Interview: Legal Hurdles When Entering the China Market Via Cross-Border eCommerce?

Although 2020 has obviously been difficult for much of the world, Chinese cross-border eCommerce is one of the areas that has managed to perform well. Cross-border eCommerce (CBEC) in the country has experienced growth, even as most industries in China and the world shrunk in response to the global crisis.

According to customs data from the first quarter of the year, the import/export volume going through the customs CBEC management platform increased by 34.7%. Meanwhile, the overall level of Chinese imports and experts shrunk by 6.4% over the same period.

This may be in part due to the categories that make up much of CBEC. Beauty, mother and child, and health care products are all big players in CBEC and all benefitted in China during and following the pandemic. Obviously the outbreak had people thinking more seriously about their health, especially young mothers. But also industry consumers began ‘treating themselves’ with products like makeup and skincare as lockdowns lifted.

Therefore, many companies are understandably looking to Chinese cross-border eCommerce as a unique opportunity during these difficult times. Especially as the model offers numerous advantages for brands and consumers, as we’ve outlined before. So we at TMO Group talked to our legal partner at Fangben Law Office about what legal challenges face those wanting to jump on board with cross-border eCommerce to China.

Entry Strategy & Legal Compliance

Q1: What are the biggest impacts of the Foreign Investment Law (which came into effect on January 1st, 2020) on foreign brands?

A1: The Forest Investment Law addresses overseas investment activities in China. It aims to help overseas brands wanting to invest in China. For example, by codifying more protections for intellectual property (IP) and trade secrets, and more readily available government services.

At Fangben we spent a lot of time in the past helping foreign investors make it through the approval stage before they could invest. That process has now become far easier and more convenient.

Q2: In your first-hand experience, how has the 2019 eCommerce Law affected foreign brands?

A2: The rolling out of the 2019 eCommerce Law did not in-and-of-itself have a substantial impact on all overseas brands. This is because the Law didn’t just suddenly materialize out of thin air. It was largely a merging of many previous existing laws, regulations, judicial practices, and so on.

Alongside many laws issued in recent years, the eCommerce Law is a clear sign that the Chinese government is serious about opening up to global trade, protecting consumer rights, keeping the online business environment safe and stable, safeguarding IP rights, and protecting the Internet. Efforts and commitments in national law towards online safety have provided eCommerce operators with a more solid basis for their rights.

At the same time, the government has also established minimum legal obligations and expectations for eCommerce operators to safeguard consumer rights and data, as well as society as a whole. We believe that these steps will lead to China’s online business environment getting better and better in the coming years. Therefore we welcome the majority of international brands to enter the Chinese market, and let Chinese consumers enjoy the fruits of their latest innovations and their valuable experience.

Q3: If an overseas brand wants to enter the Chinese market initially through cross-border eCommerce, what are the main differences between the direct purchase model (Customs code: 9610) and the bonded imports model (Customs code: 1210) in terms of legal compliance?

A3: There are a few differences between the two in terms of customs compliance, mostly due to the difference in transaction modes. To be plain: 9610 is also referred to as the ‘consolidation’ model. That is, domestic consumers place orders and overseas merchandise orders are sent to China in bulk each month, after which these bulk orders in China are split into smaller packages to be sent to individual consumers. 1210 on the other hand is also called the ‘stocking’ model, where goods are first shipped to a bonded warehouse in China and goods are cleared one at a time when a customer orders each item.

Of course, we also provide customized consulting services to fit the various needs of foreign brands, so that they can get to grips with every available model and pick the one that best suits their business.

Company Setup

Q4: How long does it take for an overseas brand to set up a company in China? What other pre-approval steps need to be considered as part of the process?

A4: My experience during my time practicing law is that the process for foreign companies to set up in China has been greatly and continuously simplified. I have to credit the sustained and successful efforts of the Chinese government for this.

For example, over the years we’ve seen the introduction of a multi-window parallel approval process, a unified social credit code, three-in-one (and in some areas even 27-in-1) business licenses, an entry filing system, and in 2020 a reporting system. In accordance with the government’s consistent support for domestic and foreign investment, the process of setting up a company has been greatly simplified.

Take Shanghai’s “One Window”, for an example. If all relevant materials have been assembled, an ordinary company can generally obtain a business license in as few as three working days. In most cases, there is no need for pre-approval, and relevant license photos (such as licenses to operate a food-related business) can be processed later.

If you’d like to keep reading to learn more about the ins-and-outs of Company Setup, as well as more general tips for overseas brands, check out the full article at the TMO Blog.