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Two cross-border e-commerce trade modes to get your business China-ready

2018-09-04 6 minute read China

Entrance to the Chongqing Comprehensive Bonded Zone

China’s e-commerce route is hard to ignore no matter what stage your business is at exporting. We’re looking at the two main import modes to help you understand the options.

China, the largest and fastest growing e-commerce market in the world, accounts for 40% of global e-commerce transactions. Now it’s entering a new era of setting the benchmark for present and future global retailing.

Cross-border e-commerce started as Daigou (海外代购, hǎiwài dàigòu), meaning ’overseas personal shopper’, around 2005. It’s a channel of commerce in which a Chinese individual living abroad sells foreign products to a customer in mainland China.

Emerging to fulfil consumer needs, it marks the start of China’s consumption upgrade.

China’s fast growing middle-class rapidly accelerated the cross-border shopping phenomenon. So fast, in fact, that China’s custom clearance didn’t have a stable system and service method to support it right away. There were losses of large amounts of foreign trading earnings, taxes, and high logistics costs.

In response to the outburst of these semi-legal cross-border shipments from overseas individuals, Chinese government began to establish designated areas of cross-border e-commerce comprehensive pilot cities. Generally near large trading ports, these zones provide favourable business environments, bonded warehouses and key infrastructure support for cross-border e-commerce.

In total, China now has 35 cross-border e-commerce pilot zones with individual e-terminals supervised by China customs. The pilot zones all differ slightly in terms of regulations and infrastructure, as they further specialise in particular products categories or businesses.

Cross-border e-commerce, as a new international trade model, has also brought huge challenges to China’s customs supervision. Since 2014, customs has regularly introduced new trade supervision methods, exploring innovative ways to help the industry develop in a well-regulated and systematic way.

In 2016, the General Administration of Customs added the “1239” supervision code, referred to as “bonded e-commerce A”. China has since implemented the supervision and service systems to more places bringing the entire industry on to the fast track.

Import Methods

Currently, there are two main import models for cross border e-commerce trade, namely direct purchase import and bonded import.

Direct purchase import model

The General Administration of Customs issued the No. 12 announcement in 2014 to promote the development of cross-border e-commerce retail import and export, and facilitate the customs clearance process. On February 10, 2014, the customs supervision mode code “9610” was added. It applies to transactions done via e-commerce platforms for domestic individual orders, and e-commerce companies and platforms that carry out e-commerce retail imports.

Chinese consumers will first place an order on a registered cross-border e-commerce website/platform. Once the order is received, the platform will submit the records of the order, shipment, and payment to customs. All products selling via the cross-border e-commerce platform have to be pre-registered with customs.

Direct purchase model diagram (©ACOLINK.COM)

VAT and customs duties are accounted for at the time of dispatch from an overseas warehouse (supplier) via direct mailing. This will pass through customs more efficiently before the last-mile delivery to the end consumer. The standard delivery time, from order submitted to customer receiving it, for direct purchase import model is between 10-15 days.

Bonded import model

A bonded warehouse is a secured area or a building in a special customs supervision area in China in which dutiable goods are stored before payment of duties. Once the goods land in bonded warehouse, they will be under customs supervision and cannot be removed or transferred unless granted by Customs.

Under the Bonded Imports Model, products are imported in bulk into approved cross-border e-commerce warehouses within the pilot cross-border e-commerce zones in China. Products which are listed on the Positive List can be stored in bonded warehouses and can benefit from the faster product registration and simplified customs clearance procedures.

Bonded import and fulfillment model diagram (©ACOLINK.COM)

When a Chinese consumer places an order on a registered e-commerce platform the order is prepared for dispatch from the bonded warehouse, cleared with customs, and delivered to the customer directly. Import duties and VAT are paid at the time of actual sale. The standard delivery time from customer placing an order and receiving it is between 3–7 days.