12 April 2016
by Angus Grigg

Murray Goulburn hit by China customs crackdown

China has cracked down on imported food and consumer goods at airports and free-trade zones and has pulled Australian dairy producer Murray Goulburn's products from China's biggest e-commerce site.

The drastic moves follow changes to China's cross border e-commerce law on April 8 and forms part of a pledge by Beijing to protect domestic retailers by imposing higher taxes on imports.

On Monday, Alibaba's Tmall site was not allowing orders for Murray Goulburn's Devondale range of long-life milk and milk powder.

"Nobody really knows what to do. The whole situation is chaotic," Natalie Zhu, from food importer Ajyaguru, said.

Under the new law China's tax bureau issued a "positive list" of products allowed to enter the country through free-trade zones on April 7. Devondale was excluded.

"Adult milk powder and UHT was not on the list," another source said. "The situation is unclear for those doing healthcare products like vitamins, and also for cosmetics."

The decision comes at an especially awkward time for Prime Minister Malcolm Turnbull, who will visit China this week with about 1000 Australian businesspeople to promote trade between the two countries.

Unlikely to complain
Government officials have already said Mr Turnbull was unlikely to complain about China flooding the global market with cheap steel, which contributed to the collapse of Arrium last week.

A trade agreement between the two countries is regarded by the Coalition government as one of its signature achievements.

The protectionist measures could affect Australian vitamin maker Blackmores, whose shares fell 13 per cent to $176.96 on Monday.

The question for Blackmores is whether its products are treated as "health" food or "normal" food.

Blackmores chief executive Christine Holgate said all of the company's main products, such as fish oil, which is not classified as a health food, were still allowed into China.

"I haven't seen anything in the regulatory changes that gives me any concern," she said.

On Monday afternoon there appeared to be no problem ordering Blackmores products on websites in China.

Formula sales unaffected
Equally, infant formula sales appeared unaffected.

Units in Murray Goulburn were down 3¢, or 1.3 per cent, to $2.19.

In separate action, authorities are stepping up inspections of goods being brought into China by those returning from overseas.

Travellers at Shanghai's main international airport reported a two-hour wait to pass through customs at the weekend, as officials searched luggage and levied extra tax on those bringing goods worth more than 5000 yuan ($1024) into the country.

Travellers took to social media complaining of the delay and said customs officials were checking prices online to determine how much tax needed to be paid.

One photo posted on social media showed cosmetics stacked high in the arrivals hall of Shanghai's Pudong Airport as officials calculated the additional tax.

Shopping while on holidays overseas is popular among Chinese tourists, who are levied high taxes at home on everything from luxury handbags to cosmetics and top-quality food products.

In 2015 Chinese tourists spent a record $7.7 billion on holidays in Australia, but more crucially for retailers their average spending of $7000 a person was double other visitors.

Limit their spending
Forcing Chinese tourists to pay import taxes when they arrive home has the potential to limit their spending in Australia, where new luxury shops have opened to cater for the Chinese market.

China's new e-commerce law is targeting offshore sites in an effort to eliminate the tax advantage they enjoy over traditional retailers or domestic sites.

As part of the new law, logistics companies are also asking consumers to register online, using their Chinese identity cards, before they will deliver products. This is to ensure a single customer does not buy more than 20,000 yuan worth of goods each year without paying import duty.

Under the new law prices will rise about 12 per cent for some food products, but that is not as tough as some had feared because it made no mention of preventing goods being mailed to China by shoppers in places like Australia or Hong Kong.

This is a popular method for sending infant formula to mothers in China, who do not trust products bought locally.

While the new e-commerce law is silent on sending goods via post, the state media is reporting a new law might be drafted to limit food entering the country this way.

The value of China's cross-border e-commerce market is set to reach 6.5 trillion yuan ($1.32 trillion) in 2016, up 18 per cent from 2015.

Under this channel, goods come into one of 14 free-trade zones across China and are then bought via websites based in Hong Kong.