Broader horizons for foreign business to export to the Chinese market

Businesses looking to enter the Chinese market can take advantage of China’s cross-border e-commerce (CBEC) pilot, which has been expanded twice in 2020 alone, with promises of broadening even further into more regions and cities across China. LehmanBrown tells us more about how the cross-border e-commerce system works.

By 1^st January 2019, the cross-border e-commerce pilot was implemented in 37 Chinese cities, including Beijing. Since then, the programme has achieved a lot, and the Chinese State Council has decided to expand it further. 

The State Council approved the first expansion on 17^th January 2020, and a second expansion a couple of months later on 27^th April. These extensions have opened up the opportunities offered by the pilot to a total of 105 cities and regions across the country, including less well-known places like Shijiazhuang and Xiong’an.

In the CBEC programme’s first year of operation, various government ministries bolstered it with policies to tackle issues related to standardisation of procedures, quality control and protection of consumer rights and interests. 

Chinese Customs statistics for 2019 show that cross-border e-commerce retail imports increased by 16.9 per cent year-on-year to total United States dollars (USD) 12.95 billion.[1]

Economically, the positive impact of the programme has led to an enriching of domestic product supply, the development of new business and more consumption, while the population’s needs are being better satisfied.

Cities chosen for the expansion of the pilot include newly established CBEC zones. This proactive support for e-commerce activity will help expand consumption and also assist in the development of the chosen cities’ surrounding regions. 

Furthermore, on 7^th April 2020, the State Council stated that retail export goods under all pilot zones will be exempt from value-added tax (VAT), consumption tax and enterprise income tax.[2]

The recent inclusion of the further 86 cities in the pilot programme and the added incentives will boost the economic return for 2020.

Who is this pilot programme for?

The CBEC pilot provides an opportunity for foreign business interested in introducing their products or services to the Chinese market, or those seeking to expand globally, without necessarily having to establish a base in the country.

Alternatively, this pilot programme can help foreign businesses that might be struggling to maintain operations in China, because of post-COVID-19 economic circumstances, continue to supply their products or services to the Chinese market.

However, before entering China’s vast and profitable market, business owners and decision-makers must do their due diligence and take all precautions beforehand.

Success will only come to those who carefully choose their partners and online platforms while also registering their products, trademarks and intellectual property, since China applies a ‘first to file’ system, versus the ‘first to use’ approach generally favoured in Europe. Trademarks should include the company name and all of its brands—even those that will not initially be sold in China—to reduce the risk of malicious filing and ‘trademark squatting’ – when a secondary party registers the trademark of another company in their own name.

Lastly, another critical step to make before entering the market is to create a realistic strategy for the specific product, service or market intended for promotion. Good market research should be done in advance to understand the foreign and local competition, and where the relevant niche market is within China’s vast market. Proper research and market entry can lead to success, but doing your homework is crucial.

Accessing the CBEC pilot

By using a hypothetical European company, which has taken all precautions (such as registering their trademark or intellectual property and done due diligence in finding a trustworthy agent in China), businesses can understand the process for accessing the cross-border e-commerce pilot.

• The first step would be to authorise a company in China to act as an agent for the European company’s products in China. The Chinese company need not necessarily be an e-commerce platform company; it can merely be a Chinese company which is active in the e-commerce sector.
• Once the agreement has been signed, the agent will register the European company in the cross-border e-commerce pilot. This will typically involve the company as well as its goods, tax guarantee and account book registrations.
• Afterwards, the European company and the agent will make a deal, taking into account the goods declaration for entry, warehousing, e-platform services, declaration for delivering parcels, taxation and any other regulations that might be required by individual regions, cities or local governments.

In general, the standard documents required are an agency agreement, the agent’s customs declaration registration certificate of import and export, the agreement with the Chinese e-commerce platform, the internet content provider (ICP) licence of the affiliated platform and information on the goods. Individual local governments may require additional documents.

The entire process typically takes between two to six months to complete; this will greatly depend on the requirements and processing times of the particular region or city in question.

Going further, even if hypothetically the European company has a subsidiary wholly foreign-owned enterprise (WFOE) in China, they would still need to find a Chinese company to act as an agent through which to access an e-commerce platform to sell their products or services. This is because WFOEs are not eligible in China to apply for an ICP licence, which is required to set up an e-commerce platform. Although a new Negative List was recently released by the Chinese authorities, it unfortunately still restricts foreign ownership of ICP licences, something that will hopefully change in the near future.

LehmanBrown International Accountants is a China-focussed accounting, taxation and business advisory firm operating throughout China including Hong Kong and Macau. With an extensive affiliate network around the world LehmanBrown can service international companies in China and Chinese companies doing business internationally. All services are taken care of English and Chinese speaking professionals who can tend to any companies’ needs throughout their business journey.

[1] Six Ministries Including the Ministry of Commerce Further Expand the Scope of Cross-border E-Commerce Retail Import Pilots, MOFCOM, 18^th January 2020, viewed 14^th July 2020, <http://english.mofcom.gov.cn/article/newsrelease/significantnews/202002/20200202934796.shtml>

[2] Li Keqiang Chairs State Council Executive Meeting to Launch the Establishment of a Cross-border E-Commerce Pilot Zone, Support Processing Trade, Canton Fair Online Holds a Series of Initiatives, State Council, 7^th April 2020, viewed 14^th July 2020, <http://www.gov.cn/premier/2020-04/07/content_5499975.htm>