Shipping & Logistics

Halfway around the World and (not) back: Shipping to China

Infrastructure

Since 2012, the Chinese government has rolled out favourable policies to promote cross-border ecommerce development by setting up pilot zones in various cities for cross-border ecommerce import services, implementing favourable tax rates and policies including a streamlined application process and simplified customs clearance procedures. Cross-border ecommerce enables overseas retailers without Chinese business licenses to sell their products more easily and conveniently. Many foreign retailers have used the new business model to test the market in China before actually setting up businesses in China. [1]

There are two ways to approach the market via cross-border ecommerce:

  • Sell through the company’s existing foreign (non-Chinese) website It is the easiest way to approach the market however unlikely to yield results as Chinese consumers typically shop on marketplaces. The company’s website can be used as a marketing and brand tool rather than a sales platform.
  • Utilize a cross-border marketplace Cross-border marketplaces such as Tmall Global and JD Worldwide offer companies access to the aggregate traffic of the marketplace without having to establish a legal entity in China, or sell through partners that list on domestic marketplaces.

There are currently two typical models of operation: 1) Direct Mail and 2) Bonded Warehouse. For the Direct Mail model, a customer places an order on a registered cross-border ecommerce platform, which will submit particulars of the order electronically for customs clearance. Meanwhile, the products will be shipped by direct mail to customers directly from overseas locations. Whereas for the Bonded Warehouse model, products are shipped in bulk and stored in a bonded warehouse in one of the ten cross-border ecommerce pilot cities (namely Shanghai, Ningbo, Hangzhou, Zhengzhou, Chongqing, Guangzhou, Shenzhen, Tianjin, Fuzhou, Pingtan). When a customer places an order, the platform will make a real-time declaration to customs and the products will be shipped to customers from the bonded warehouse. As ecommerce evolves, changes in government policy and regulation--for example, the changes to tax rates and the Positive List implemented in April 2016--will have a large impact on the cross-border ecommerce space. Companies are advised to keep abreast of changing government policy toward ecommerce. [2]

Engaging in Cross Border eCommerce Importing to China is a new model to sell online in China. The difference between a China eCommerce solution is that products can be shipped individually or in bulk to China with fast custom product filling, custom clearance and up-to 400% lower import taxes. We advise and consult you about the most suitable Import & Distribution strategy and develop integrations for Cross Border payment gateways, custom product filling & direct custom clearance. [3]

Shipping

There are two principal methods available to foreign companies engaged in cross border ecommerce in China to ship to the end customer. To ship directly to the end-consumer via an international / domestic express company, or to ship in bulk to a 3PL who can warehouse the products in one of China’s pilot ecommerce zones, and then ship the product individually to end-consumers as orders are fulfilled.

Direct to Customer The simplest way for a company to ship to customers who purchase from them overseas (individual parcels) is to use international express companies such as UPS, FedEx, or DHL. These companies can manage the customs process and transfer the parcel to their domestic partner for final delivery.

Although simple, the downside of this method is that transportation costs are high and delivery time is lengthy.

Depending on the product and the value of the parcel, it may be subject to tariffs and other import regulations. [4]

Directly from Overseas to End Customer / Consumer Companies can engage a 3PL with warehousing facilities inside one of China’s pilot ecommerce zones or bonded areas. When Chinese consumers order products on the company’s website or cross border marketplace, the products can be delivered directly from the warehouse inside the pilot ecommerce zone as personal parcels shipped to end consumers. This cuts delivery time significantly and also bypasses some of the restrictive regulations affecting imported products. Furthermore, if a single transaction is under 2,000 RMB or within a yearly customer limit of 20,000 RMB, VAT is decreased by 30% (making applicable VAT 11.9% as opposed to 17%). There are also no tariffs applied to purchases within these limits. [5]

Import Process

It can take several months for exporters and Chinese importers to prepare all of the necessary documents required for the pre-import process. For example, frozen seafood products will require Sanitary Administrative Approval, original labels and the Chinese translation, as well as registration and filing with the local CIQ office in China. During the import process, the inspection declaration, CIQ inspection and quarantine, and customs inspection might take another 1-2 weeks. If any issues occur - for example, wrong labels or missing documents - the goods may take longer to clear customs.

A large number of importers regularly experience challenges with the importation process and it is important to be aware of the specific requirements for your product categories. [6] 

Import Duties

Products entering China are categorized as either personal parcels or commercial cargo. Both require declaration at customs by filing ‘Article Lists’ or ‘Cargo Lists’ for customs clearance before entering China’s customs border. For product distribution and logistics from overseas to mainland China, companies will need to hire a licensed international 3PL or freight company. China’s regulations on importing personal parcels and commercial cargo are substantially different regarding import taxes, documentation, CIQ inspection and quarantine requirements, and labelling and testing requirements. [7]

Personal Parcels

China has defined personal parcels in the GACC Announcement No.56, 2014 on Cross-Border E-commerce Trade Supervision, which has been in effect since August 1, 2014. There are two important criteria for personal parcels, which are:

The value of the parcel must be lower than US $154 except when from Hong Kong, Macao, or Taiwan, where the maximum value is US $123; The goods in the parcel are for personal use (meaning the quantity is reasonable).

The customs officer has the authority to determine if the parcel is for personal use or not. [8]

Import tax For personal parcels, import taxes are only levied on goods if applicable, and the goods are not required to go through the CIQ inspection and quarantine process. There are no requirements on labeling and testing; however, goods forbidden to be imported are not allowed. If taxes are levied, the tax rate will be different depending on the product category.

A personal parcel with a value exceeding US $154 is subject to full import tax without exemption. If import taxes payable are not paid at customs, personal parcels will be returned by the individuals/end customers or the 3PL/Courier. Exceptions to the above are personal parcels containing food & beverages and cosmetics. The tax exemption value for personal parcels containing F&B products is US $77, and the tax exemption value for cosmetics is US $15. [9]

Commercial Cargo

Goods for commercial use and/or not categorized as personal parcels are usually categorized as commercial cargo and must go through customs and CIQ inspection and quarantine procedures.

Import tax Commercial cargo is subject to various types of import duties and taxes, such as an import tariff, VAT, and consumption tax. The rate and type of applicable duties depends on the products’ HS Code classification (Harmonized Commodity Description and Coding System) as well as any free trade agreements, most favoured nations agreements, or other trade agreements/disputes that may affect the import duties. The table below provides an example of the import tax rate, VAT, and consumption tax for several products. [10]

Sources

  1. eCommerce Worldwide. China Guide. "eCommerce in China"
  2. eCommerce Worldwide. China Guide. "eCommerce in China"
  3. TMO Group "Market Overview - Cross Border Import to China"
  4. eCommerce Worldwide. China Guide. "eCommerce in China"
  5. eCommerce Worldwide. China Guide. "eCommerce in China"
  6. eCommerce Worldwide. China Guide. "eCommerce in China"
  7. eCommerce Worldwide. China Guide. "eCommerce in China"
  8. eCommerce Worldwide. China Guide. "eCommerce in China"
  9. eCommerce Worldwide. China Guide. "eCommerce in China"
  10. eCommerce Worldwide. China Guide. "eCommerce in China"
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