Advantages and disadvantages of cross-border EC in China and legal regulations to be aware of

There is a business called cross-border EC that sells products across borders. In particular, many are entering the cross-border EC market because it is a business whose market is expanding due to the Corona disaster.

Among these, China has the largest cross-border EC market in the world. Therefore, the Chinese cross-border EC market is easy to enter.

We will therefore explain the advantages and disadvantages of entering the cross-border EC market in China, and provide a detailed explanation of the key points of cross-border EC laws and regulations in China.

Advantages of Entering the Chinese Market

Shopping online concept, small cart over shopping online website

There are five main advantages to entering the cross-border EC market in China.

  • No legal inspections required
  • No review and approval required for new imports
  • Reduced tax rates apply.
  • Abundant cross-border EC platforms
  • High demand for Japanese goods

The above advantages will now be explained in detail.

No legal inspections required

The advantage is that when goods are exported to China, there is no need to submit customs clearance documents even if they are subject to statutory inspection.

The following are listed as customs clearance documents

  • sales contract
  • statement of accounts
  • packing-list
  • bill of lading
  • power of attorney

In China, the introduction of statutory inspections caused great confusion at customs in the authorization of large volumes of goods; the new system applied in January 2019 allows for the omission of statutory inspections, eliminating the problem for customs.

No review and approval required for new imports

Similarly, the new system in January 2019 will make it unnecessary for new importers of goods in China to go through the examination and approval process, in addition to statutory inspections .

Therefore, consumers can use cross-border EC to obtain cosmetics, powdered milk, medicines, medical equipment, and other products that require authorization from overseas.

Reduced tax rates apply.

China offers good treatment for cross-border EC businesses. Among other things, cross-border EC is subject to a reduced tax rate.

The reduced tax rate is characterized by a 0% tariff and a value-added tax (consumption tax) that falls to 70% of the value-added tax at the general trade rate (in the case of the conservation zone model).

For example, previously, groceries were taxed at a rate of 16%. However, with the reduced tax rate, the tax rate is now 11.2%.

This means that the tax on a product with a body price of 100 yen is about 11 yen, compared to 16 yen.

Abundant cross-border EC platforms

In China, the market for cross-border EC is well-developed. At the same time, this means that cross-border EC platform services are widespread in China.

The major cross-border e-commerce platforms in China are as follows

  • Taobao
  • Tmall
  • JD.com
  • YMT
  • Yiaodian

In particular, Tmall is famous as the largest cross-border e-commerce site in China.

One of the advantages of using a Chinese cross-border e-commerce platform to develop your business is that it makes it easier for consumers to purchase your products. However, there is also a disadvantage in that registering on a cross-border EC platform will require you to pay fees and listing costs.

High demand for Japanese goods

In China, the demand for Japanese products is very high due to the high quality of Japanese goods. Therefore, high profits can be expected by selling Japanese products through cross-border e-commerce.

Due to the high demand for Japanese products, many Japanese companies are entering the Chinese cross-border EC market. When developing your cross-border EC business in China, be sure to analyze Chinese demand before selling your products.

Disadvantages of entering the Chinese market

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We have discussed the advantages of entering the Chinese cross-border EC market, but what are some of the disadvantages of entering the Chinese market?

There are three main disadvantages to entering the Chinese cross-border EC market.

  • Need to support Chinese language.
  • Mainstream payment methods need to be introduced.
  • Large amount of knowledge required.

The above disadvantages will now be discussed in detail.

Need to support Chinese language.

When developing a cross-border e-commerce business in China, it is necessary to create a Chinese version of the site in order to promote the company’s products.

In addition, if a support system is also to be established, it will be necessary to hire Chinese-speaking staff.

Mainstream payment methods need to be introduced.

Different countries use different methods of payment for goods. For example, in Japan, electronic payment is currently the most common method of payment.

In China, as in Japan, electronic payment is the mainstream payment method. Credit card payments are also widespread in China.

Famous electronic payments in China include

  • Alipay
  • WeChat Pay

The above electronic payments are also used on many cross-border e-commerce platforms.By understanding the popular payment methods in China, you can create a site that is easy for consumers to use.

Large amount of knowledge required.

When developing a cross-border business in China, a lot of knowledge is required when signing contracts, such as laws and how to use cross-border e-commerce platforms.

In particular, since the market for cross-border EC is widespread in China, there is a full range of laws related to cross-border EC. In addition, laws on cross-border EC are enacted and revised many times, so it is necessary to check the laws frequently.

Key Regulations for Cross-border EC in China

Lady Justice statue in law firm office

Without a thorough understanding of the legal details of cross-border EC in China, it will be difficult to develop a cross-border EC business. In particular, if you do not understand the laws and regulations, you will be at a great disadvantage.

There are five main points of cross-border EC laws and regulations.

  • Make transactions within the limit amount.
  • Must be for personal use
  • It has to go through a route that Customs can control.
  • Falls under the positive list
  • Strive to protect personal information

From here, the above five points will be discussed in detail.

Make transactions within the limit amount.

When entering the cross-border EC market in China, transactions must be within the limit.

As a general rule, the amount of each transaction must not exceed RMB 5,000, and the annual transaction amount for an individual must not exceed RMB 26,000. If this amount is exceeded, the transaction will no longer qualify as cross-border EC in China and will not be eligible for the reduced tax rate.

Must be for personal use

The major point in the laws and regulations is that products are sold to people for personal use. In other words, the cross-border EC law does not allow the sale of B-to-B style products to companies.

It has to go through a route that Customs can control.

Products to be sold in China’s cross-border EC must go through channels that can be controlled by customs. This is because if customs cannot control goods, goods that would otherwise be illegal in China will be sold.

If you are developing a cross-border EC business in China, please check the location of customs.

Falls under the positive list

Unless a product is on the “Positive List,” which lists 1,321 types of products, you will not be able to get your cross-border EC business approved in China.

Products that fall under China’s positive list include the following

  • medical instruments
  • supplement
  • meter (i.e. a gauge)
  • sugar
  • leather goods (products)

In addition to the products listed above, various other products fall under the positive list. Be sure to check before developing your business.

Also, do not neglect to check for products that are banned for export from Japan.

Strive to protect personal information

The law on cross-border e-commerce in China (the Electronic Commerce Law) is intended for those entering the business of cross-border e-commerce in China, and also protects the personal information of cross-border e-commerce consumers.

Therefore, those who are entering the business of cross-border e-commerce in China should make efforts to strengthen the security of their sites to protect consumers’ personal information.

What if I have difficulty understanding the law?

Difficult task

If you have difficulty understanding Chinese laws, take measures such as hiring a specialist who is familiar with Chinese laws and cross-border EC to do the work for you.

You may also consider hiring an interpreter if you cannot read Chinese.

summary

We have discussed the advantages and disadvantages of entering China’s cross-border EC market, and then explained the key points of China’s laws and regulations regarding cross-border EC.

Many people are considering entering the cross-border EC market in China because the market is so large. However, it is important to understand that there are some disadvantages to developing a cross-border EC business in China.

In addition to the cross-border EC market, China also has an extensive legal system for cross-border EC. Therefore, it is important to develop your cross-border EC business based on an understanding of the legal system.

Understand the laws governing cross-border EC in China so that you can reduce the risks of your cross-border EC business as much as possible.

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