China: Cross-Border E-Commerce Operators: Be Vigilant From 2019

Last Updated: 15 October 2018
Article by Jamie Rowlands and Le Rong

In this insight, we proposed several points to be considered when operating import issues in China via the cross-border e-commerce channel in that the new regulation customised to cross-border e-commerce will be released from 2019.

Cross-border e-commerce continues to flourish in China. It is big business with estimates that Chinese consumers have spent more than $1 trillion in online purchases globally since the beginning of 2018.

While the huge rise in cross-border online shopping is good for consumers, it raises challenges for the government in China due to issues such as product safety, regulation of cross-border e-commerce and the threat it poses to the stability of the domestic market. Consequently, on 8 April 2016, the Chinese Government released a set of rules (the "April Policies") to regulate cross-border e-commerce ("CBEC").

The April Policies were an attempt to oversee product safety, optimise the taxation structure of CBEC imports and redress an imbalance between offline and CBEC import channels. However, they have not been well-received by the public. The formalities and procedures are stringent, unclear and impractical. Full compliance with the April Policies risks grinding the whole industry to a halt. A transitional period for the April Policies has, therefore, been introduced to last until the end of 2018.

Meanwhile, the E-commerce Law of PRC ("E-commerce Law"), which regulates the sale of goods and the provision of services through the internet, will also come into effect on 1 January 2019. CBEC import business operators ("Operators") will also be subject to the E-commerce Law.

It is vital for Operators to understand the impact of these laws and regulations and what they need to be doing to get ready for changes that will come into effect at the start of 2019. In this article, our experts point out three key changes and suggested solutions that may be helpful to Operators:

1. Registration and filing requirements will be stricter than before

The April Policies have suddenly raised the standard and requirements regarding registration and filing of health foods, cosmetics and infant formula (products which require strict regulation for the safety of consumers) for Operators. Prior to the introduction of the April Policies, goods imported through the CBEC channel were exempt from regulation, whilst goods produced by domestic manufacturers or imported through the traditional offline channel underwent time-consuming and costly regulation by several authorities such as the State Administration for Industry and Commerce, the China Food and Drug Administration and the General Administration of Quality Supervision, Inspection and Quarantine of the PRC. This significant imbalance of efficiency in favour of the CBEC channel influenced the inclusion in the April Policies of a list which limits the scope of goods that can be imported through the CBEC channel.

In order to redress the imbalance, authorities will release new policies that will reduce the impact that the CBEC channel has on the domestic market and increase the safety of consumers.

We recommend that Operators make themselves familiar with the relevant product registration and filing procedures, and engage professionals in the sector that are able to assist with going through possible policy hurdles. This will ensure sales to Chinese consumers remain stable in spite of the implementation of the new policies in 2019.

2. More documents are needed when clearing goods at Customs

Under the April Policies, Operators who import goods into bonded warehouses are required to provide Customs with a set of documents: the agreement with the manufacturer, the certificate of origin of the goods, the bill of landing etc., which can be challenging for Operators to provide as they may merely be an intermediary in a long supply chain and cannot gain the original documents from ultimate manufacturers. Before the April Policies, the Operators were only required to submit three documents to Customs for clearance: the order confirmation, the payment slip and the transport documents. This streamlined system was considered to be one of the primary advantages of CBEC imports.

Chinese authorities understand that the request for such clearance documents conflicts with the practice of CBEC imports and amendments are therefore needed to reflect the critical opinion of the public. It is predicted that Customs will create a new system to make the CBEC import clearance more efficient and convenient to adapt to the patterns of e-commerce.

Therefore, it is suggested that Operators select a reputable e-commerce platform that is skilled enough to comply with a new system in the event that one is announced. High-efficiency is important to Operators and a reliable platform with provisions to clear your goods is the key to the successful business of an Operator.

3. Personal data protection is tightened up

The E-commerce Law stipulates that whoever engages in business activities through the internet must comply with the provisions of personal data protection when collecting and using personal data of users. E-commerce platforms track and collect personal data to create a user profile, which means that the platform can accurately market and sell to the target user.

Personal data protection is becoming increasingly regulated in China. Laws such as the Cybersecurity Law of China, and regulations such as Protecting the Personal Information of Telecommunications and Internet Users focus on preventing users' personal data from being leaked illegally with severe penalties set to the data holder in the event of a leak or other misuse. The laws apply to e-commerce platforms and Operators alike.

Since it is usual practice for Operators to collect users' names, addresses, mobile phone numbers, ID card numbers and their shopping preference and to use this data for business purposes such as marketing and advertising, it is recommended that Operators improve their internal regulations on their daily processing of data, and keep users' data confidential in accordance with the legal requirements.

To summarise, the end of the transitional period for the April Policies and the coming into effect of the E-commerce Law will bring a new era to e-commerce in China. It is evident that the regulations on e-commerce will become increasingly systematic and impactful.

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