China’s eCommerce passion is in full swing, with customers enthusiastically buying both domestically and from overseas. It’s a highly innovative scene on the domestic level, with a handful of tech titans jostling for position along with a plethora of smaller operators.
China’s existing import/export structure hasn’t managed to keep up with the rapid growth of transactions across its borders. Not only are Chinese consumers and businesses keen to access foreign goods from vendors outside China but the government is also keen to enable goods to flow the other way, increasing China’s own online export activity.
Three years ago, a solution was launched that could facilitate the burgeoning cross-border eCommerce scene: experimental eCommerce “special trade” zones.
The concept was for these special zones to offer a more favourable environment for cross-border trade via online channels.
Authorities such as government departments and customs were tasked to be more supportive and offer more effective policies and practices to support cross-border eCommerce. This has meant streamlining customs clearance and improving the administration of logistical facilities.
The main benefit for eCommerce companies selling in China is that they’ll be able to buy in bulk from abroad, then store in bonded warehouses based in China under the supervision of customs authorities. They can then distribute these goods to customers at the point of order.
It’s a faster way to manage cross-border eCommerce in a ‘just-in-time’ logistics approach. The main advantage is speed: customers won’t have to wait as long for their orders as they’ll be delivered from warehouses within China rather than having to pass through customs individually.
Estimates suggest that the scheme will reduce average order fulfilment time down from 20 days to 5, as goods will no longer need to clear customs in order to reach an individual buyer. It’s also likely to reduce shipping costs, as the main international leg of the supply chain will be handled by bulk delivery. Customers won’t be forced to sort out their own customs issues and payments, which will also improve their experience and reduce barriers to ordering.
A growing scheme
13 major first and second-tier cities were originally chosen to act as pilot zones for the first few years of the scheme. They were mostly in the highly economically active eastern parts of China and included Shanghai and Chengdu. These areas enjoyed favourable customs clearance procedures and support for logistics.
Ecommerce turnover doubled year-on-year in these special zones, although there was already an upwards trajectory for eCommerce in China during this period.
Encouraged by what looks like a successful pilot, China is now pushing ahead with expanding the scheme. A further 22 cities have now become special trade zones. China’s huge domestic tech giants have been active in promoting the special trade zones in the wider Asia region.
China is keen to stay competitive globally and participate in eCommerce exporting. The authorities have also spotted the potential for eCommerce to help stimulate the relatively underdeveloped central and western regions of the country.
At present, the scheme has focused on more advanced cities in the eastern and coastal regions of China but it’s likely to expand to encompass the wider market. In China’s vast market, it makes sense to tackle new initiatives in stages, which explains why the authorities aren’t yet implementing the changes across the entire country.
Quirks and idiosyncrasies
If you’re interested in participating in the scheme, check that the type of goods you’re dealing in are permitted to participate. You may need special licenses or filings, particularly if the goods are being imported for the first time. There are special requirements for items such as baby formula, medical equipment and certain types of food marketed as health food.
Prior to shipping your goods to the warehouse, you’ll need to complete a customs clearance certificate. This allows foreign products to enter the bonded warehouses.
It’s worth noting that each city in the scheme has its own particular rules. Sometimes these also include benefits such as free internet, tax breaks and rental assistance as the various administrative regions try to lure more business to their territory.
You’ll find employment laws covering things such as employment contracts can vary between the special economic zones, so check you’re compliant. It’s worth seeing what perks (and extra rules) you’ll encounter if you participate in the schemes.
Some of China’s major trading partners benefit from particular relationships with some of China’s zones. For example, some Australian states or cities have relationships with particular trade zones. Australia focuses on the Shanghai special trade zone in particular. Last year, there was an attempt to forge a stronger bond between London businesses and the Hainan province of China.
China’s special trade zones certainly add a level of complexity to doing business in PRC thanks to their unique rules and perks. But the scheme can hold real opportunities for some businesses. It’s well worth exploring your options if you’re considering a new venture as there may be benefits to engaging with these schemes.