The Chinese e-commerce industry is rapidly expanding, and the nation is the world’s second largest online retail market. The business-to-consumer industry in particular is expected to see record growth in the next few years. Until recently, the e-commerce market was not specifically regulated. The Chinese government, however, has begun to implement regulations to boost the e-commerce industry for a more consumption-driven economy, including regulations to protect consumers and to more tightly regulate online sellers. For example, the Law on the Protection of Consumer Rights and Interests was revised in March of 2014 to grant consumers a right to return goods within seven days after purchase without giving a reason, to require online sellers to register their names and addresses, and to require sellers to authenticate and verify their websites. The government has also been active in fighting against online sales of counterfeit products. And, most recently, China announced it will allow full foreign ownership of some e-commerce businesses to increase competition and development.
The new e-commerce guidelines in this Guiding Opinion, supplementing the recent trends in government regulation of online sales, involve cross-border trade and tax issues rather than consumer protection and intellectual property concerns. The General Office of the State Council’s Guiding Opinions to Promote Healthy and Rapid Development of Cross-Border E-Commerce include specific measures to improve the logistics of importing and exporting through e-commerce means.
The Guiding Opinion
The Opinion prominently references China’s “One Belt, One Road” plan. One Belt, One Road is China’s long-term initiative to reopen the Silk Road and to create a new maritime trade route. The plan is long-term, extensive, and will require global cooperation. The e-commerce measures in the Opinion support this plan to increase China’s international trade opportunities and begin a second opening up of the country.
One important measure of the opinion deals with tax policy. As of 2013, China’s tax laws for online businesses were no different from those applied to traditional enterprises. This included a corporate income tax of 25% of profit, a dividend tax, value added tax, business tax on turnover, and a progressive income tax. The Opinion calls for a clearly-defined e-commerce tax policy that encompasses value added taxes, excise tax rebates, and exemptions for e-commerce retail goods. The Ministry of Finance and the State Administration of Taxation are authorized to implement such tax policy with the goal of stimulating domestic consumption and encouraging fair competition.
The opinion encourages a reasonable increase in imports of consumer goods. Imports into China must comply with China’s laws, regulations, and standards, especially in the area of biosafety. With this in mind, improved inspection and quarantine of goods for safety will be combined with a streamlined and efficient customs process for goods purchased via e-commerce. China wishes to match its customs regulatory measures with other countries’ measures to improve the import and export process. These enhanced regulations also come with the hope of improved international cooperation in this area. The goal is for a safe and efficient flow of goods to and from China, which will depend on improved dialogue between nations. Another aspect of these regulations is to build a comprehensive service system in China with a global logistics supply chain. Foreign enterprises are encouraged to integrate their services, warehouse their goods in China, and provide cross-border financing to build full-service e-commerce businesses.
The e-commerce payment and settlement process will also be improved. China will begin a pilot program for cross-border electronic foreign exchange services. One goal is to promote e-commerce activities in RMB, and another is to create a domestic bankcard clearing organization to expand overseas business. Monitoring large online transactions and assessing financial risks is also part of the plan of improving payment and settlement in e-commerce. This includes credit evaluation mechanisms and a cross-border e-commerce security system with the goals of strong consumer protection against unsafe and poor quality goods, improving protection of intellectual property rights, and creating a fair and competitive market environment.
Other new provisions encourage state support for international e-commerce projects and innovation, and allow for credit insurance for cross-border transactions. Included in this encouragement of risk-taking and innovation is China’s interest in expanding concepts such as the “experience store.” An experience store is one in which a primarily online company creates a brick-and-mortar store or showroom for its products with the expectation that consumers will still purchase online. Experience stores allow consumers the opportunity to see, feel, and use the product in the experience store, but the store has a digital focus. Especially in the international realm, where potential customers may have fears about quality, the experience store concept can boost the reputation of Chinese consumer goods brands.
Another important aspect of the opinion is a commitment to industry organizations playing a role in e-commerce. China has committed to allowing industry organizations to act as bridges between the government and business enterprises. This role includes facilitating exchange and cooperation between domestic and foreign businesses, holding exhibitions, involving universities and vocational schools, and providing training on cross-border e-commerce.
These guidelines—in conjunction with consumer protection and intellectual property law development, and permission for fully foreign-owned e-commerce businesses to operate in China—may benefit foreign investors. China is opening up, encouraging cooperation, and seeking a competitive and global market that inspires innovation and consumerism. China prepares for a period of rapid innovation in e-commerce that will require global cooperation. The tax incentives, customs improvements, and other measures are important to international trade. Standardization and clarity in the rapidly-evolving world of e-commerce will improve the market in China. Finally, coupled with the recent intellectual property and consumer protection measures, China is facing the e-commerce industry head-on and incentivizing entry and progress.