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Daigou (代购)& Haitao (海淘) in China
The explosive growth of China’s emerging middle class is continuing to expand and growing in sophistication. Indeed, this middle class becoming more and more exigent, they demand quality. After all the scandal that happen about food, safety, health… Chinese people do not trust in their own country and prefer to buy aboard.
Nowadays, there are two ways to get foreign product: Daigou and Haitao.
Literally translated in English Daigou means “buying on behalf of”. The term of Daigou refers to the Chinese who take advantage of their stay or travel in Europe or somewhere else to buy luxury goods for a “client” remained in China, obviously less than that displayed in the Chinese shops. Daigou’s can be anyone, you, me, your friends, Chinese students… Anyone who are based overseas, they are in Paris, London, Seoul, Tokyo and New York that kind of big city and they purchase commodities, mainly luxury goods but also groceries for a customer in mainland China.
It is not a new trend (but when is about China everything take big proportion), it started with the crews of airlines that have taken advantage of their frequent travel and ease to cross borders. The vigilance of customs services for this particular population has put a stop to this sector without completely turning it off. Now, students, as well as Chinese tourists, funded a large part of their stays and trips through these resales.
Nowadays, China’s middle class is composed by 400 million of people, which earn 60000 to 230000 RMB a year. Among them,there are 146 million who are considered as “upper” middle class, which earn 106000 to 230000 RMB a year and the 254 million left are considered as a mass middle class and earn 60000 to 106000 RMB a year. The Chinese middle class is becoming more sophisticated, Chinese’s consumption mode change a lot, with all the scandal happened in China, this middle class pays more attention to their environment. There is no doubt that they have a great demand for a better quality of life and imported product is a guarantee of this “better quality of life”.
Chinese love cosmetics products, luxury and grocery goods, but it is not only due to scandal happens in China who push them to buy overseas. It is also due to hefty import tariffs and consumption taxes, for instance, the price for a Longchamps bag the “Pliage” model is in France 76€ but in China is 151€ (1100RMB), the double price. Social media platform, like Wechat and Weibo, is important drivers of this e-commerce activity. Daigou agent can publish goods picture on their “moment” while shopper can send the list of what they want to the agent.
Daigou margin is about 20% or 30% of the price and the transaction is easy with a third party payment platform like Wechat wallet and Alipay. This solution is quick and instantaneous that avoid sharing bank account information. There are two ways to get your pack: either the Daigou brought himself the product and carries out a domestic shipment, or he ships them by international transport. The shipment fee is including to the margin.
It is a win-win for the seller who want supplement his income and for the buyer who can avoid the import fee.
Parallel trade: Grey market
However, this trend creates a grey market, indeed, the “Daigou market” in 2013 was valued at 55 billion yuan (8.8 billion dollars), in 2014 was valued at 75 billion yuan (12 billion dollars)an increase of 20 billion yuan, but in 2015 was valued at 43 billion yuan (6.5 billion dollars) that decrease reflects a turning point. The Daigou practice is not only illegal but also a loss, each purchase made outside of China represent money that is not collected.
The government has taken some measures to fight against Daigou, as well as a luxury brand. China’s Ministry of Finance announced that it would lower import taxes. Tax for clothing would drop from between 14 to 23 percent, to 7 to 10 percent, and taxes on footwear would be reduced from 22 to 24 percent, to just 12 percent. In addition, Chanel, Gucci, Cartier did some adjustment to narrow the gap price between Chinese and European market. For instance, some luxury brand chooses to lower their price in China and increase their price in Europe to narrow the gap.
For those who are born in the digital era, there is another way to get luxury goods or even other products, indeed with the rapid development of e-commerce, it is possible now to buy online.
With the emerging of China’s middle class, which demand a “better life” and the rapid growth of e-commerce. There is a new trend: “Cross-border e-commerce”. The cross-border trade is named in Chinese Haitao (in Chinese: 海淘). Haitao concept buys on internet products/goods that from overseas, it is a guarantee of the product authenticity.
According to a recent research, the volume of cross-border e-commerce in the country reached 4.2 trillion yuan ($657 billion) in 2014, which represent in total 13.4 trillion yuan ($2.2 trillion) of the e-commerce market share in China. China national of e-commerce sector is also gaining its share in this market. According to the Research Centre, customs services and e-commerce of China 18 million Chinese spent 140 billion yuan in the Haitao in 2014. The Government supports this trend. In August 2013, the Council of affairs of State adopted a policy favorable to cross-border e-commerce, with six measures to facilitate the process, including customs clearance, inspection of quarantine, customs duties, and foreign exchange transactions.
According to the tax rules in Shanghai, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen and Chongqing, each command with a value less than 500 Yuan ($82) is exempt from customs duties, while each order between 500 and 1000 yuan is subject to a duty of 10%, against an average entitlement of 40% collected on imported goods in the ordinary. The Ministry of Commerce forecasts that cross-border e-commerce will reach 6.5 trillion yuan in 2016 yuan in 2016, representing 20% of the total trade of the country. The Haitao market volume is expected to reach 1 trillion yuan in 2018.
Daigou and Haitao are the best ways to get foreign products without leaving the country.With the rise of the middle class who desire a better quality of life, buy abroad is the best solution of the authenticity of the product.Concerning Daigou, the government tries to contain the grey market around this phenomenon, by lower the import fee on some product. However, the government supports the Haitao trend.
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— Daxue Consulting (@DaxueConsulting) September 29, 2015