Crossing the Line: Will cross-border regulations trip up China?

Where to house the warehouse?

Most freight-forwarders agree that the April adjustments to rates of taxation will have little impact on cross-border consumption. Despite the adjustments, most cross-border products are

still cheaper than goods brought into China through the general import model regardless of

whether they are entering China through a bonded warehouse or the direct shipping model. Moreover, by raising the tariff-free ceiling from RMB2,000 to RMB1,000, consumers are no longer incentivized by purchasing low-end goods, and may instead opt for higher-value goods, which have a higher utilization for airfreight.

On the other hand, the uncertainties regarding the positive list next year have diminished the allure of setting up bonded warehouses in pilot cities. Instead, forwarders are now taking a closer look at overseas warehouses as an alternative to bonded warehouses in China.

“Goods on the positive list, can go through the free trade zone,” Zhang said. If not, forwarders can still move the products into China via the direct shipping model. Rex already has pick-and-pack capabilities in Australia, which are now at the center of its future expansion plans.

Sinoair said it is also “actively exploring overseas warehouse models as a way to address the impact of tax reform and reduce customer costs.” The company also said that it “plans to gradually add overseas warehouses and increase overseas shared warehouse space to better our CBeC position and to better serve global and domestic customers.”

Expansion into overseas warehousing is not limited to freight forwarders. Alibaba’s logistics affiliate, Cainiao, is also heading in that direction. With its recent US$1 billion acquisition of a controlling stake in Singapore-based Lazada, the 4PL platform that handles a staggering 70 percent of e-commerce-related parcels moving through China with virtually no infrastructure of its own, will soon move into the 3PL world with warehousing infrastructure throughout Southeast Asia.

Looking ahead, Hsu remained optimistic, noting that opportunities outweigh the uncertainties. “CBeC inbound business will be impacted by the government regulations, and there’s some uncertainty of how the government will support this trade’s development.” Still, he noted, “considering the increasing buying power of Chinese consumers, and their appetite for everything, ranging from cosmetics to luxury goods,” models will adapt and forwarders will continue their move towards providers of “one-stop-shop solutions.”

In the long run, demand for Devondale’s milk powder will still ensure it reaches China; it is just a matter of how it is taxed, and the path by which it travels from Australia to the home of its thirsty Chinese consumers.

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