Dairy Products China News(Dairy Products China News 1604)

China’s cross-border retail sales refer to goods either shipped directly to shoppers from overseas or from bonded warehouses in 13 free-trade zones in China. This trade is large and growing fast – McKinsey estimates that the market will reach RMB432 billion in 2016, up from RMB259 billion in 2015.

It is therefore no surprise that Chinese regulators had investors in a pickle when new e-commerce laws caused confusion in the market. Australian exporters were particularly hard hit as new regulations were announced – just as Australia’s Prime Minister Malcolm Turnbull was leading the country’s largest ever trade mission to China, with 1,000 delegates – 300 of which took part in the food and beverage part of the programme.

Much of the confusion was caused by a “list of positives” of 1,142 HS codes that are allowed to enter China via cross-border E-commerce. Milk powder for adults and UHT milk were not included in this list, leading to products being pulled from popular internet retailers such as Alibaba. This caused a sharp drop in the share prices of food and dairy companies in close trade partners such as Australia. Luckily, following some intense lobbying, the Chinese government issued a revised list with a further 151 HS codes 8 days later – UHT milk and milk powder are now included. The government also introduced a 11.9% tax on items purchased via this channel.

Confusion over regulations and a government crackdown on E-commerce may well lead to further growth in the so-called grey market which involves customers selling or gifting products to each other (called “daigou” in China), often via popular social media platforms such as WeChat. It is estimated that about half of all the infant formula sold at Australian groceries now goes to China via this channel. But even here, there are reports of more frequent spot checks by China’s postal and quarantine inspection services.

What these regulatory changes signal is that China is attempting to draw consumption back to a domestic market as a means to arrest slowing economic growth. As one journalist commented, “China’s policy honeymoon on foreign goods could be over”.

The USD/RMB exchange rate in this report is USD1.00=RMB6.4585 on 1 April 2016, sourced from the People's Bank of China. All the prices mentioned in this report will include the VAT, unless otherwise specified.