A new e-commerce law in China will take effect on January 1, 2019, further regulating the country’s online luxury sales market. The new rules are generally interpreted as positive for the industry, but they will certainly change the way brands do business in China.
A practice that will certainly not benefit from the law is daigou purchase. Daigou – which means “buying on behalf of” – are buyers who buy luxury goods abroad, where these goods cost less and do not incur China’s high import tariffs, for customers in China . Daigou are increasingly being promoted on social media like WeChat, but they will now come under scrutiny for their undocumented practices.
In addition to regulating daigouthe law too raises tax exemption limit for cross-border purchases. The single purchase limit will increase from $288 (2,000 RMB) to $720 (5,000 RMB), and the annual purchase amount will increase from $2,900 (20,000 RMB) to $3,780 (26,000 RMB) . Cross-border purchases under the new limits will be duty-free and receive a 30% reduction on consumption tax and VAT.
This is good news for luxury brands hoping to sell more expensive items, but how will this law change online shopping in China? And more importantly, how will brands adapt?
Daily Jing spoke to experts in the fields of e-commerce and influencer marketing, as well as some of the sales platforms themselves, to find out.
Social e-commerce will become mainstream
In the short term, the repression against daigou could be a major revenue stream for luxury brands, but in the long run it will protect how products are presented and marketed in China. And even with a shrinkage daigou market, this law will not necessarily prevent consumers from seeking other methods of purchasing luxury goods.
Part of the benefits daigou provided – price and style consultation – could be assumed by e-commerce platforms, provided they can insert these social elements into their businesses. “The implementation of KOL (key opinion leader) content into e-commerce platform offerings will become more mainstream,” said CEO of global marketing agency Kollective Influence, Charlie Gu. “I think we’ll see more e-commerce platforms working with KOLs who have a loyal fanbase to monetize their great content.”
E-commerce platforms would do well to collaborate more with social media sites, as demonstrated by the partnership between crowdsourced review forum Little Red Book and powerful e-tailer Alibaba’s Taobao. On December 29, 2017, news broke that Taobao was testing a new feature on its mobile app that would allow sellers to post Little Red Book’s product reviews in online stores. Since Little Red Book has become widely known as a go-to site for international luxury goods expert analysis, this additional information on Taobao helps to significantly speed up users’ buying decisions.
According to Gu, KOLs who are active on social media channels like Weibo and WeChat could create more personalized sales content for e-commerce sites in the future, instead of just driving traffic to brands. Likewise, daigou can evolve their roles to provide more content. “It is probable daigou would drop their cross-border e-commerce business,” Gu said, “and partner with e-commerce platforms to become full-fledged micro-influencers.”
E-commerce platforms will act as gatekeepers
One of the main purposes of the new e-commerce law is to normalize cross-border trade, and in a sense the government is asking e-commerce platforms to act as gatekeepers to prevent fraudulent activity.
Previously, counterfeiters on online shopping sites were solely responsible for the sale of counterfeit products, but with this new law, online shopping platforms will share the responsibility. If the platforms fail to catch the culprits themselves, they could face 2 millions yuan in penalties, according to Xinhua News.
Smart e-commerce sites are already stepping up to prepare for these changes. An anonymous executive from a major e-commerce platform told us how the company has protocols in place to prevent daigou to resell and require that all customers explicitly accept that the products purchased are intended for their own use and not for resale. The aim is to allow the government to easily identify and collect evidence against daigou or other tax evaders.
“It’s a good thing for our platforms,” said Jeff Unze, president of strategic partnerships at e-commerce platform BorderX Lab. “We only work directly with traders, not with wholesalers or any other third party. On the contrary, it helps us to get rid of some of the competition on Taobao and maybe other platforms or resellers who buy directly from the mall.
So, in theory, the law is good for everyone. “It protects the consumer, it protects their tax (from the government), it also protects the merchant by setting a level playing field,” Unze added.
“Alibaba has closely followed the progress of the formation of China’s e-commerce law,” said the group’s spokesperson, “we hope the introduction of the new law will bring positive development to the industry. .
But as Chinese consumers get used to more protections and product information, competition among e-commerce players in China will only intensify. “It will make consumers focus more on buying luxury goods in China,” said a representative of high-end e-commerce platform Secoo. “They will have higher expectations on the actual services provided by e-commerce, and this is something that every e-commerce [platform] will strive to achieve, especially us.