New rule puts pressure on overseas purchasing service

Graphics: GT

A new customs rule that attempts to regulate haitao or overseas purchasing service might put thousands of agencies and individuals engaged in the flourishing yet partly grey market trade at risk of being guilty of smuggling.

Haitao service has seen robust growth in China in recent years as people are eager to look overseas for high-quality or luxury products which are much more expensive at home due to heavy taxes.

But the new regulation is also expected to turn the somewhat underground haitao market into a legitimate one which is good news for customers, said Zhang Yunan, a mother of a 6-month-old baby girl, who is also an individual haitao agent active on mobile social networking platforms.

Zhang is a full-time employee at a State-owned enterprise in Shenyang, Northeast China's Liaoning Province, and also a part-time haitao agent after partnering with a friend in Canada in February.

Her friend regularly sends Zhang pictures and information of products sold in Canada on WeChat, a free mobile instant messaging app operated by Tencent Holdings.

Zhang is responsible for "marketing" or retransmitting these pictures and key product information including prices and specifications to her group of friends on WeChat.

Whenever a customer agrees to buy a product, Zhang's Canadian friend will purchase the item and mail it to Zhang who will then redistribute the product to the customer. The customer then pays Zhang who will share the gains with her Canadian friend.

The part-time job brings her additional monthly earnings of 3,000 to 4,000 yuan ($488 to $650), Zhang told the Global Times on Monday.

New rules

According to the new rule, effective since Friday, the cross-border e-commerce traders or individuals who make cross-border transactions are subject to oversight from China's customs authority, including submitting information on orders placed, payment and logistics, before filing customs declarations.

Under current haitao practice, many products are carried in either travelers' luggage or mailed to China, declared as personal goods to avoid paying the import duties and value-added tax for domestic consumption.

"I have never been asked to pay the import duties for baby goods bought overseas," Zhang said, noting that the goods are low-priced and for personal use only.

But Zhang said that sometimes luxury items such as Coach and Michael Kors handbags may be stopped by customs and taxes imposed on the buyer.

A distributor with good delivery methods will ensure the buyer won't be taxed, Gu Xi, a Hunan-based haitao fan, told the Global Times on Monday.

"We do not actively declare customs [for customer's goods]," a customer service representative of Shunfan Shipping transportation company which has a warehouse in the US state of Oregon, told the Global Times on Monday.

Under the new rule, it might be increasingly difficult for haitao customers to avoid paying tariffs and taxes, said the customer service representative.

It is expected that further detailed regulations will be released.

Growing popularity of haitao

Zhang herself is also a consumer of haitao, buying mainly baby care products.

She first got to know haitao when she bought some nutritional products abroad for her pregnancy in mid-2013. After that, she fell in love with the business.

"Even with the transportation fee and exchange rate differences, some overseas products are cheaper than in China," Zhang said.

The Medela breast pump, a Swiss product, if bought via Amazon US, costs about 900 yuan while the same product sells on Chinese e-commerce website jd.com for around 1,700 yuan or 1,300 yuan during big promotions, she said.

Attracted to haitao, many individuals even started to shop directly on overseas e-commerce websites like amazon.com and iherb.com.

As many overseas websites do not offer direct mailing to foreign countries, Chinese buyers usually need a person or company to help transport the goods back home.

There are no official statistics on the number of traders in this emerging business, but more than 50,000 results are returned when searching for haitao on taobao.com alone, a site belonging to China's largest e-commerce provider Alibaba Group.

With the popularity of mobile social networking apps, more Chinese individuals who are overseas have begun offering products to their friends at home via WeChat's friends circle function, which allows a group of friends to share their daily life experience.

An advantage for promoting an overseas purchase service via WeChat is the trust among friends.

"You don't have to worry about whether you will actually receive the goods ordered or be cheated by unknown haitao service providers," Zhang said.

But even still, there are some scams in the WeChat-based haitao service. Some sellers are not actually based in a foreign country and cheat customers by buying fake products made domestically, she remarked.

Risk and benefits

An anonymous customs official told the Global Times on Monday that a detailed explanation of the new rule will be posted on the official website at a later date.

All declarations must abide by this new rule, and any violation of the rule will be regarded as smuggling, which will affect numerous illegitimate haitao service providers and benefit those registered with customs, Shanghai-based kjt.com (KJT), a platform for cross-border e-commerce, told the Global Times in a note on Monday.

In 2013, a former flight attendant was sentenced to three years in prison for smuggling cosmetics as personal belongings from duty-free shops in South Korea through Chinese customs and selling them online.

The new rule will help weed out the illegitimate haitao providers, and prompt the industry to develop properly and protect consumers rights, Du Yanhong, an analyst at CIC Research Center, told the Global Times on Monday.

The regulation came as haitao has been burgeoning with huge, though mismanaged market potential.

Haitao transaction value reached 76.7 billion yuan in 2013, soaring 58.8 percent from 2012, according to China e-Business Research Center.

After gaining momentum in metropolitans including Beijing and Guangzhou, haitao is expanding to smaller cities. The transaction value is estimated to double to about 155 billion yuan for 2014.

Tax evasion of more than 50,000 yuan on imported goods will lead to smuggling charges, according to the Customs Law, Yang Zhaoquan, a lawyer at Beijing Vlaw Law Firm told the Global Times on Monday.

Legitimate haitao service providers are more trustworthy as they offer genuine products with an overseas origin rather than counterfeit products, like some illegitimate haitao agents do, which is good for consumers, according to Zhang in Shenyang.

As long as legitimate haitao providers sell products at an acceptable price, they will continue to appeal to consumers, Zhang said.