WESTPAC AUSTCHAM SHANGHAI BUSINESS SENTIMENT SURVEY
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Westpac AustCham Shanghai
Business Sentiment Survey
Reflections on the Chinese
regulatory landscape The GBA initiative
A “new phase of opening up”: illustrate, the general trend in the Chinese will provide
Update on China’s foreign regulatory environment has in our view
been incrementally positive. While the
a valuable
investment environment Chinese government has more work opportunity for
2018 marked the 40th anniversary of
China’s journey towards economic reform.
to do on improving the transparency,
consistency and certainty of the regulatory foreign companies
However, it was also the year in which the environment, international business and
US and China engaged in a trade dispute investors remain keen to grow businesses
which has resulted in hundreds of billions in China and support economic growth.
of tariffs being imposed. (including through a focus on strict
Despite the rising US-China bilateral trade
Key regulatory and policy compliance with applicable laws,
regulations and policies).
tensions, China’s regulators continued developments:
to implement new laws and economic Moving from 2018 into 2019 Following the announcement, China’s
policies in the spirit of reform and with State Administration of Foreign Exchange
a view to opening up China to foreign Developments in China’s financial issued new rules aimed at addressing
businesses wishing to access or expand markets and financial services sector foreign investors’ concerns about
their Chinese presence. In 2018, the new China Banking and repatriating funds associated with their
Insurance Regulatory Commission and securities investments out of China.
Chinese President Xi Jinping’s remarks at Significant changes include:
the 2018 Boao Forum for Asia affirmed China Securities Regulatory Commission
China’s continued commitment to improving announced a number of measures the removal of the 20% limit on the
its foreign investment environment. designed to attract foreign investment into net amount of capital and profit that a
President Xi emphasised that China would China’s financial services sector. Qualified Foreign Institutional Investor
enter into a “new phase of opening up”, The new policies reflect the following key (QFII) can repatriate out of China each
and that China would “enhance alignment principles: month;
with international economic and trading
rules, increase transparency, strengthen China’s financial sector will be open and the removal of a lock-up period for QFIIs
will afford equal treatment to investors and RMB Qualified Foreign Institutional
property right protection, uphold the Investors (RQFIIs) – previously, no
rule of law, encourage competition and offering quality financial services;
repatriation could be made during the
oppose monopoly”. the reform of China’s financial sector will lock-up period; and
This note briefly surveys the developments proceed in conjunction with reforms in
in China’s regulatory landscape in the China’s exchange rate mechanism and allowing QFIIs and RQFIIs to hedge FX
further reforms to its capital account risks associated with their investments in
last year. It is not intended to describe Chinese securities.
all of the changes in Chinese regulation policies; and
that have occurred across a variety of during the reform process, China’s focus Greater Bay Area initiative
sectors and the plans for further review. on the management and prevention of Over the last year, China progressed the
However, as the following key examples financial risks will remain paramount Greater Bay Area (GBA) initiative, under
which key cities in Southern China, including The GBA is also seen as an important However, while the growth opportunities
Hong Kong, Macau, Guangzhou, and Belt & Road hub providing opportunities for consumer products together with
Shenzhen will be integrated into one single, for international cooperation in the lowering of tariffs present positive
globally connected economic zone by 2035. infrastructure connectivity, as well as opportunities for businesses to enter or
commerce, trade and logistics. increase their presence in the Chinese
As one of the Chinese government’s most
market, the uncertain global political
ambitious economic policy priorities for You can understand more about the
landscape together with increased political
2019 and beyond, the GBA initiative will Outline and its vision for the core GBA
scrutiny on trade negotiations could give
provide a valuable opportunity for foreign cities by reading: A new blueprint
rise to unexpected policy movements on
companies seeking to refresh their existing for growth — Analysis of the Outline
Australian exports into China.
China market entry and engagement Development Plan for the Guangdong-
strategies. It also groups together several Hong Kong-Macao Greater Bay Area.
economic regions with which Australia has Takeaways for 2019
enjoyed strong trade relationships. Chinese imports and the impact of and beyond
regulations and trade negotiations
After much anticipation, the long-awaited Overall, China has continued its trend
Outline Development Plan for the In recent years, Chinese regulatory reforms of gradual economic reform with the
Guangdong-Hong Kong-Macao Greater for consumer products including cosmetics, announcement of key regulatory and
Bay Area (the “Outline”) was released on infant formula, and drugs and medical policy developments.
18 February 2019. The Outline follows devices have created key opportunities
for foreign businesses to export quality China’s continuous efforts to ease
the signing of the Framework Agreement
products into the Chinese market. restrictions for foreign investors, increase
on Deepening Guangdong-Hong Kong-
transparency, and encourage growth
Macao Cooperation in the Development of Together with the continued rise of internet and investment, including throughout the
the Greater Bay Area on 1 July 2017. intermediaries and e-commerce channels, GBA, affirms the Chinese government’s
The GBA outline contemplates: as well as moves from the Chinese goals of improving the foreign investment
government to increase IP protections, environment and attracting investment.
(financial sector) presenting the GBA foreign businesses of popular consumer
as an international financial hub, with products have seen China emerge as a However, while the volatility in the global
established systems and regulations key growth market. landscape may have an impact, these
in line with international standards; broad reform initiatives present exciting
establishing a regional centre for equity The most common e-commerce channels opportunities for foreign businesses,
and commodity trading, expanding used among survey respondents to sell particularly in certain key sectors including
the scope and cross-boundary use products and services financial services, technology as well as
of RMB in the GBA and launching infrastructure, the increased volatility in the
cross-boundary RMB interbank lending, 59.7% global political landscape may also have
foreign exchange businesses and an impact on foreign businesses over the
related derivative products; 47.2% course of 2019.
(innovations and technologies)
creating smart cities within the GBA
to encourage a culture of innovation, Contacts
including the creation of start-ups and
innovations in new materials, high-
end medical diagnosis and treatment, WeChat Alibaba
genetic testing, new energy, and
environmental protection. This will While the majority of respondents (38.8%)
be supported by R&D programs and said that less than 10% of sales in China
special funding for joint innovation are generated through online channels, Will Heath
programs within the GBA; many respondents were either developing Partner, Melbourne
a China e-commerce strategy (29.4%) T +61 3 9643 4267
(dispute resolution, governance and or improving their China e-commerce M +61 415 603 240
cooperation in legal matters) developing
strategy (15.17%). will.heath@au.kwm.com
an international arbitration centre in
the GBA, strengthening anti-corruption At a global level, China announced three
mechanisms, expanding integrated rounds of tariff cuts across 2018, lowering
community service functions across the import taxes on a wide variety of consumer
GBA and using legislative powers to goods and industrial products.
accelerate the establishment of a legal
For foreign businesses, under the
system aimed at facilitating an open
protection of the China-Australia Free
economy; and Cammie Teo
Trade Agreement, tariffs on Australian
Solicitor, Melbourne
(infrastructure) improving infrastructure exports such as wine, opals, beef and
T +61 3 9643 4376
across key areas such as dairy as well as whisky, pharmaceuticals,
transport, information and internet vitamins and health products are expected M +61 401 229 039
communications, and energy resources. to be reduced or eliminated in 2019. cammie.teo@au.kwm.com
E-commerce opportunities and
challenges for foreign businesses
e-commerce in
China is forecast
Challenges and opportunities experiences through social media
for foreign businesses networks in China is critical for Australian to exceed
E-commerce in China is and will continue
brands to gain traction in the Chinese
market. This can lead to a large
USD$140 billion
to play a key role in driving growth in network of local Chinese consumers by 2021
many Chinese industries. Many foreign promoting these brands via their own
businesses wishing to grow in China social media networks, reviewing sites
must have a detailed and well thought out and re-ordering the same product online
e-commerce strategy in order to remain planning or actively developing a stratey.
delivered to their door upon their return
relevant and competitive in China. In a landscape where mobile-first
to China.
consumers are easily tempted by
Key challenges facing foreign businesses Fashion represents a burgeoning redefined customer experiences, retailers
when conducting e-commerce business opportunity with a handful of iconic must be innovative to stay ahead of the
in China include recruiting and retaining Australian fashion labels already active curve. To this end, there has been a
human capital with relevant experience on Tmall and other Chinese e-commerce substantial uptake in the use of a variety
in the Chinese e-commerce market and platforms. Savvy Chinese shoppers are of e-commerce channels beyond WeChat,
relationships with multiple platforms, speed reselling many independent and small including Alibaba, JD.com and through the
of change and rise of new platforms, Australian labels leveraging the popularity daigou community.
navigating the changing regulatory of Sydney and Melbourne’s more sought
landscape in China, and the lack of deep The caveat to this enormous growth and
after fashion destinations and laneways.
domestic social media know-how. opportunity is that the Chinese e-commerce
The two major annual fashion festivals
market is extremely competitive and foreign
The top three opportunities for foreign in Australia have also courted leading
businesses must be creative and flexible
businesses to leverage in order to Chinese fashion bloggers, models and
to stay relevant in this constantly changing
effectively capitalise on digital and Chinese e-commerce giants in recent
market. The fluctuating and unpredictable
e-commerce trends in China are: years and this coverage has had positive
changes in government regulation also
knock-on effects in China.
present a very real challenge to foreign
Australia’s domestic pool of Chinese businesses.
speaking talent with professional Observations about foreign
backgrounds in the broader daigou In addition, relations between Australia and
economy and the related services and
businesses
China at a political level continue to bear
skills that support this phenomenon. As the largest retail market in the world, heavily on Australian companies prospects
This includes China-facing product it is no surprise that China is more flourishing in the Chinese market. Whilst
incubation, promotion via social media advanced in the e-commerce market than Australian companies appear to be
and acting as a bridge between arguably any other market in the world. more upbeat about their prospects in
Australian corporate expectations and The growing millennial and middle-class China compared to companies based
mainland China’s highly competitive and consumer base with greater disposable in the US and Europe, over half of
frenetic pace. income continues to propel lower tier foreign businesses operating in China
cities into the ‘first-class opportunity’ perceive unfair treatment compared to
Australia’s product innovation around spotlight. The e-commerce market is a domestic competitors.
food and wine, mother and baby,
valuable opportunity for foreign businesses
personal care and beauty products - in
to access significant untapped market Trends and changes in the
particular the organic and all-natural
potential as these cities mature and the
space - and the clean and green
appetite for Australian products, often
e-commerce space in China
provenance story around farm to plate.
seen to be premium, grows.
Foreign businesses need to have the Growing cross-border e-commerce
ability to market this story to the global The 2019 Westpac Australia-China The market size of cross-border
Chinese shopper, including experiences Business Sentiment Survey Report e-commerce in China for 2016 was
such as farm gate, cellar door, vineyard, indicated that 30.3% of Australian USD$78.5 billion and is forecast to exceed
seafood market and other specialist businesses have a China e-commerce USD$140 billion by 2021.
locations. The ability to leverage these strategy in place, with another 29.4%
Drivers of this growth include a trusted flow of goods between Australia and China Despite the increasing regulatory
digital payments infrastructure, an increase through daigou. challenges and complex bilateral relations,
in the number of Chinese travelling abroad the majority of foreign businesses are
The new Chinese e-commerce law will
and gaining exposure to international optimistic about the future of Chinese
also hold e-commerce platforms jointly
brands and products, and concerns e-commerce sales.
liable for the actions of their online sellers.
relating to consumer and food safety in
There will now be joint liability for sale of Key takeaways for foreign businesses:
China. Key product categories such as
counterfeit and copycat merchandise
baby products, health and nutrition, beauty
online which will require foreign businesses Cultivate good relationships with
and organic food products from foreign e-commerce platforms.
to be more active in the way in which they
businesses continue to be held in high
demand by the Chinese consumer.
sell their goods in China. Implement robust intellectual property
protections.
The new law places joint liability on
Increasing rigorous regulatory platform operators and merchants Look beyond major capital cities in China.
landscape for selling counterfeit and copycat
Regulators in China are implementing merchandise on their websites. A variety in product choice is valued.
an increasing number of regulatory Previously, only individual merchants Consider how to reduce excessive
requirements on cross-border e-commerce were liable for such conduct. amounts of packaging and plastic waste.
sales which have had a direct impact
The new law applies to e-commerce Think about unique and trends
on foreign businesses operating in the platform operators, third-party opportunities in order to leverage brand
Chinese market. merchants who sell goods and services Australia and increase your e-commerce
These regulations will require foreign on others’ e-commerce platforms, and sales in China.
businesses to comply with a stronger online vendors operating their own
compliance regime in particular with respect websites or network channels.
to the use of daigou and IP protections.
All merchants selling online in China Contacts
An important change in the regulatory will need to register for an online selling
regime governing imports of foreign certificate to be displayed in their
products through e-commerce channels online store.
is that daigou will be required to register
as e-commerce operators and acquire Sustainable packaging
licenses in both China and the country Chinese consumers received nearly
where they purchase goods. This means 1.9 billion packages within 10 days
Edwina Kwan
that all daigou purchases will now be of the Double 11 shopping festival on
Senior Associate, Sydney
subject to taxation in China. 11 November 2018. The excessive
T +61 2 9296 2126
packaging materials have contributed
Daigou have traditionally made up a M +61 439 915 252
to China being the leading producer of
significant proportion of imports into edwina.kwan@au.kwm.com
waste and this has been raised by the
China of Australian goods as a result of
Chinese government as a concern.
e-commerce transactions so this new
regulatory measure will impact upon the As a result, the Chinese government is
way in which foreign businesses engage now actively promoting the development
the daigou as a tool for their e-commerce of sustainable packaging to lower the
business in China. carbon footprint of the industry.
Chinese customs have noted that they will Foreign businesses should be aware of the Diana Liu
take a stricter approach on undeclared Chinese government’s approach to packaging. Solicitor, Sydney
parcels which have traditionally been sent T +61 2 9296 2057
by daigou. This measure is targeted at What does this mean for M +61 427 397 768
ensuring all cross border e commerce diana.liu@au.kwm.com
foreign businesses?
purchases are subject to Chinese taxes.
However foreign businesses that have Online channels account for less than
relied heavily upon daigou as part of their 10% of sales for almost half of foreign
e-commerce strategy should be aware of businesses.
the impact this measure may have on the
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