CHINA CONSUMER：CBEC - IN A TRANSITION PHASE
Last Friday, a MOFCOM spokesman publicly commented on the CBEC policy.After the new CBEC policy was rolled out in April 2016, the whole industry hasbeen going through a transition phase. To recap, the new policy with a positivelist and pre-approval requirement for ccertain categories was to be delayeduntil end-2017, while the 11.9% VAT was implemented from 8 Apr 2016.During the transition period, products imported via CBEC will be still regardedas products for personal use rather than general trade. From 1 Jan 2018, newregulations will be rolled out to regulate the CBEC market,. The newregulations will be rolled out in 15 pilot cities.
Market comments and interpretation – government might review its new policy? Zhang Zujun, APAC president of Garden of Life (a US healthcare company),believes that this is positive for the CBEC market as the channel has beendefined as a personal channel rather than general import trade.
Xinhua commented that MOFCOM’s announcement indicates that thegovernment is reviewing its CBEC policy and possibly relax a bit on theregulation and tax front.
Ouyang Cheng, a manager at Alibaba’s (BABA.N, Buy) CBEC department,commented that similar to the development of ecommerce over the pastyears, CBEC has emerged as a more creative channel with concretedemand, so the government may not restrict its development but willregulate the market in a more moderate and appropriate way.
Xing Yue, a general manager at Tmall Global, also suggested using anegative list instead of a positive list. He also proposed to cancel thepurchasing cap of RMB2,000 per transaction and the annual cap ofRMB20,000 as Tmall’s data show that transactions with more thanRMB2,000 in value grew 127% yoy, faster than the transactions with lessthan RMB2,000 in value (101%). This also means that consumers arewilling to spend more on CBEC channels.
Deutsche Bank view – the new regulation might modify; however, it still needsto strike a balance between online and offline (general trade)We believe that MOFCOM’s comments on CBEC confirmed it as an effectiveretail channel for consumers to buy foreign products and gave the marketsome indication on reviewing the policy in the future. The government is stilltrying to create a level-playing field, in our view. For example, the new productregistration for both CEBC and general trade should be similar but simplifiedvs. the current scenario: too many restrictions for general trade but norestriction for CBEC until end of 2017. Meanwhile, a lack of clearer picture onregulations may discourage CBEC distributors from building inventory andhaving a long-term business plan.
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