Cosmetics Trade Be Significantly Curtailed by China Crossboarder Ecommerce Policies

The implementation of new CBEC policies on April 8 2016 (see CL news) significantly impacted the trade of cosmetics in China.

The adjustment of the CBEC tax structure has meant that many popular CBEC goods are subject to an additional 11.9% tax, an increase which has been passed to consumers. Compared to goods sold through traditional cosmetic sales channels, CBEC cosmetics no longer offer a significant price reduction. Another new policy relating to the requirement for traders to obtain a “Customs Clearance of Entry Commodity” (CCEC) is a major barrier and essentially imposes legal and regulatory requirements identical to that of other sales channels in China. The bonded warehouse model will in future (after the grace period ends) requires mandatory submission of a CCEC, and has prompted many traders to switch to the direct shipping model which does not require a CCEC. Compared to 2015, many CBEC companies have had trouble obtaining finance this year and some reports suggest that overall financing has decreased by up to 50%. Bigger platforms like JD, Tmall have buffered these changes but many SMEs have suffered.

The Extension of Grace Period

Recently, China MOC and related departments announced the extension of the grace period, which was extended to the end of 2017. During the grace period, CBEC commodities don’t need to obtain the “Customs Clearance of Entry Commodity” (CCEC), and cosmetics can still be imported via CBEC without pre-market approval by CFDA. (See CL news).It is estimated that the extension is a response to the serious disruption experience by industry. Sun Hanwu, chairman of Sunsult Investment said, “Since the new CBEC policies, 70% of CBEC companies have collapsed. I guess this is why the government delays the implementation date.” To ensure a smoother transition for industry, China MOC also emphasized that during the grace period CBEC companies should strengthen risk prevention and product quality and safety systems. “In addition to the extension of grace period, I think other favorable policies could be released in the middle of next year.” said Gu Junlin, CEO of 55 HAITAO, “ For example, I think we may see an increase in the limit of single orders or personal annual purchasing limits (see CL news).”