4. Impact Review on Daigou Business
4.1. What-If Analysis
4.1.2. Tightening of Customs Control
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due to less profit margins. To satisfy customers’ needs and create more values to them, price insensitive and high-valued products, such as quality items or luxury goods, have thus become the major oversea products in the Daigou channel. The changes in offerings/selections of different products is the direct response to the reduction of import tariffs taken by the Chinese government.
4.1.2. Tightening of Customs Control
Tightening of customs control, means tightening the inspection of imported goods, increasing commodities customs duties as well as implementing rigorous customs administrative penalties.
Since August 2014, Chinese citizens must pay an extra customs duty for any “personal use”
products that are worth over 5,000 CNY each time they return to China. This amount of money is the typical label for Daigou goods [70]. On April 2016, stricter policies on customs control was launched on a range of goods either imported via the Internet or carried in by travelers.
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exceeds 2,000 CNY after parcel tax deduction and its value is over the annual limit of personal transactions (20,000 CNY per year) [74]. According to China’s 2016 inbound commodities’regulation policy, duty taxes are imposed on over 600 inbound items with tax rates ranging from 10 to 60 percent. [75].
Additionally, stricter requirements have also been imposed on exporters of packages exceeding 10kg, demanding a health certificate and a series of import requirements. Failing to comply with those requirements will carry a penalty of up to 12 months in jail and falsifying information will have sentences up to five years [76]. These are the measures taken by the Chinese government to tackle the tax avoidance problems and smuggling issues caused by Daigou activity.
With the increase in enforcement on customs rules and regulations, parcels and baggage that come into China undergo stricter inspections, creating a potential threat to the current Daigou business and causing a significant decline on its market sales and business scales [5]. In many big cities of China, especially Shenzhen, Suzhou, Shanghai and Beijing, many people have lost their Daigou parcels because of the failure to declare all items. Thousands of oversea products are either confiscated or charged heavy custom duties as a result [77] [78]. Tightening customs control not only helps to restore the public image of some luxury brands that has been damaged by counterfeiting issues mostly through the Daigou channel [53], but also forces thousands of Daigou agents to get rid of this business and drives Chinese consumers to shop through legitimate channels in order to avoid penalties and counterfeits.
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However, some of the new customs measures have inadvertently created barriers for consumers who want to use legitimate channels to buy online [70] as the values of any parcels over 1,000 CNY are rejected or returned by customs because of the stricter custom policies. This ultimately drives them back to shop directly through Daigou sellers, who send products by not declaring an accurate value or declaring them as gifts at customs [79].
In addition, despite various attempts to crack down Daigou development, it has been proven difficult to regulate. Daigou activity will continue to exist unless the product prices in China can beat those from abroad and the items’ selection can be as wide as those in oversea countries [5]. Thus, after all these new regulations were put in place, Daigou agents adapted their business to remain competitive and to ensure that the market remains attractive to customers. The changes of business models are as follows (i.e. Figure 16):
For small scale businesses, the profit margin is low so Daigou shoppers still take risks by not paying duties in order to keep their profits margins. Rather they choose to reduce the oversea
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purchase orders or amounts; to shift to offer less risky products, such as clothing and cosmetics instead of hot items, such as apple iPhone [51]; In some cases, if it proves too risky, Daigou agents simply stop all Daigou activity. On the other hand, for large scale business, Daigou shoppers are more flexible and are less likely to leave the Daigou business. They may reduce their profit margins or increase their products’ selling prices to offset the expenses from the custom duties.
However, in any business scales, some shoppers may also take risks by falsely declaring the value at customs or sending packages under 5kg labelled as gifts to avoid paying Chinese import tax [80]. The rigorous checks by customs have led Daigou agents to abandon bulk supply and send smaller packages. For instance, they used to put six tins of milk powder per box and now changed to three tins per box, which weighs just 3.6kg [75]. But in order to avoid paying taxes on Daigou product, these agents end up engaging in smuggling because the products are shipped to China without proper authorization. These business models may not be sustainable in the long run, because it will likely trigger stricter regulations from the government eventually.
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