Retailers have been complaining for some time that high Chinese import tariffs drive their customers to grey traders on the internet. This is negatively affecting the retail industry and may have contributed to Hong Kong unrest following the increase in parallel trade from the mainland. Finally, it seems China’s State Council is listening, and plans to cut import tariffs and allow more duty free stores.
International Luxury Conference
This will be good news for merchants attending the International Luxury Conference on May 20 – 21, where the focus will be on increasing imports of top-end brands. For too long they have been at a disadvantage when competing with grey traders who contribute little to the economy. However, the elimination of these grey areas may take a while to implement. According to Jing Daily the first trial will only happen in July, two months after the conference delegates have packed their bags and gone.
According to Jing’s reporter, the numbers of Chinese tourists queuing up to buy luxury goods in Western countries has been on the uptick as they join internet grey traders in the scramble to snatch up bargains at seasonal sales. These are not however always gifts for friends and family. Instead, they may sell them in street markets or on informal ecommerce sites like WeChat and Taibao too.
How Grey Traders Harm China
While it is difficult to calculate the precise cost to China because the grey areas are unregulated, Jing Daily suggests that as much as 70% of all luxury goods purchased by Chinese citizens are sourced directly abroad, or via the internet. This is why the domestic luxury goods market slowed to slightly negative in 2014, while every second person seemed to have a new smartphone and tablet.
Consumers deserve protection from these shady markets that may or may not be selling genuine items. Many goods purchased in grey areas are fakes with no guarantees or after-sales service. If China allows this to continue unabated there is a prospect of a trade surplus developing with possible negative effects on the Yuan.
How Cutting Import Tariffs Will Help
China will never stop illegal imports and parallel trade completely, because everybody loves hunting for bargains on the internet. The only counter to this is reducing the cost of legally imported goods by cutting import tariffs, and this should lead to increased turnovers, more jobs and lower prices thanks to economies of scale when shipping. The China State Council’s timing is interesting vis-à-vis the upcoming International Luxury Conference. Doubtless grey traders will be high up on the agenda.