusing on cross-border e-commerce services. This is to be tested in the first batch of five state-level pilot cities, including Shanghai and Ningbo. The cross-border e-commerce import services under evaluation in the pilot cities will follow the B2C business model, with E-commerce enterprises in the bonded zone allowed to import specified goods. After making any required import declaration, these goods can then enter the bonded area and be stored in the bonded warehouses. When the goods are sold online, they can be declared for exit as personal items. The e-commerce enterprises concerned will be responsible for customs clearance and for paying the “luggage and postal item tax”.

Through the implementation of the cross-border e-commerce import business pilot project, a transparent, open and convenient channel of cross-border online purchase has been made available for Chinese consumers. Unlike online shopping from overseas e-commerce websites or via purchasing agents, this pilot project allows e-commerce enterprises to carry out centralised purchases, significantly lowering both the purchasing and logistic costs.

At the same time, the entire operation process - from import, inspection and quarantine of products to selling online - is being supervised by competent authorities, thereby guaranteeing the quality of the products concerned and avoiding the risk of after-sale problems. The pilot project will also promote the transformation of traditional importers, enabling them to provide imported products to consumers through domestic e-commerce platforms. It is envisaged that domestic e-commerce operators will gradually play a greater role in cross-border e-commerce, something that has, to date, been dominated by overseas e-commerce enterprises.

As one of the first projects launched by the Shanghai Pilot FTZ, buyeasi.com has just completed its trial run and will officially commence operation following approval from the GAC. The website adopts the model of direct sales from warehouse to individual customer, facilitated by importing through bonded warehouses and selling online to consumers. The website focuses on providing mid to high-end products in six major categories, including clothing, accessories, baby and children’s products, consumer electronics, cosmetics, luggage and handbags.

3. Expected impact of buyeasi

It is expected that after buyeasi.com formally commences operation, it will have a demonstrable impact in several areas.

i. Its price advantage will affect current vendors selling similar imported products

Since the “luggage and postal item tax,” levied (of about 10%) is much lower than the import and other related taxes, the prices of imported products offered by buyeasi are expected to be about 30% lower than that of the same products selling at specialty counters elsewhere in China. This will certainly have a tremendous impact on the business landscape and the operation of department stores, shopping malls, specialty shops, outlets, supermarkets selling imported food, online trading platforms and purchasing agents.

Using the “import through bonded warehouse” model, buyeasi.com carries out its business operations in the FTZ, but its sales are not confined to that zone. It will not only reach customers throughout the whole municipality of Shanghai, but will also transcend the typical regional barriers in terms of traditional retail business and serve the entire country. Its impact, then, will certainly be felt well beyond Shanghai.

ii.  Reduction in the mark-up of imported goods  

In recent years, with the continuous appreciation of the Renminbi, the retail price of products imported to China should have continually adjusted downward. In reality, however, the price of many has remained constant, still commanding a high value and a high profit margin. The direct sales model adopted by buyeasi.com will narrow the price difference between those imported consumer products sold in China and those sold overseas, helping to restore the market for purchasing luxuries that has moved offshore. It is expected that, in order to cope with the impact, a number of marketers selling similar imported goods will become less aggressive in terms of pricing. This will help bring down the price of imported products, which have been unduly inflated to date, yielding tangible benefits to consumers.

iii. Advantages of the proper platform

The retrial of a former flight attendant who was sentenced to 11 years in jail for smuggling cosmetics concluded in mid-December last year. Although her sentence was reduced to 3 years, she was still found guilty of bringing in items from overseas and not declaring them on arrival at the airport. The case received wide attention from the public and served as a stark warning to those engaged in similar activities.

As the government is investigating and dealing seriously with online sales of smuggled goods, a legitimate cross-border e-commerce platform can give its advantages full play. Goods on offer at buyeasi.com have all paid the requisite “luggage and postal item tax” prior to customs clearance. When going through customs, after verifying the unique 2D barcode carried by all buyeasi.com products, customs officers can then arrange for the goods to go through the express green channel. The prices of products available via buyeasi.com are, thus, highly transparent. Apart from listing the retail prices, the amount of import tax and logistic cost is also clearly marked.

The most innovative aspect of buyeasi.com is its use of the “import through bonded warehouse” model, enabling the operator to achieve drastic reduction in logistic costs while guaranteeing that the products are genuine and have, indeed, been shipped in from overseas. All partnering vendors on the platform must complete the required record filing with the customs authorities and proof of tax payment must be issued to all customers. The platform can also track the movement of its goods through the electronic management system governing its entire business process.

Qi Xiaozhai, Special Correspondent, Shanghai

Content provided by Picture: HKTDC Research
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