Our focus today is a roundup of China news, innovations, new developments and trends. Chinese economy hasn’t recovered but big e-commerce players are still doing significant business inside the country and through outside investments and collaboration to bring in international goods. Some have called new China regulations a “crackdown” Australian dairy cooperative Murray Goulburn sees it more as closing loopholes in existing trade laws. Law firm King & Wood Mallesons sees potential for negative impact and even possible bans on certain e-commerce categories. Alibaba sales of farm products grew by 44% in 2015 to $10.7 billion, a sign of potential for farm products.
Boston Consulting Group said online pharmacy business has grown to more than 7 billion yuan ($1.1 billion) in 2014, nearly 3% of all retail sales of medicine in China. Mondelez has partnered with Alibaba’s Tmall.com to sell Oreo cookies, Cadbury chocolates and Trident gum. Alibaba is investing $900 million in online food delivery firm Ele.me, along with affiliate Ant Financial, with $350 million. While Procter & Gamble misread the market for higher-priced goods, Starbucks and Apple have been successful selling their perceived luxury brands according to Resonance China CEO Jerry Close. Sequoia Capital is near finalizing two new $1.45 billion VC China funds aimed at technology investments.
China’s e-commerce laws not a ‘crackdown’ but closing a loophole
Murray Goulburn has a point – the new regulations are just the latest in a series of measures aimed at regulating China’s booming e-commerce market.
In September last year, the State Council, China’s cabinet, announced that it would be more stringently implementing the 2010 Customs and Duties Law. This announcement already made many e-commerce sites in China (or e-commerce services providers who supply Chinese customers) wary of stocking foreign goods. Chinese newspapers praised the decision, arguing that it would benefit Chinese domestic firms.
In the medium-term, Australian products will almost always be more expensive to Chinese consumers than domestic alternatives, as China’s cost of production is lower. A 10-20% increase in the price of Australian goods, as mooted in the new regulations as applying to milk powder, is unlikely to deter Chinese consumers from buying a guaranteed clean and reliable product. Following a number of deaths from tainted milk powder, Chinese consumers are unlikely to trust Chinese dairy products for many years. Via theconversation.com
New Challenges in China Cross-border E-commerce
The boom in China cross-border e-commerce has been dramatic and exponential. It has led to strong share price growth of brands that have been particularly favoured by Chinese consumers. It was always clear that the Chinese authorities would at some stage seek to better regulate cross-border e-commerce and two recent rules coupled with stronger implementation have caused concerns as to whether the e-commerce boom will continue in the future.
The first rule is the Circular on Tax Policy for Cross-Border E-commerce Retail Imports (“E-commerceTax Circular”), which was published late last month and became effective from 8 April 2016. The E-commerce Tax Circular significantly changed the preferential tax policies that had been applied to cross-border e-commerce transactions. The changes were primarily adjustments to tax rates, introduction of an annual limit of RMB 20,000 per individual consumer and other changes that affect cross-border e-commerce but do not seek to strictly limit it. A summary of the tax changes is set out under “Note 1” below.
A second more serious challenge to cross-border e-commerce involves a so-called “Positive List”. On 7 April 2016, eleven PRC government departments (covering all major government bodies relating to business trading, food and drug control, customs and tax) jointly published a “cross-border e-commerce retail list of imported goods”. Early signs are that the Positive List may lead to outright prohibition of e-commerce sales of certain categories of goods, so this second regulatory change has the potential to have a more negative effect on e-commerce than the E-commerce Tax Circular. Via lexology.com
Farmers rushing to e-commerce market
Farm produce sales via Chinese e-commerce giant Alibaba topped 69.6 billion yuan (US$10.7 billion) in 2015, up by 44 percent year on year, according to a report released on Wednesday by AliResearch, the research arm of the Alibaba Group.
The report, released at the first China Farm Produce E-commerce Summit in Mile, Yunnan Province, said Alibaba’s e-commerce platforms have registered more than 900,000 farm produce sellers. More than 100,000 of them are from Guangdong Province, with the second- and third-highest concentrations in Zhejiang and Jiangsu provinces.
Zhang Ruidong with AliResearch said e-commerce-based consumption from Guangdong topped 8 billion yuan last year, while those from north China’s Gansu and Hebei as well as the eastern Anhui were growing fast. Chinese online retailers, chief among them Alibaba and JD.com, have been trying to unlock the commercial potential of rural China. Alibaba and JD.com have both established infrastructure in rural areas and computer showcase areas to demonstrate to locals how to use e-commerce. Via china.org.cn
China’s E-commerce Giants Shifting to E-pharmacy in Anticipation of Full-bloom Growth
China’s e-commerce giants are getting into the online pharmacy business as government directed retail sales of prescription drugs away from hospitals, the Xinhua News Agency reported.
A report released by Boston Consulting Group (BCG) on Thursday, April 7, showed that the country’s online pharmacy business has grown to more than 7 billion yuan ($1.1 billion) in 2014, which accounted for nearly 3 percent of all retail sales of medicine in China.
Analysts, however, said that online medicine sales would further grow if the government would allow prescription drugs to be sold by online pharmacies. Currently, over-the-counter medicines are allowed to be sold in online pharmacies and give very minimal contribution to margins. Via en.yibada.com
Mondelez Leans On Alibaba For E-Commerce Push In China
Mondelez has inked a partnership with e-commerce giant Alibaba to more aggressively address the Chinese market, as the snack maker looks to sell more Oreo cookies, Cadbury chocolates and Trident gums in the important emerging market.
The pact is a new way for Mondelez MDLZ 0.71% to boost its business on two fronts: the alluring Chinese consumer market and helping reach the broader goal of generating at least $1 billion in e-commerce revenue by 2020. Food manufacturers have recently focused more on trying to sell their goods online as some consumers ditch brick-and-mortar grocery store trips for online ordering.
The Mondelez snacks will be on Alibaba’s BABA 2.34% Tmall.com platform, with some key launches like the Oreo Colorfilled, which will debut in May in China. That offering – a way for consumers to design their own Oreo packaging – was originally piloted in the U.S. late last year. Via fortune.com
China’s Alibaba Bucks Baidu, JD, Tencent in Acquisition, Investment
E-commerce giant Alibaba Group (BABA) is investing $1.9 billion in two deals confirmed in the past two days, holding firm to its strategy of growth through acquisition and boosting local services in China.
On Wednesday, Alibaba said it will invest $900 million into Shanghai-based Ele.me, while an affiliate, Ant Financial, will kick in another $350 million. Ele.me is a leading online food-delivery company.
As part of its global expansion, Alibaba announced Tuesday it will acquire a controlling stake in Singapore-based Lazada, a leading e-commerce platform in Southeast Asia, for an investment valued at $1 billion. The deals upped the ante in an ongoing war among China’s four largest Internet giants — Alibaba, JD.com (JD), Baidu (BIDU) and Tencent Holdings (TCEHY). Via investors.com
Categorically Open Brands Still Fail to Take Categories Seriously in China
Recently, Procter & Gamble’s new boss Dave Taylor directly criticized his company for an “unacceptable” performance in China. In January, P&G reported that the brand’s organic sales in China last quarter dropped by a “high single digits” percentage. The core message from Taylor was that P&G had ‘missed the boat’ in anticipating Chinese consumers appetite for higher price consumables.
While P&G misread China as a developing market typified by price sensitive consumers, key category competitors, on the other hand, surged ahead. In terms of engaging the aspirations of Chinese mums, Kimberly-Clark moved faster by providing premium diapers at higher price points. We looked at China too much like a developing market as opposed to the most discerning market in the world. Via bndinginasia.com
Sequoia looks at raising $1.5b China fund
Sequoia Capital is looking to raise as much as $1.45 billion for a pair of funds to invest in Chinese technology startups, according to people familiar with the matter. The Silicon Valley venture capital firm expects to close the China funds by April 7, said the people, who asked not to be identified because the funds haven’t closed yet. If the targets are met, it would be the largest fundraising for Sequoia Capital China, a decade-old division of the firm.
Sequoia China was started in 2005 by Neil Shen, a founder of online travel company Ctrip.com International Ltd. The venture firm bought early stakes in tech companies that have since gone public, including Qihoo 360 Technology Co. and Vipshop Holdings Ltd. Sequoia is also a backer of SZ DJI Technology Co., the world’s biggest maker of consumer drones.
The latest fundraising takes place amid uncertainty in the Chinese economy, a decline in venture capital raised by U.S. firms and a sex scandal facing a Sequoia partner who departed the Menlo Park, California, firm this month. A former exotic dancer sued Mike Goguen, a partner at Sequoia for almost two decades, alleging he had broken a contract to pay her $40 million to settle claims he abused her during the course of a 13-year relationship. Goguen filed a countersuit claiming the relationship was consensual and that his former mistress’s suit amounts to extortion. Via dealstreetasia.com
Alibaba feature planned
Tomorrow, we’ll profile Alibaba and it’s vast global business rivalled only by Amazon. It’s a truly Impressive company and a fascinating story.