China E-Commerce : Resistance is Futile

The PRC National People’s Congress last week promulgated a second discussion draft of the PRC E-Commerce Law (电子商务法草案). 

This statute is an attempt to gain greater control over the online consumer markets. These markets have exploded in China, in a situation where there is little or no regulation. The lack of regulation has not slowed development of e-commerce in the PRC. The success of online marketing is shown by the recent results of Alibaba’s November 11 ‘Singles Day’ online sales event. As reported by ZD Net, the results were impressive:-

Alibaba Group has raked in US$25.3 billion (168.2 billion yuan) (AU$33.43B) in gross merchandise volume (GMV) from its annual online shopping festival, breaking last year’s record sales by 39 percent.

Held on 11 November, its Singles Day shopping bonanza this year involved more than 140,000 participating merchants, including 60,000 international brands. Some 165 of these each generated more than US$15.1 million (100 million yuan) (AU$19.95M) in sales, including Gap, Nike, and Samsung, with 17 merchants exceeding US$75.4 million (500 million yuan) ($AU99.62M) and six surpassing US$150.9 million (1 billion yuan) (AU$199.38M) in sales.

Japan, Australia, and Germany were amongst countries with the most sales selling into China during Singles Day this year.

At its peak, Alibaba processed 256,000 transactions per second and US$1 billion (6.6 billion yuan) (AU$1.32B) was processed within the first couple of minutes. In the first two hours, it registered US$11.9 billion (78.8 billion) (AU$15.72B).

Overall, Alibaba processed 1.48 billion payments, up 41 percent year-on-year, and 812 million delivery orders via its logistics arm, Cainiao Network. This was 23 percent higher than last year’s 657 million delivery orders.

As you can see, foreign products played a big part in the success of the Singles Day event. Section 5 of the Discussion Draft sets out the proposed rules for cross-border sales. The Singles Day even illustrates the way the Discussion Draft plans for the future of cross-border online sales:-

1. Foreign retailers will not be permitted to directly participate in online sales in China. All online sales will be limited to Chinese owned entities that have obtained the required commercial ICP license. Though there had been some hope there would be a limited exemption to the ICP license rule for e-commerce produce sales, there is no hint of such a change in the Discussion Draft. The PRC government intends to continue restricting e-commerce sales to Chinese owned or controlled entities.

2. Foreign-owned operators of e-commerce platforms will also be excluded from operating in the Chinese market. Sales of foreign products will be forced to come into China through Chinese owned or controlled platforms.

3. The Discussion Draft provisions on cross-border e-commerce focus on ensuring cross-border sales comply with Chinese law and only approved products are imported into China and all taxes and duties on those products get paid. The Discussion Draft seeks to shut down online sales as a way to import illegal products into China and to shut down online sales as a method for evading China taxes and import duties.

4. The method for control proposed by the Discussion Draft is to create highly centralized e-commerce processing centers. The China (Hangzhou) Cross-Border E-Commerce Processing Pilot Area is an example of the ultimate goal. The idea is that these centers will handle the procedures related to e-commerce: foreign purchase, shipping to China, import into China with full compliance with all PRC applicable regulations on product approval, inspection and quarantine, payment of duties and taxes, and warehousing and distribution. More