Hong Kong is increasingly becoming a major international business hub because of its strategic location in relation to China and its commerce laws and regulations. Improved technology is making it possible for e-commerce transactions to be conducted in this city. Massive amounts of goods leave China via Hong Kong to the rest of the world and from the rest of the world via Hong Kong to China. China Inspection Quarantine (CIQ) has made Hong Kong become the best alternative for exporters and importers who want to trade with China.
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Overview of the Forum
E-commerce is becoming one of the most reliable ways of conducting business due to improved technology in the field of information and communication. Hong Kong, due to its strategic location about China, has come out as a major e-commerce hub for both exporters and importers. The international business community considers Hong Kong as the best gateway to China because of its non-restrictive business laws. Cross-border e-commerce’s growing popularity has seen many firms position themselves to tap into this new business opportunity. In Hong Kong, it is becoming a major business platform that is attracting both multinational corporations (MNC) and small and medium enterprises (SMEs).
The world is increasingly becoming a global village due to enhanced technology in the fields of communication and transport (Liu 23). Businesses are finding themselves in a highly competitive environment where they have to consider expanding their markets as a way of dealing with local competition. Cross-border commerce has been in existence for a long time, but in the past, it was exclusively for the multinational corporations that had the financial capacity to do business beyond the borders of their home country. However, emerging technologies have created an e-commerce platform where even SMEs can afford to conduct business transactions beyond their borders. In Hong Kong, cross-border e-commerce is growing very fast and it is attracting small, medium, and large business corporations. The laws governing international business in Hong Kong are more liberal compared with that of China, a fact that has made Hong Kong be the preferred gateway to China among importers and exporters. In this paper, the research will focus on the impact of the new policies on cross-border e-commerce ecosystem in China and how it has impacted Hong Kong e-commerce environment.
Hong Kong has been a strategic gateway to China for a long time, especially due to the restrictive business laws in China that were meant to protect its local industry. According to Mansell, before joining the World Trade Organization, China had restrictive laws that made it difficult for international firms to import their products to this country (78). The government came up with this protectionist strategy to help the local industry grow. Currently, China has eliminated most of the restrictive laws, but most multinational corporations still find it more convenient to trade with China through Hong Kong (Lehmacher 56). The growing popularity of e-commerce has made Hong Kong become a more strategic global business hub than it used to be in the past. The emerging technologies in the field of communication and transport have eliminated the geographic barrier that existed in the past. It is now possible for a client in the United States to order a laptop from Hong Kong. Once the payment is made, the product is shipped to the client’s desired destination within the shortest time possible. Advancements in the field of transport mean that even small scale traders can conduct global business transactions because their products can be shipped to other countries irrespective of their quantity. Wong says that cross-border e-commerce in Hong Kong is likely going to flourish given the fact that China still has some laws which the international business community considers restrictive (78).
Analysis and Discussion
Impact of the New Policy on CBE Ecosystem in China
China has seen a rise in the demand for foreign products in the recent past. The government is fully aware of this increasing demand and has come up with policies to help protect the local economy. Most of these foreign products are often ordered through the internet, and as such, the government has come up with regulatory policies that will help regulate the flow of these products. There are ten pilot cities in China for cross-border e-commerce. They include Shanghai, Zhengzhou, Ningbo, Chongqing, Shenzhen, Guangzhou, Tianjin, Pingtan, and Fuzhou. In this section, the paper will look at the new cross-border e-commerce policies in China and how it affects the business environment in the country.
Tax policy change
On April 8, 2016, the Chinese Ministry of Finance released a new circular that changed the taxation approach used in cross-border e-commerce products. The new circular capped the value of products Chinese could purchase from overseas markets through e-commerce platforms. In the new law, one would only be exempted from high taxation if their import is less than Rmb. 2,000 per transaction. Cross-border e-commerce imports per person per year were also limited to Rmb. 20,000. It means that currently if the cross-border e-commerce imports that a person makes exceed the set limits, the products will be subject to the new higher tax.
Product import restriction
Before the new policy was introduced, the Chinese could order foreign products in the e-business platform without any restrictions. However, that is no longer the case. The government is keen on ensuring that those who make cross-border purchases in the e-commerce platform are domestic users. The new rule makes it difficult for commercial enterprises to purchase their products through this platform because of the expected high rates of taxation. The import restriction is in line with the Chinese policies that limit the amounts of foreign products in the local economy, especially if the products are readily available in the country. The strategy is meant to protect the Chinese economy.
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China inspection quarantine
The Chinese government has come up with a very strict inspection quarantine that seeks to ensure that only specific goods from the overseas market are allowed into the country. According to Choi and Shen, under the new law, it is only those products which bear the HS codes of the positive list that are allowed to be imported into the country through cross-border e-commerce platform (112). Most of them are everyday goods consumed domestically such as fruits, medicine, footwear, beverages, home appliances, garments, and cosmetics among others. The quarantine inspection was meant to clamp down on contraband goods entering the country.
Protection to consumer
The Chinese government, through several departments, has made a deliberate effort to ensure that its customers are protected when engaging in cross-border e-commerce. The local business enterprises have a code of conduct they have to observe in terms of the quality and quantity of products they deliver to their customers. In the same way, the government has come up with inspection policies to ensure that imports coming into the country, including those that are purchased in online platforms by individual consumers, meet specific quality standards. The new law helps in eliminating cases where foreign firms use an e-commerce platform to dump electronics and other wastes by selling products nearing the end of their lifespan.
Impact on consumer’s behavior
These new policies on cross-border e-commerce platform ecosystem in China have had a major impact on consumer behavior. The consumers appreciate that some of the new policies are meant to protect them from unscrupulous business people who may take advantage of the geographical distance. However, capping off the value of goods they can purchase in the cross-border e-commerce platform has been viewed as a restrictive measure by these consumers. Most of these consumers are now forced to carefully choose what they can purchase through cross-border e-platform. Most of them are now keen on emphasizing very basic products because they know about the limits.
Best Cross-Border E-commerce Mode for Hong Kong
Hong Kong needs an appropriate cross-border e-commerce mode that will enable the locals to purchase products from overseas markets. It may be appropriate to blend its current cross-border e-commerce mode with some of the policies newly introduced in China. Its mode should not have the value of imports capped at a certain value, as is the case in China (Miller and Oats 91). However, there should be proper consumer protection laws that will ensure that sub-standard goods are not allowed into the country.
Challenges faced by SMEs in Hong Kong
Small and medium-sized enterprises in Hong Kong still face several hurdles as they try to take advantage of the cross-border e-commerce platform. One of the biggest challenges that SMEs face is the high cost of transportation. Given that the SMEs transact smaller amounts of products compared with the MNCs, the unit cost of exporting or importing products for SMEs is higher than that of the MNCs. It means that the small and medium-sized enterprises cannot compete favorably with the multinational corporations. SMEs also face challenges when it comes to sourcing for finance. Most of the financial institutions in Hong Kong are reluctant to extending credits to SMEs because of the high rates at which some of them are often forced out of business. This is a common problem that new businesses in Hong Kong face. Most banks consider such new businesses as risky ventures because of the uncertainty of their future.
Hong Kong cross-border e-commerce is growing and both the SMEs and MNCs are keen on taking advantage of this growth. Locals in Hong Kong are also taking advantage of cross-border e-commerce to sell items they are no longer using and buy goods they need. Unlike mainland China that has come up with some restrictive laws to govern cross-border e-commerce, Hong Kong still has a liberal market economy, which makes it a very attractive market to the international community (Lacy 44). The locals can easily import products through online platforms from all over the world (Halket 63). Firms, both large and small, can also import products from foreign markets without facing major restrictions from the government. The local firms can also export their products to international markets with ease.
Cross-border e-commerce is facilitated by the improvement in the field of transport. In the past, it was only the large multinational corporations that could make regular shipping of products from one country to another. However, major developments have been witnessed where shipping companies now sell small spaces for small scale traders within larger containers. It is also taking a shorter time for products to be shipped from one country to another as opposed to what used to be the case in the past. The improved means of transport, enabling business environment, and the growing demand in the international market has led to the increased popularity of cross-border e-commerce in Hong Kong. The small and medium enterprises still face some challenges in the market, especially when it comes to competing favorably with the market leaders. However, they have a better business environment compared with their counterparts in mainland China.
Hong Kong cross-border e-commerce is growing very fast not only because of the improved technologies in information technology and transport but also due to import restrictions in China. The Chinese government has come up with several policies to guard its economy against the competitive threat of foreign multinational corporations. As such, foreign and local firms are finding it easy to access the Chinese market via Hong Kong. Both individual consumers and business enterprises are now heavily relying on cross-border e-commerce to purchase products they need.
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