China has extensive and complex customs rules and government regulations for cross-border purchases. It also has a huge and increasingly well-to-do population that prefers foreign — mostly western — consumer goods, primarily because of the poor quality of domestic products. China is home to the largest e-commerce market in the world and streamlined regulations offer an opportunity for western merchants looking for new markets. Food, beauty products, apparel, and handbags are the most sought after foreign products and purveyors of these goods should find Chinese consumers eager to buy. More specifically, the urban Chinese population is craving natural food and beauty products and is willing to pay a premium for them.
Why the preference for foreign food and cosmetics?
In 2008 several Chinese infants died and 300,000 got sick due to a chemical – melamine – that was used as an ingredient in Chinese baby formula. A major scandal ensued. Since then, Chinese parents have bought formula from American and European companies. Other food and personal care products were found to contain harmful substances as well. As a result, Chinese consumer trust in domestic products eroded, and instead many shoppers chose to buy their personal care and food products from foreign sellers. Before formula sales over the Internet were available, Chinese tourists would bring so much formula back from visits to Europe and the United States, local shortages resulted. While e-commerce offers an easy way for Chinese consumers to buy these goods on a regular basis, it’s important to be aware of the government cross-border e-commerce (CBEC) regulations in China on products like food, cosmetics, and personal care.
New CBEC regulations
Policies and rules have been in effect for several years but the new rules are the first codified set of CBEC retail import regulations. While it was expected that the policies would become stricter, some of the former regulations are now more lax. The regulations that became effective on January 1, 2019 have lifted purchase limits on CBEC. Purchase limits have been increased to $720 (RMB 5,000) per transaction and $3,744 (RMB 26,000) per year, up from $290 (RMB 2,000) and $2,880 (RMB 20,000), respectively.
The CBEC regulations apply to 63 consumer commodities such as cosmetics, handbags, and non-perishable food. China’s CBEC rules dictate that products must be shipped or warehoused in specified “pilot” cities, or CBEC zones, although the new rules have expanded the number of these zones from 13 to 35.
In addition to monitoring product safety, the Chinese government is also trying to curtail the sale of counterfeit goods, which is rampant in China. The Chinese government is sensitive to local consumers' concerns about product quality and has placed the responsibility fully with cross-border merchants. Here are the basics from the Chinese Ministry of Commerce:
- Local entrustment – Operators of CBEC retail businesses (identified as CBEC enterprises) now carry the responsibility for product safety and quality. They must engage a domestic Chinese company that has industrial and commercial registration to register with local customs and be responsible for reporting. This domestic company will be supervised by local authorities and will be jointly and severally liable in civil disputes.
- Consumer protection – CBEC enterprises are now obligated to disclose product information for food and personal care consumer products. They must also provide mechanisms for product recall and consumer reimbursement.
- Notification of potential risk – CBEC enterprises must inform Chinese consumers by displaying a notice of potential risk on the CBEC’s website that the product meets technical specifications for product safety, quality, hygiene, and labeling in the country of origin, which may differ from Chinese standards. Previously, products had to meet Chinese standards. Now, by placing an order, the consumer acknowledges and accepts the risk that they are receiving a product that may not meet the Chinese requirements.
- Electronic Chinese labeling – As CBEC goods are purchased directly from foreign sellers, the use of a Chinese label is not required.
- Risk prevention and control – CBEC enterprises must establish a mechanism to manage product quality at different stages of the supply chain, and merchants must be able to provide a chain of custody from the point of overseas shipping to delivery to the Chinese customer.
What else do cross-border-commerce merchants need to know?
The law defines four types of e-commerce operators:
- Platform operators, referring to any legal persons or unincorporated organizations that provide virtual places of business, transaction matching, information release, and other services to the parties of an e-commerce transaction to enable them to carry out independent transaction activities.
- E-commerce platform operators that provide services to customers.
- E-commerce operators that sell goods or provide services through their own independent websites.
- Social media platforms that allow product sales such as the WeChat application.
Until this law went into effect, the burden of identifying fake goods fell solely on the merchant. Now operators will share in the responsibility or be subject to a fine that can reach $30 million. Independent sellers are also subject to fines.
The list of products that are eligible to be sold via CBEC channels is called the Positive List, and has been issued by the Chinese Ministry of Finance. An English explanation can be found here.
