Experts urge product upgrades to drive domestic spending
As government hurried to counter rumors stemming from a newly implemented tax policy on overseas purchases over the weekend, analysts called on authorities to focus on an upgrade in quality instead of tax adjustments if they want to drive China's domestic consumption.
China's Ministry of Finance (MOF) on Sunday denied rumors that the government is imposing taxes on every individual item purchased overseas. The ministry stressed that the country will only collect taxes on personal overseas purchases worth more than 5,000 yuan ($774).
The rumors, which have been circulating on the Chinese Internet over the weekend with pictures showing beauty products scattered on airport floors and luggage being inspected, surfaced after a new tax policy on cross-border e-commerce was implemented on Friday.
The new policy, which raises the tax on low-end overseas merchandise, such as food, baby products and home appliances, while lowering the tax on premium items such as cosmetics, was aimed at putting domestic and foreign products on an equal footing. But analysts said the country should instead improve the quality of domestic products.
"It's hard to help shift the current trend of increasing Chinese outbound expenditures only through taxes," Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times Sunday.
On the contrary, the new policy may widen the gap between the prices of the same goods bought at home and abroad, driving Chinese tourists to spend more overseas, said Lu.
As a growing Chinese middle-class travels abroad more frequently, overseas purchases surge. A research note published by the World Travel & Tourism Council shows that Chinese overseas spending has grown by 53 percent to $215 billion in 2015 compared to the previous year, contributing heavily to the growth in global international tourism and travel spending.
"The lack of premium domestic brands and the nations' concerns over food quality are the main reasons for domestic consumer preference for overseas shopping," Guo Shaofen, chief economic analyst at the China International Electronic Commerce Center, told the Global Times Sunday.
Boosting domestic consumption relies on domestic industry upgrades and enhanced product quality, she said.
Impact on e-commerce retailers
Before the adoption of the new tax policy, "domestic cross-border e-commerce retailers such as JD.com and Kaola could import in bulk at lower costs, which gave them an edge over competitors," Liu Dingding, an industry analyst at Beijing-based market consultancy Sootoo, told the Global Times Sunday.
The new policy is expected to reduce the profits enjoyed by cross-border e-commerce retailers as individual consumers who buy goods from the e-commerce platforms valued within the official cap of 2,000 yuan and annual gross transactions below 20,000 yuan will now be slapped with an 11.9 percent value-added tax.
E-commerce retailers previously did not have to pay value-added tax and traditional importers are taxed 17 percent.
Some domestic cross-border e-commerce retailers have reportedly promised to bear the new added taxes themselves. E-commerce platform Kaola announced Thursday that it will absorb the tax on imported milk powder products, which are in demand by domestic consumers, according to news portal 163.com.
Chinese demand for cross-border goods has not only benefited e-commerce marketplace operators but also spurred the development of daigou, or overseas retail agents, and illegal gray-market imports, which Lu said has greatly hit traditional offline retailing.
Analysts said that the new policy would increase daigou's costs and stem illegal imports.
A Hong Kong-based daigou called Rivers told the Global Times Sunday that the biggest change caused by the new tax policy is that "I cannot pass the Chinese mainland customs with as many goods as before," which may lead to price increases.
Cross-border e-commerce retailers and daigou can raise prices to cope with increased costs, but this will make them less popular among consumers and they may get squeezed out of the market, said Lu.
On Sunday, the official Weibo account of the national customs authorities' consumer services also posted a statement saying that besides the 5,000 yuan tax-free limit, individuals can also buy another 3,000 yuan worth of tax-free overseas goods at duty-free shops at domestic airports for personal use, which "is enough for the individual."
Still, it seems insufficient for some consumers like a Shanghai resident surnamed Yuan.
"The 5,000 yuan quota, which was set years ago, is no longer practical and should be increased," Yuan told the Global Times Sunday.
