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Insights e-Newsletter

Cross-Border E-Commerce Expands Further Across China

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Businesses looking to enter the Chinese market can take advantage of China’s Cross-border E-Commerce Pilot which has recently been expanded twice in 2020 alone covering more cities and regions, with the promise to expand further into regions and cities across China.

As of January 1, 2019, the Cross-border E-Commerce Pilot was implemented only in 37 cities, including Beijing.

Since then, the program has had an enormous success, and the Chinese State Council has decided to expand the pilot program further.

The State Council approved the first expansion on January 17, 2020, and later April 27, 2020 made the second expansion and the extent of the extensions will open opportunities to a total of 105 cities and regions across the country including Shijiazhuang, Hainan and Xiongan.

Within the one year of operations, the various government ministries had bolstered the program with policies to tackle issues related to standardization of procedures, quality control, and protection of consumer rights and interests.

Last year’s figures from the Chinese customs statistics show that in 2019 the cross-border e-commerce retail imports increased by 16.9% year on year, totalling $12.95 billion US dollars.

Economically the positive impact in the country has seen an enriching of domestic product supply, the development of new business, more consumption, and satisfying the population’s needs.

Cities which have been chosen for the expansion of the Cross-border E-Commerce Pilot contain newly established cross-border e-commerce zones, proactive support for cross-border e-commerce to expand consumption and can accept assistance in the development of the region.

Furthermore, the State Council on April 7th, 2020, improved the pilot program stating that retail export goods under all pilot zones will be exempted from VAT, Consumption Tax and Enterprise Income Tax.

With this year’s expansion and added incentives to the pilot program will inevitably produce an even greater economic return, leading to the realization of the suggested further 86 cities expansion.

Who is this pilot program for?

The Cross-border E-Commerce Pilot provides a perfect opportunity for foreign business interested in introducing their products or services to the Chinese market and seeking to expand globally, without necessarily having to establish an HQ in the country.

Alternatively, this pilot program can make sure that foreign businesses which might be struggling to maintain operations in China because of economic circumstances can still supply their products or services to the Chinese market.

However, before entering the Chinese market, business owners and decision-makers must do their due diligence and take all precautions beforehand.

China’s vast and profitable market can offer success only to those who carefully choose their partners, and online platforms while registering their products, trademarks and intellectual property since China applies a first to file versus first to use system. Trademarks should include the company name, all of a company’s brands, even if there are brands that will not initially be sold in China, to reduce the risk of malicious filing and TM squatting.

Lastly, another critical step to make before entering the market is to create a realistic market strategy for the specific product, service, or market which the business intends to promote. Good market research should be done in advance to understand foreign and local competition in the marketplace, and where the market is within China’s vast market. Proper research and market entry can lead to successes but doing homework in advance is crucial.

Accessing the Cross-Border E-Commerce Pilot

By using a hypothetical UK Company, which has taken all precautions: registering their trademark or intellectual property and has done their due diligence finding a trustworthy agent in China, businesses can understand the process needed to access the Cross-border E-Commerce Pilot.

The first step would be to have an agreement authorizing a company in China to act as an agent to sell the UK Company’s product in China.

Chinese companies must not necessarily be a Chinese E-Commerce Platform Company; it can merely be a Chinese company which is active in the Chinese E-Commerce sector.

Once the agreement has been signed, the agent company will register the UK company to the Cross-border E-Commerce pilot. Typical registration will include the company, goods, tax guarantee and account book registrations.

Afterwards, a deal would have to be made taking into account the goods declaration for entry, warehousing, E-platform services, declaration for delivering parcels, taxation and any other regulations which might be required by each region, city and local government.

Overall the standard documents required are an agency agreement, agent’s customs declaration registration certificate of import and export, the agreement with the Chinese e-commerce platform, ICP license of the affiliated platform, goods information and other documents required by the local government.

The entire process would typically take between two to six months to complete the registration procedures; however, the times greatly depend on the requirements and processing times of the different regions or cities.

Going further, if hypothetically the UK company has a subsidiary WOFE in China, they would still need to find a Chinese company to act as an agent to access an e-commerce platform for selling the products or services, the reason being WOFEs are not allowed to apply for ICP license which is a must to set up an e-commerce platform. Whilst there is a new Negative List currently at the review phase, unfortunately, it will include the ICP licenses as restricted to foreign ownership, something that it is hoped will change soon.

How can LehmanBrown Assist you?

For businesses interested in taking advantage of the Cross-border E-Commerce Pilot, LehmanBrown can assist companies through the entire process from start to finish taking into account any needs and hurdles they may face to make sure all necessary precautions have been taken for them to achieve success.

If you are unsure and would like to find out more, please do not hesitate in sending your enquiry to enquiries@lehmanbrown.com

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