KnowChina

Getting The Goods to Your Customers


PREPARING YOURSELF FOR THE LOGISTICAL CHALLENGES

  • Ranked 28th out of 160 countries in the World Bank’s 2014 International Logistics Performance Index.
  • Struggles from a comparatively underdeveloped and inefficient delivery infrastructure, particularly in rural areas. Advances are swift, however, and by 2016 China is predicted to become the world’s third largest logistics market.
  • The 4th largest country in the world at a surface area of 9,562,911 km2 with numerous topographical and climactic variations; China’s south is semi-tropical while in northwestern China temperatures can drop to –20 °C.
  • Difficulties with population size and distribution; e-retailers may have to deliver goods over much longer distances than they are used to, at greater cost, whilst still continuously improving the quality of their offering.

When asked about their cross-border shopping experiences:

  • 43% reported dissatisfaction with long delivery times;
  • 33% felt frustrated by hidden costs
  • 27% felt buying cross-border subjected them to some uncertainty as regards a seller’s reliability
  • 26% felt concerned about difficult returns procedures.
  • In 2014, 5% of all goods ordered online were returned.
  • High expectations for delivery: in the largest eastern cities, many consumers expect to receive their parcels within 24 hours. Delivery in 2-3 days is typical in smaller cities and provinces, though of course longer waiting times are expected in more rural areas.

CHINA’S LARGEST CITIES (IN MILLIONS OF PEOPLE)

There are a large number of shoppers in third- and fourth- tier Chinese cities without access to traditional shops, creating a higher demand for online shopping, and these numbers are growing every day.

LOGISTICS OPERATORS

There has been some concern expressed over the availability of high-quality logistics providers in China. Current logistics players also struggling to keep up with ever-increasing parcel volumes, particularly in peak shopping periods.

Most large B2C e-commerce companies, like JD.COM and Amazon, have built their own delivery services.

Foreign-established companies unlikely to be able to offer express delivery services in China for at least another five years.

Types Selected Enterprises Pros Cons Latest Development
State-owned • Sinotrans
• China Post
• Large-scale
• Pan-China network
• Good relationship with governments
• Overstaffing
• Low operational efficieny
• Not customer oriented
• Improved efficieny by merger and acquisition
The new breed
(privately owned or
joint venture)
• PG Logistics
• JC Trans
• SF Express
• Clear market segment in terms of locations, services and targeted customers
• Relatively efficient
• Rapid Growth
• Limited fixed assets
• Lack of funding for market expansion
• Constrained by internal management and company structure
• Formed strategic partnership with other competitive counterparts or investors
The spin off
(logistics subsidiary of
large-scale enterprise)
• Midea
• Haier
• Specialist know-how
• Good network coverage
• Difficult to develop external client base
• Future strategic plan and domestic network in China
• Began to operate independently from mother company
Foreign players • FedEx
• DHL
• UPS
• TNT
• Strong overseas network
• Good logistics know-how
• Widespread adoption of IT
• Relatively weak domestic network in China
• Limited scope of business in China
• High operating costs in China
• Expanded their mainland China market by merging or forming strategic partnership with local players

CUSTOMS, DUTIES AND TECHNICAL REGULATIONS

  • Companies often take a staged approach to broaching China, and this often means testing the market by exporting a small number of goods.
  • Exporting goods always requires a company that has approval to operate import/export activities, as stated in a business licence. Such a company has to be registered in China. This company is often simply an intermediary assisting with import.
  • For first time exporters, customs clearance procedures in China can be quite onerous – consistency and always using the same port as an entry point will make the process easier with time.

Process for exporting goods to China

1. Determine which import category your goods fall into

  • China’s Ministry of Commerce (MOFCOM) regulates the import of foreign goods, and Chinese law classifies
    all goods into three categories:

    • Free imports – can largely be imported without restriction, though some goods will require an automatic import licence.
    • Restricted imports – can only be brought into China by an importer with an appropriate import licence, quota import licence, tariff quota licence or any combination of these.
    • Prohibited imports – banned from import into China altogether.

2. Ensure your products meet any relevant Chinese standards

  • There are four levels of standards in China, which are arranged in a hierarchal structure:
    • National standards
    • Professional/industry standards
    • Local standards
    • Enterprise standards
  • China sets its own national standards, some of which differ from those which are internationally applicable. The Standardization Administration of the People’s Republic of China is the authority in this area and offers a database of relevant standards.
  • Only national standards can be mandatory across the board for all imports into China, and where they are they will be represented by a ‘GB’ prefix. Around 15% of national standards are mandatory. Other national standards (GB/T) and many professional and local standards are largely considered voluntary, though some local and professional standards will also be mandatory where they apply. Enterprise standards are never mandatory.

3. Where required, apply for and obtain a China Compulsory Certification (CCC) mark

  • Depending upon the product offered, manufacturers must sometimes apply for and obtain a CCC mark before they can export to or sell in China.
  • The CCC mark is China’s national quality and safety mark, and the certification takes the form of a physical sticker which can be applied as a label to individual products.
  • China’s National Certification and Accreditation Administration (CNCA) provides a list of all the products that require this mark – currently over 250 products do.
  • The certification process is somewhat cumbersome, relatively expensive and can take 4-6 months.

4. Ensure your product meets all labelling/packaging requirements, and attach any relevant labels to products before they arrive in a Chinese port

  • All products bound for China require some form of labelling, and with few exceptions these labels must be in Chinese. Some products require both English and Chinese labels.
  • Labels are the responsibility of China Inspection and Quarantine (CIQ), and an approved application must be made to receive them.
  • Different products and industries have different labelling requirements, and these should be checked in advance of selling into China. There are both mandatory rules and voluntary guidelines, and costs associated with labelling can vary significantly.
  • There are additionally various packaging requirements for goods exported to China, and these again depend upon the specific product to be imported.

5. Have all paperwork ready to present to authorities for inspection at customs, and, where relevant be prepared for authorities to take a sample of your product for further scrutiny

  • The General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) is the administrative and enforcement body for quality control, measurement, inspection of import and export commodities, certification and standardisation in China.
  • Some products for import into China require entry-exist inspection and quarantine, and goods passing this process with be awarded a certificate.
    Chinese importers will be responsible for presenting all relevant documentation to Chinese customs agents, and the approvals process should be begun far in advance of goods arriving at a Chinese port.
  • Required customs documentation varies significantly, but procedure often includes:
    • Quota certificate/import licence inspection
    • Customs registration
    • Commodity inspection (where relevant, certificate required)
    • Customs declaration
    • Submission of documents (certificates or origin, sales contracts, bills of lading, commercial invoices, packing lists, etc.)
    • Examination
    • Payment of taxes and fees

TAX AND DUTIES FOR THE IMPORT OF GOODS

CUSTOMS DUTY

  • Levied on the cost, freight and insurance price of imported goods, and Chinese customs is responsible for assessing the customs duty of all imports into China.
    Chinese customs uses a valuation database that lists the values of a variety of imports based on international market prices, foreign market prices and domestic prices, though an importer’s stated values are normally accepted.
    China has a relatively low customs de minimis threshold of around $8; therefore most goods imported into China are subject to customs import duties.
  • Duties fluctuate significantly depending on a number of factors, and in particular:
    • The specific category the goods fall into; and
    • The country of origin of the imported goods. Most-favoured-nation duty rates apply, amongst others, to goods imported from other WTO member states.

VAT

  • Charged on the sale and import of goods as well as processing, repair and replacement services, though there are exemptions for the import of certain goods.
  • Levied after customs duty and incorporates its value.
    Collected regularly on imports at the point of their entry into China.
    See legal and tax section for applicable VAT rates. Certain goods are exempt from VAT altogether.

CONSUMPTION TAX

  • Payable on 14 categories of goods.
  • Assessed based on the price and/or amount of the imported goods respectively or collectively depending on the specific legal regulations.
  • The rate payable is calculated based on price and is usually between 1% and 56%.

NOTE – Chinese authorities are in the midst of developing Free Trade Zones (FTZs) in Shanghai, Fujian, Tianjin and Guangzhou which have the potential to change the way international companies operate in China.

Other areas of interest

Meeting your regulatory responsibilities

How you decide to enter the Chinese market can determine the legislation and tax applicable to you.

Reaching and engaging your consumers

Chinese consumers are unique in their shopping habits and preferences; e-shopping in China is viewed as a form of entertainment for the entire family.

Receiving payment from your customers

Cash on delivery is still regarded as a must-have option when selling to Chinese consumers.

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