Chinese Government Tariff Cuts and the Implications for Daigou.

According to an official statement released by Ministry of Finance on November 24, China plans to reduce tariff on 187 consumer goods, including cosmetics, apparel, health supplements, food, and pharmaceuticals. The new policy will go into effect on December 1. The average tax rate will drop to 7.7 percent from 17.3 percent.

This move by the Chinese Government is directed towards improving domestic consumption and encouraging Chinese consumers to spend more in China.

According to the statement, the Ministry said this round of cuts aim to reduce the price differential of overseas products that are in short supply domestically, thereby creating a more competitive environment for local and foreign brands and offering Chinese consumers more choice.

There were a number of pundits reporting in the Australian media that this reduction in tariffs would will curb the daigou business (overseas professional shoppers) who looked at arbitraging the price difference of premium/luxury goods between China and overseas.

However, the latest tariff cuts will not immediately impact the daigou business, as lowering tariff rate does not directly lead to a reduced price of goods. China’s import tax rate comprises of three types of tax, namely tariff, value-added tax, and consumption tax. Even though tariffs have been slashed, the country’s value-added tax remains 17 percent.

A Chinese Government spokesperson of the ministry said, “Tariff rate only accounts for 0.5 to 0.7 percent of an imported goods final price,” “thus, it [the latest round of cuts] will only have a very limited impact on lowering price.”

However, this new policy definitely symbolizes the Chinese Government’s intent to boost domestic consumption of premium foreign products and will likely create further changes for daigou and the types of products they look to purchase and send back to China.

Given the changes in tariff reduction, we have noticed the Australian daigou adjust their shopping/selling strategy to become even more selective, focusing on re-selling items that are not available in mainland. New Australian emerging brands (across a wide range of categories are being promoted by the daigou to their buyers to look for new sales opportunities.

The future of a flushing daigou business will certainly be impacted by the Chinese government’s import and tax policies but like all businesses this daigou trading sector has shown resilience and the ability to adapt. The daigou channel (D2C: daigou-to-consumer) has morphed from simply purchasing on the request of their Chinese contacts to adding proactive sourcing and promotional agent for brands to their broadening array of skills.

There will always be a place for the simple daigou shopper but the mega daigou- ones doing this business on an industrial scale or the 1200 daigou  shops in Australia that push out infant formula and vitamins by the pallet will need to reflect on what and how they will do this business in the future.

Dr. Mathew McDougall is the President of the Australia China Daigou Association