The enforcement of a policy to control the import of commodities via the CBE platform affects the Chinese economy significantly. The taxation provisions of the policy established recently imply that consumers experience both fair and unattractive prices of commodities they purchase via the CBE system. Thus, the policy fails to completely protect the consumer, despite the establishment of a positive list concerning imports. The adoption of the B2C approach to CBE is crucial for Honk Kong’s economy since it is expected to trigger increased competition by the local SMEs using the online platforms to widen their market share. However, there is a need to improve the reputation of Chinese enterprises to bolster their success globally through the full integration of the CBE platform.
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In April 2016, China introduced a policy that seeks to control the CBE sector. The establishment of a CBE policy has affected various modes of trade in China. The policy mainly focuses on the imposition of VAT, consumption tax, and import tariffs on goods delivered to China through the CBE system (Liu et al. 16). Further, the policy concentrates on import goods through the bonded import (BBC) and direct delivery (BC) models managed by the positive inventory. In this light, this paper discusses the impacts of the new CBE policy in China. Further, the paper will identify the suitable CBE contributor to Hong Kong’s economy before addressing the opportunities and challenges faced by SMEs in Hong Kong’s CBE sector.
An Overview of China’s Cross-border E-commerce
The development of cross-border e-commerce (CBE) in Hong Kong, China’s administrative center, has proven integral in boosting the country’s economy. CBE entails the incorporation of technology to get rid of the hurdles that undermine the efficiency of business operations on the international scale. Mainly, CBE streamlines the aspects of finance, logistics, and sales and customer services (“HKTDC: Cross-Border E-Commerce”). As a result, the advancements have made it possible for customers to shop online, regardless of time and geographical differences. Nonetheless, the establishment of CBE policy in China has disrupted trade significantly, owing to the new provisions that govern trade across the CBE platform. The policy affects the aspects of taxation and commodities allowed for import. Over the past year, businesses have opted for new trading models to maximize profits as competition intensifies. On the other hand, consumers have experienced some limitations since the introduction of the positive list limits them from importing their preferred commodities (Liu et al. 15).
Impacts of the CBE Policy
Since 8 April 2016, the imposition of taxes on goods transacted through the CBE in China has been posing a heavy burden on consumers, especially those situated in Hong Kong (Nan and Gang 14). Before the establishment of policies to regulate the CBE industry in China, importers enjoyed a duty-free allowance of Rmb50 as provided by the personal postal articles tax. Currently, the customs clears importers by levying an integrated tax that averages 11.9%. Nonetheless, taxation depends on the types of goods imported with exemptions for items such as foodstuff. As such, an individual importing an item has to pay taxes depending on its price (“PWC: Latest Developments and Trends of Tax Policies for Cross-Border Trade and E-Commerce in China”). For instance, if an individual in China purchases an item priced at Rmb300, he or she has to pay a tax of Rmb37.5 (Rmb300 x 17% x 70%). Before the taxes, the consumers only paid a 10% duty that could have resulted in Rmb30 (Rmb300 x 10%). Thus, the taxation introduced on items that are transacted through the CBE platforms discourages the importation of goods into China, thus, creating an unfavorable trading environment.
Nonetheless, the newly integrated tax aims at relieving consumers from the burden of heavy levies on imports. Particularly, the new integrated system has a 0% taxation tariff on goods imported via the CBE platforms (Luo 220). Further, the new system waives importers from paying taxes for particular goods as mentioned earlier. Thus, if consumers in Hong Kong seeking to import jewelry priced at Rmb300 via the CBE platform, they will pay taxes according to the type of product, as well as the consumption tax. Therefore, the price would translate to Rmb398.7 (Rmb300 x 17% x 70% + Rmb300 x 30% x 70%) after imposing the tariff and consumption tax. Compared to the previous system, the importation of the same jewelry item would have been Rmb480 (Rmb300 x 60%). The previous postal articles tax required a 60% on the levy for such items. Thus, depending on the item imported via the CBE platform, the tax could be either a burden or a relief to consumers. Inspection and quarantine procedures are part of the import-export processes. In China, the development of the positive list that includes the allowed retail commodities for imports has influenced exporters and importers considerably (Nan and Gang 17). Commodities that fall on the “negative list” have been restricted for importation in China through the CBE platforms.
The positive list excludes an array of products, thereby preventing the competitiveness of businesses that deal in the excluded commodities. Notably, commodities in the negative list include most dairy products, alcohol, fresh food, and healthy food (Luo 222). In this regard, the policy limits businesses from importing some of their preferred commodities that are offered by other businesses situated overseas. Therefore, the issue undermines the competitiveness of the local players in industries such as dairy farming, alcoholic beverages, and fresh food. The establishment of the policy implies that the affected enterprises have to adjust their trade mode.
The positive list implies that the relevant industries would face stiff competition. Commodities imported via the CBE platforms offer competitive prices to importers (Liu et al. 17). Thus, the situation challenges the local players to upper their edge. The intensified competition implies that domestic enterprises would have trouble. Further, the establishment of the positive list implies that China Inspection and Quarantine (CIQ) department has to remain vigilant by improving its inspection processes (Nan and Gang 19). The CIQ ensures that no commodity in the negative list makes its way into China through the CBE platform. As such, the inspection system has resulted in intensification, thus becoming complex compared to the previous situation when it was just dealing with general trade goods.
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The policy also seeks to protect consumers from importing products that may result in harm. The CIQ has intensified its measures towards inspecting the quality of imported goods in the positive list. The CIQ also underlines the importation of quality goods to reduce the adversities caused by substandard products on consumers (Luo 223). Besides considering consumers’ wellbeing, the policy also seeks to protect customers from exploitation by international enterprises by ensuring that clients in Hong Kong among other Chinese cities import products offered at competitive prices.
Moreover, the policy also influences consumers’ behavior in the sense that they are limited to import some products that are categorized in the negative list. Further, the taxes levied on some products result in high prices, thus discouraging consumers with low purchasing powers from acquiring them (Nan and Gang 24). Therefore, the policy has a negative implication on the accessibility of customers’ preferred products.
The Suitable CBE Model for Hong Kong’s Economy
The two main models of CBE include the direct shipping model (B2C), and the bonded warehouse model (B2B2C). The B2C model is suitable for Hong Kong’s economy due to several reasons compared to the B2B2C model. The B2C model may intensify the competition faced by Chinese enterprises since the platform grants them an upper hand regarding the price, quality, and availability of products offered by overseas companies (“HKTDC: Cross-Border E-Commerce”). The move would result in greater economic activity in Hong Kong and hence bolster growth.
The B2C model also offers importers in China with an unlimited marketplace where they can shop for products classified in the positive list easily, regardless of the sellers’ geographical location. The ready availability of commodities makes economies grow at a faster rate compared to inaccessibility caused by geographical and time limitations (Liu et al. 17). As such, the competitiveness brought about by the availability of products sold online benefits consumers in a way that they can acquire quality goods offered at fair prices.
Opportunities and Challenges Faced by HK’s CBE SMEs
The new policy introduced by the Chinese Government poses several opportunities and challenges to SMEs in Hong Kong. The opportunities imply that Honk Kong has the potential of experiencing growth, thanks to the increased importation of goods, as well as re-exportation to the mainland. Particularly, the policy implies that SMEs in Hong Kong may have an opportunity to offer their products and services competitively to consumers, thanks to the high taxes imposed on goods provided by overseas enterprises (Luo 221). Thus, the local SMEs may experience greater opportunities for growth, owing to the competitive prices they offer to local consumers.
Further, the CBE platforms offer SMEs in Hong Kong with an opportunity for global expansion. Currently, China is made up of at least 60 million registered SMEs (“PWC: Latest Developments and Trends of Tax Policies for Cross-Border Trade and E-Commerce in China”). The integration of the CBE policy implies that SMEs based in Hong Kong could increase re-exportation to the mainland, thus contributing to the growth of the entire Chinese economy (Nan and Gang 21).
Nonetheless, SMEs in the CBE sector also face challenges that undermine their growth amid the opportunities presented by the digital platform. The import of quality goods at affordable prices intensifies competition between local SMEs and their foreign rivals (Luo 220). Stiff competition implies that foreign players enjoy economies of scale as domestic retailers face hurdles during their expansion process.
In this case, the winning strategy would be to enhance the image of the brands offered by SMEs in Hong Kong. The strategy is important in fostering the competitiveness of SMEs using the different models of CBE in China. Particularly, fulfilling the needs of the local market is the primary focus of SMEs in the country. Such focus enables them to grow on a global scale as evidenced by the current opportunities.
Analysis and Description
In the wake of technological advancements, the use of the various online platforms for business purposes has witnessed considerable growth. SMEs in China should take the opportunities presented by the digital age as depicted by the growth of CBE. The need to regulate the CBE platform has positive benefits, as well as adverse ones. The policy imposed on the CBE platform in China offers consumers with a variety of quality products at attractive prices. Further, the positive list ensures that consumers acquire quality goods through the online channel. However, the heavy taxes on some products are a major challenge faced by importers.
The B2C model of CBE suits the SME sector in Hong Kong. A policy that supports the B2C model in the business hub would see the growth of its SMEs besides protecting consumers in the local market (Zhang et al. 29). Therefore, there is a need for the amendment of the policy to fulfill the expectations of key stakeholders, including consumers and local SMEs.
The Asian region led by China has integrated technology into the commerce sector in a way that has streamlined international trade. Hong Kong has seen a considerable boom in CBE platforms. However, the policy imposed on the CBE sector affects the aspects of importation, thereby influencing the prices of commodities that are allowed to be imported in the country. Therefore, the need to foster the competitiveness of local companies using the CBE platform is crucial for improving the economy of China.
China’s CBE policy exempts import tariffs for single transactions totaling to RMB 2,000, as well as annual transactions valued below RMB 20,000 (“HKTDC: Cross-Border E-Commerce”). The main types of CBE include business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C). Particularly, the policies require enterprises to engage in recordation with customs, the matching of receipts regarding transactions, logistics, and payment. Consequently, the policy requirements influence China’s ecosystems, including the elements of taxation, import restrictions, quality assurance, and consumer protection.
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Luo, Kevin. “E-Commerce Laws and Practices in China.” Ariz. J. Int’l & Comp, vol. 33, no. 1, 2016, pp. 219-228.
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Nan, Chen, and Liu Gang. “A Research on Development of Cross-border E-commerce in Enterprises of Different Size in China.” China Business and Market, vol. 8, no. 1, 2014, pp. 11-25.
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