New E-commerce Law: how will it impact Daigou and WeChat stores?

We received many questions from clients and readers asking about the effects of the new e-commerce regulation in China that became effective from January 1st, 2019. Many worry that individuals will no longer be able to run WeChat stores anymore and that daigous will no longer operate their Taobao stores.

We look into the regulation and here is the summary:

• You will need to provide a business license in order to operate an online store (including Taobao, WeChat store, and Weidian), with few exceptions including “low-value transaction” as stated in Article 10
• The lawmaker has not determined the exact amount of “low-value” thus until the threshold is announced, all individual stores can operate normally as before
• Individuals can still register a personal WeChat store/Taobao store

An (unofficial) English translation of the original E-Commerce Law of the People’s Republic of China can be downloaded here: https://www.izvoznookno.si/Dokumenti/E-commerce%20Law%20of%20the%20People%E2%80%99s%20Republic%20of%20China.pdf

Official Chinese version: http://www.npc.gov.cn/npc/xinwen/2018-08/31/content_2060172.htm

Major e-commerce platforms have made announcements and policy updates after the regulation.

Taobao

Taobao summarized a list of Q&A on the e-commerce regulation for its merchants.

Q: The new regulation requires stores to have “entity registration”. What does “entity registration” mean?

A: Entity registration means a business license issued by the State Administration for Industry and Commerce. The following individuals will not need to provide a business license:

1. Sell agricultural sideline products produced by themselves
2. Sell household handicraft products produced by themselves
3. Use their own skills to engage in public convenience services
4. Occasional and low-value transactions “零星小额交易” for which no license is required by the law
5. Store for which no registration is required by laws or administrative regulations

Law registration has not define the amount for “low-value transaction”. Thus until further notice, all the individual Taobao stores will continue to operate as before.

Q: Can individual still open Taobao stores?

A: Yes, you can create a Taobao store as longe as you meet the above requirements. If you wish to upgrade individual store to business store, you can apply via this site: https://transfer.taobao.com/unitrans/index.htm#/subjectchange

Q: Will Taobao close any individual stores?

A: No, as long as the store meets the regulation (and thus as long as “low-value transactions” are not made more explicit), Taobao will not close the stores

The original Chinese version of the Q&A is here: https://rule.taobao.com/detail-9302.htm?spm=a21pp.8204670.0.0.65565b71P9TebA&tag=self

Pinduoduo

Pinduoduo will be able to provide all of its merchants with an Internet Operation Location Certificate (网络经营场所证明). Individuals could use this certificate at the registration office to acquire a business license.

Tmall

The new e-commerce regulation does not impact the current tax rate. The operators of Tmall stores shall display their business license on Tmall page.

JD.COM

JD made an adjustment of the merchant exit announcement in compliance to Article 16. According to the new regulation, if merchants wish to terminate their e-commerce operation, they need to announce it 30 days in advance on a conspicuous place of their homepage.

Kuaishou

Kuaishou on the other hand is testing e-commerce features to enable content creators to sell their products. The Kuaishou e-commerce plan is called “燎原计划”, a plan to test driving traffic to Taobao stores, WeChat Mini Program stores and native Kuaishou stores.

The first categories will be F&B, cosmetics, daily merchandise, pet products, and clothes. Kuaishou also prohibits certain categories to sell, including health supplements, mother & baby products, children’s clothing, alcohol, etc.

A leaked internal document from Kuaishou indicates one campaign sold 1.5k of “quantum socks” worth 94k RMB in a video with 14k visitors. It’s a 10% view-to-purchase conversion rate. Quantum socks are a type of socks that claim to bring benefits such as killing bacteria, erase static electricity, massage feet and keep them warm.

Douyin

Douyin took away its requirement of having 8,000 followers in order to open a store. Now Douyin account could create a store to sell on Douyin. We wrote an article on how to create a Douyin store here.

Other regulatory explanations

CEO of China E-Law, Alamusi, also announced his understanding of the new e-commerce:

1. The purpose of the new e-commerce regulation is to incentivize the development of e-commerce. Its purpose is not to clean up individual WeChat stores, Daigous and Taobao store.
2. The new regulation does not require all the individuals to apply for a business license, and neither does it require the existing stores to stop operation.
3. The “low-value” requirement is still up to the lawmaker to define.
4. The new regulation does not require all transactions to provide Fapiao.
5. The e-commerce regulation does not stop or limit all Daigou sales. Many Daigous operate through a cross-border version of Taobao called Taobao Worldwide (淘宝全球购). The regulation only concerns individuals who operates the business within China, it does not apply to individuals who operates outside of China. The document 《关于完善跨境电子商务零售进口监管有关工作的通知》released November 28th, 2018 does have a clause indicating that one “cannot resell the products that are purchased via a cross-border e-commerce channel”, but this does not prevent most Daigou’s who are bringing products through customs in their luggage.
6. This new regulation applies to all channels, including WeChat store, live-streaming, and short video platforms. It excludes financial products, news information, audio and video content, and other types of culture related digital content as stated in the 2nd point of the regulation.

Conclusion

The new e-commerce law of China is a step forward toward a more regulated and stable environment for China’s e-commerce development.

The new regulation however contains a lot of ambiguous points such as the “low-value transactions” threshold. The real impact of this regulation will depend on how and to which extent it will be enforced in the coming years.