China’s passion for eCommerce is in full swing, with customers enthusiastically buying both at home and overseas. It’s a highly innovative scene domestically, with a handful of tech titans jostling for position along with a host of smaller operators.
China’s existing import/export structure hasn’t kept up with the rapid growth of transactions across its borders. Not only are Chinese consumers and businesses eager to access foreign goods from vendors outside China, the government also wants to enable goods to flow the other way, increasing China’s online export activity.
Three years ago, a solution was launched to facilitate the growing cross-border eCommerce scene: experimental eCommerce “special trade” zones.
The idea was for these special zones to offer a more favorable environment for cross-border trade via online channels.
Authorities such as government departments and customs were tasked with being more supportive and offering more effective policies and practices to aid in cross-border eCommerce. This has meant streamlining customs clearance and improving the administration of logistical facilities.
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The key benefit for eCommerce companies selling in China is being able to buy in bulk from abroad, then storing goods in bonded warehouses based in China under the supervision of customs authorities. Companies can then distribute these goods to customers at the point of order.
It’s a faster way to manage cross-border eCommerce from a ‘just-in-time’ logistics approach. The main advantage is speed, as customers won’t have to wait as long for their orders since they’ll be delivered from warehouses within China as opposed to passing through customs individually.
Estimates suggest this approach will reduce average order fulfilment time from 20 days to 5, as goods will no longer need to clear customs in order to reach individual buyers. It’s also likely to reduce shipping costs, as the main international leg of the supply chain will be handled by bulk delivery. As well, 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 solution
Thirteen major first- and second-tier cities were originally chosen as pilot zones for the first few years of the solution. These were mostly located in the highly economically active parts of eastern China, including Shanghai and Chengdu. The cities enjoyed favourable customs clearance procedures and support for logistics.
What happened is that eCommerce turnover doubled year-over-year in these special zones, although there was already an upwards trajectory for eCommerce in China during this same period.
Encouraged by what appears to be a successful pilot project, China is now pushing ahead with expanding the solution. A further 22 cities have now become special trade zones. China’s domestic tech giants have been active in promoting the special trade zones in the wider Asia region.
Businesses in Macau and Hong Kong seem especially interested in the solution, with many using the bonded warehouses for their fulfilment process.
China is eager to stay competitive globally and participate in eCommerce exporting. Authorities have also spotted the potential for eCommerce to help stimulate the relatively underdeveloped central and western regions of the country.
To date, the solution has focused on more advanced cities in the eastern and coastal regions of China, but it’s likely to expand. In China’s vast market, it makes sense to tackle new initiatives in stages, which explains why authorities haven’t yet implemented the changes across the country.
Requirements and special benefits
If you’re looking to take part in the solution, check first that the goods you’re selling are permitted. You may require special licenses or filings, especially for goods being imported for the first time. For example, there are special requirements for items like baby formula, medical equipment, and certain items marketed as health food.
Prior to shipping 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 solution 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 that employment laws covering things like employment contracts can vary between special economic zones, so always be sure you’re compliant. It’s worth seeing what perks (and extra rules) you’ll encounter if you choose to participate.
Some of China’s major trading partners benefit from particular relationships with key zones. For example, some Australian states or cities have relationships with select trade zones, in particular the Shanghai special trade zone. Recently, there was also 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 the country thanks to their unique rules and perks. But the solution 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 key benefits to engaging with these solutions.