How China’s First E-commerce Law Will Shape E-tailers’ Future

A new e-commerce law in China will go into effect on January 1, 2019, further regulating the country’s online luxury sales market. The new rules are generally being interpreted as positive for the sector, but they will certainly change the way brands do business in China.

One practice that definitely won’t benefit from the law is daigou buying. Daigou — which means “buying on behalf of” – are shoppers who buy luxury products overseas, where those goods cost less and don’t incur China’s high import tariffs, for customers in China. Daigou have increasingly been promoting themselves on social media outlets like WeChat, but they’ll now come under scrutiny for their undocumented practices.

Aside from regulating daigou, the law also raises tax exemption limit for cross-border purchases. The single purchase limit will increase from $288 (RMB 2,000) to $720 (RMB 5,000), and the yearly purchase amount increases from $2,900 (RMB 20,000) to $3,780 (RMB 26,000). Cross-border purchases under the new limits will be exempt from duties and receive a 30 percent discount on consumption tax and VAT.

This is good news for luxury brands hoping to sell more expensive items, but in what ways will this law change e-commerce shopping in China? And more importantly, how will brands adjust?

Jing Daily 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 crackdown on daigou might cut into an important revenue stream for luxury brands, but in the long term, it will protect the way goods are presented and marketed in China. And even with a shrinking daigou market, this law won’t necessarily keep consumers from seeking other methods to purchase luxury goods.

Part of the services 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 platforms’ offerings will become more common,” said the CEO of the global marketing agency Kollective Influence, Charlie Gu. “I think we will see more e-commerce platforms working together with KOLs who have a loyal fan base to monetize their quality content.”

E-commerce platforms would be wise to collaborate more with social media sites, as the partnership between the crowd-sourced review forum Little Red Book and powerhouse e-tailer Alibaba’s Taobao has demonstrated. On December 29, 2017, news broke that Taobao was testing a new feature on its mobile app that would allow sellers the option of posting Little Red Book’s product reviews to online stores. Since Little Red Book has become widely known as a go-to site for international luxury product expert analysis, this additional information on Taobao helps to greatly accelerate users’ purchasing decisions.

According to Gu, the KOLs that are active on social media channels like Weibo and WeChat could create more tailored sales content for e-commerce sites in the future, instead of purely driving traffic to brands. Similarly, daigou may evolve their roles to provide more content. “It’s likely daigou would give up their cross-border e-commerce business,” said Gu, “and join forces with e-commerce platforms to become micro-influencers in their own right.”

E-commerce Platforms Will Act as Gatekeepers

One of the primary goals of the new e-commerce law is to standardize cross-border trade, and, in a sense, the government is calling for e-commerce platforms to act as gatekeepers to prevent fraudulent activity.

Previously, counterfeiters on e-tail sites were solely held responsible for selling fake goods, but with this new law, online sales platforms will share the liability. If the platforms fail to catch the culprits themselves, they could face up to 2 million yuan in penalties, according to Xinhua News.

Smart e-commerce sites are already taking action to prepare for these changes. An anonymous executive from a major e-commerce platform told us how the company is setting up protocols to prevent daigou from reselling and requiring that all customers explicitly agree that purchased products are for self-use and not for resale. The goal is to make it easy for the government to identify and collect evidence against daigou or other tax evaders.

“It’s a good thing for our platforms,” said President of Strategic Partnerships at e-commerce platform BorderX Lab, Jeff Unze. “We only work directly with merchants, not with wholesalers or any other third party. If anything, it helps us get rid of some of the competition on Taobao and maybe other platforms or resellers who buy directly from the outlet mall.”

So, in theory, the law is good for everybody. “It protects the consumer, it protects their (the government’s) tax, it protects the merchant as well by setting a fair playing ground,” Unze added.

“Alibaba has been closely following the progress of the formation of the e-commerce law in China,” said the spoke person from the group, “we hope the introduction of the new law will bring positive development to the industry.

But as Chinese consumers grow accustomed to more product protections and information, the competition between e-commerce players in China will only grow more fierce. “This will make consumers more focused on buying luxury within China,” said a representative at the premium lifestyle e-commerce platform Secoo. “They will have higher expectations on the actual services that e-commerce provides, and that’s something every e-commerce [platform] will strive for, especially us.”