As we step into the year of 2019, various regulations and laws in China will come into effect starting from Jan. 1st. For many Chinese residents, these new changes are already starting to make a significant impact on their daily lives. The WeChat e-commerce sellers are starting to change their ways of day-to-day operation. It is now a taboo for them to talk about words such as price, products, or even accept WeChat payments.
According to the e-commerce law, individuals who are selling products on WeChat and streaming platforms, or starting their own Taobao e-commerce stores are all deemed as e-commerce merchants, and could face fines up to 2 million yuan. By law these individuals are now required to register as formal businesses, and are thus subject to paying corporate taxes.
These changes are going to become a huge hit for small and mid-size e-commerce merchants. With rather low barrier of entry, these individuals are relying on the price differences of the given products in different countries to make profit and survive. The latest regulation seems to be shutting that door for the unregulated businesses, not only are they now under more constraints, they are also subject to paying taxes that could potentially encroach their profit margin and ultimately, their own personal income.
It is a loophole that the Chinese authorities closed on the relatively free e-commerce market. Tax authorities will most likely be happy to collect more taxes from individuals who haven’t paid any additional income taxes in the past years. The new e-commerce law also standardized the basic principles of e-commerce markets, making it easier for consumers to make claims against fake or defective products.
Furthermore, e-commerce merchants may get involved in criminal activities such as tax evasion and smuggling. Earlier this November, one e-commerce store owner was sentenced to 10 years in prison for smuggling goods worth over 10 million yuan and evading 3 million yuan worth of income taxes. With the rapid growth in e-commerce, those numbers are not only reachable, but even a very likely sum that successful e-commerce merchants can make over time.
The new changes sound like a good form of protection for ordinary Chinese e-commerce consumers, who are vulnerable to the frequent sub-standard products. However, the new rules are breaking the existing equilibrium and will make both consumers and merchants uncomfortable, at least for a little while.
There are reports from individual sellers who claim that WeChat is starting to close down accounts that may be involved in e-commerce activities. According to these sellers, words such as price, products, and payments are now the ‘sensitive words’ that are subject to censorship and account closure. Instead of posting their regular promotional content in their WeChat moments, these individuals are now starting to use alternative words, substitutes, pictures, even foreign languages.
Instead of posting the actual pictures for their products on sale, WeChat merchants are now posting up their hand-drawn pictures with words very hard to understand to evade censorships. However, legal experts suggest that these activities will not exclude them from fulfilling their legal obligations. These measures could perhaps delay the process of detecting these sellers, but will certainly not exclude them from obeying the law.
While many e-commerce merchants are aware of the latest laws, many are confused about the process of registration and the next steps of becoming a law-abiding merchant. Even though law enforcement is starting to close down unregistered accounts, there is little information on how individual sellers could be registered and thus become legal e-commerce sellers.
The line between ‘helping friends to buy stuff’ and ‘selling oversea products for a living’ remains vague. The issues become more complicated when taking e-commerce entities serving Chinese overseas into account: They are in fact foreign entities paying taxes to foreign countries. The customers that they serve are foreign based individuals, yet they are using Chinese-controlled platforms such as WeChat and Taobao. Should they be subject to Chinese laws, or should they get an exemption from the new rules?
According to Chinese state media Beijing Daily, the new e-commerce law is designed to protect Chinese consumers from unverified products. But the confusion that has emerged surrounding the new regulation worth the attention of Chinese officials. The vague wording and lack of transparency now make the new regulation more like an arbitrary barrier for individual sellers, rather than a decree that protects vulnerable consumers. Instead of solving the dilemmas that exist in a competitive market, the law now poses a threat to the flourishing e-commerce business in the country.
There are evident problems within the Chinese e-commerce market, from individual sellers who are not reaching a reasonable service standard to the constant issues of fake, counterfeit, and illegal products on various e-commerce platforms. There are many issues that the Chinese regulatory authorities to focus need to tackle. However, the struggle remains to be mainly between the e-commerce giants and the ordinary consumers. It was a tough experience for individual consumers to fight for their rights against these platforms, and the regulatory bodies should try to make the balance to ensure the legitimate rights from these consumers.
From copyright to product quality, China has a long way to go to regulate and standardize its e-commerce businesses and establish the orderly market that the authorities desire. However, will the latest e-commerce law have a positive effect on the market? Only time will tell.
Featured photo credit to twoeggz.com