China’s illegal shoppers: New rules may slow capital outflow

CHINA ADVISORY - Report 08 Feb 2019 by Andrew Collier

“Daigou,” a new word produced as the result of burgeoning e-commerce in China, refers to personal shoppers who purchase overseas goods for mainland Chinese consumers for a fee. Unlike cross-border e-commerce, daigou is a gray market where consumers enjoy lower prices and, most important, no import duties. However, due to the loss of tax revenue, in January 2019, Beijing instituted a new commerce law that requires these importers to register their businesses and pay taxes. Failure to do so could lead to fines of up to Rmb 2 million and possibly criminal charges.

This rule is likely to diminish the illegal import of goods. In addition, the rule could significantly reduce capital outflows to pay for these goods, forcing consumers to purchase them domestically. We estimate that capital outflows could decline anywhere from $10 billion to $65 billion, depending on how successfully the law is enforced. This could have a meaningful impact on China’s balance of payments, and ultimately, potentially reduce pressure on the currency.

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