WWN #12 – A win for Australia: China does a Backflip on E-Commerce Laws

What’s been happening?

The exponential increase in China’s cross-border e-commerce over the last few years led to Chinese authorities announcing new rules in April last year as they sought to improve regulation of the industry. There were two rules that raised alarm bells amongst Australian companies due to their potentially adverse effect on local brands that were favoured by Chinese consumers.

Rule #1 – E-Commerce Tax Circular

  • This rule significantly changed preferential tax policies that had been applied to cross-border e-commerce transactions. Under the new rules, overseas goods purchased by Chinese consumers are now subject to import duties and value added tax (VAT) which is expected to drive up prices. An import purchase limit of 2,000 RMB per transaction along with an annual tax-free limit of 20,000 RMB per individual was also introduced, which is likely to restrict consumer spending.

Rule #2 – The Positive List

  • A ‘positive’ list was released which included a total of 1142 commodity categories. The list covers food and beverages, clothing, footwear and other items that are commonly purchased by Chinese consumers on e-commerce platforms. If the commodity is not on the list, it will not be allowed to be imported into China. Some Australian milk and healthcare products were not allowed on this list.
April 12 2016 - New Ecommerce Laws for China.png

Credits: Yahoo Finance Charts (comparing BAL, A2M and BKL)

Following the announcement, the stock prices of  big Australian companies such as Bellamy’s, A2 Milk and Blackmores went into free-fall (Note: April 10th-12th).

What Now?

In a surprising turn of events this week, China decided to indefinitely delay the tough e-commerce laws. In a statement which effectively removes labelling and registration requirements, China’s Ministry of Commerce said that “low-value products imported for personal use through e-commerce would be considered as a separate category.” -Sydney Morning Herald

The backflip came ahead of Chinese Premier Li Keqiang arriving in Australia for negotiations on free trade agreements and eliminating non-tariff barriers between the two countries. Chief executives of A2 Milk and Blackmores both welcomed the updated regulations and saw it as an indication of China strengthening its commitment to promote the cross-border e-commerce channel.

Upon the news, previously affected companies recorded healthy gains with Blackmore shares rising by 13.3%, Bellamy’s up by 14.66% and A2 Milk was up 4.88% (Note: March 20th-21st).

Post-Announcement Reaction for China E-Commerce Laws.png

Credits: Yahoo Finance Charts (post-announcement reaction for BAL, A2m and BKL)

What’s Next?

Despite the increasingly protectionist economic stance taken by countries such as America and Britain, China and Australia appear intent on fighting for free trade which is viewed as mutually beneficial for both countries. It remains to be seen whether the new agreements which are expected to be signed during the Chinese Premier’s visit to Australia will actually reflect this.

Whilst the reversal of the e-commerce laws is definitely good news for most Australian companies, it could perhaps be only a temporary reprieve until the next time the Chinese government decides to change its mind. As Blackmores’ CEO Christine Holgate remarks wryly, “certainty is a fluid concept in China”.

References:
http://www.afr.com/business/retail/fmcg/china-backs-down-on-tough-new-ecommerce-laws-in-boost-for-aussie-exporters-20170320-gv28fe
http://www.abc.net.au/news/2017-03-22/blackmores-boss-christine-holgate-china-trade/8377216
http://www.smh.com.au/business/retail/china-wants-to-expand-ecommerce-trade-with-australia-20170321-gv2xed.html
http://www.chinalawinsight.com/2016/04/articles/corporate/new-challenges-in-china-cross-border-e-commerce/
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