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Foreign Products Get More Expensive for Chinese Shoppers

Tencent, WeChatTencent, WeChat
How to broaden your tax base without (too much) protest.Photo: Zhuo Zhongwei— Imaginechina/AP

Buying overseas products online just got more expensive for Chinese consumers, potentially slowing what was a feverishly growing market.

The government announced new taxes for goods purchased on foreign websites on Friday that generally increase the tax to a level closer to the country’s VAT rate of 17%, from the old personal effects rate of 10%.

It’s not uniform: taxes on foreign imported food will rise from 10% to around 12%, but foreign cosmetics, long lusted after by growing affluent Chinese shoppers, will shed their old customs tax rate of 50% for a new flat rate.

The new tax system subjects consumers to taxes once only paid by wholesalers.

It’s difficult to know if the tax will have big consequences in the market for foreign goods. In surveys, Chinese consumers list product safety and quality as top desires for buying foreign products online, so price increases may have minor effects. China’s cross-border import e-retail market was $18.32 billion in 2015, up 111.9% from 2014, according to Internet Retailer, and the country’s e-commerce players Alibaba (BABA) and JD.com (JD) are expecting that to continue.

But the news created a stir on Chinese social media. Many users bemoaned the loss of ‘duty-free’ online shopping. (In fact, the new rules close a loophole for duty-free orders of less than 50 yuan, or $7.50.)

On Friday a photo spread on Tencent’s (TCEHY) WeChat showing a Shanghai airport floor covered with unwanted products thanks to the higher tax rates. Shanghai Customs later said the goods were only on the ground for inspection because another hall was occupied.

Companies were also intently watching the rules, which were only announced one day before taking effect. Before the Friday announcement, a deputy manger of Alibaba’s Tmall International speculated that rules might kill the entire cross-border e-commerce industry.

Right now that doesn’t appear likely. What is clear is that China’s tax administration is changing the rules to encourage Chinese to buy “made-in-China” products. It’s also clear Chinese consumers want foreign goods more than ever.

With reporting by Tian Chenwei.