In today’s #AshleyTalks, I compare general trade and cross-border e-commerce in China. You’ll learn how general trade via a trade agent and cross-border sales that use special channels operate.
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When a foreign company doesn’t have its own business license in Mainland China, a legal entity in China imports its goods from abroad. This can either be a subsidiary, trade agent or the Chinese manufacturer of the foreign seller. The legal entity clears customs and pays duties and taxes on the CIF (cost, insurance, freight) price before the product is sold. Products can then be sold in brick-and-mortar shops or on e-commerce platforms. As Chinese trade agents are usually hesitant to have their unsold goods in warehouses (the risk of not selling is on the legal entity in China), they charge relatively high commission fees on the imported products and foreign companies have little control over the final B2C transaction.
Cross-Border E-Commerce Trade
Cross-border sales are defined as the direct import of goods from outside Mainland China, utilizing special channels, known as cross-border e-commerce platforms, and the preferential policies of special economic zones or bonded warehouses. In this case, an overseas legal entity exports the product to a bonded warehouse (B2B2C) or via direct mail (B2C) model. The overseas legal entity can either be a subsidiary, partner or their own manufacturer.
The legal entity clears customs only when there’s an order from an online customer. The e-consumer pays duties and taxes on the retail price. Different taxes and duties apply to CBEC trade and products have to comply with a different set of regulations than via normal trade. Products can then only be sold on e-commerce platforms.
In sum, with CBEC the consumer takes the lead, the value chain is shorter and there are fewer risks for the overseas merchant.
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Much of the content for this video was sourced from the recent China CBEC Guidebook by the Consulate-General of the Kingdom of the Netherlands in Shanghai. The full report can be found here http://bit.ly/2xxhGer.