China Consumer

Hit the bund

Amazon sets up shop in Shanghai FTZ

Amazon CEO Bezos demonstrates the Kindle Paperwhite during Amazon's Kindle Fire event in Santa Monica

Shop with us: Amazon’s Jeff Bezos

Has Amazon been indulging in a spot of chang dui tai xi? In Chinese the saying means ‘to perform a rival drama’, or as the English phrase puts it, to steal someone else’s thunder. On August 21, just two weeks ahead of the likely launch of Alibaba’s record-breaking IPO, Amazon announced the signing of a memorandum of understanding with the Shanghai Free Trade Zone (FTZ) and Shanghai Information Investment (SII).

Amazon has been based in China since 2004, but this latest move has been interpreted as a milestone for the company since it can now take advantage of preferential FTZ treatment to strengthen its cross-border business. The news could also provide a prop for its share price, which plummeted 9.6% the day after it announced its second quarter results in July.

These results revealed a loss of $126 million and some analysts believe the stock could come under selling pressure once more if tech investors decide to position themselves for Alibaba’s IPO by going short on Amazon, or scaling down their holdings.

Year-to-date, the American firm’s stock is down 14%.

Tencent Technologies says Amazon will have its own FTZ-based warehouse in Shanghai. It will store imported goods for Chinese customers as well as exports from Chinese corporates that advertise their wares on Amazon’s global sites.

All transactions will be routed via (KJT), an SII unit, which represents China’s official cross-border e-commerce platform and is supported by Shanghai’s customs bureau as well as the Entry-Exit Inspectorate and Quarantine Bureau, plus the State Administration of Foreign Exchange.

So far, KJT has signed up about 50 foreign clients and has supporting the sale of about 500 foreign products so far this year.

Amazon’s involvement will take the platform to a new level, with Tencent Technologies saying the new service will be fully operational by the fourth quarter. By then, Amazon plans to offer a full Chinese language service, as well as direct access to its US, UK, German and Japanese sites.

Two key competitive advantages are an ability to sell foreign products in China at the same price as overseas and the offer to customers to pay in renminbi via channels including Unionpay and Easipay. Payments will then be converted into US dollars subject to a 2% transaction fee levied by KJT.

“This is just awesome,” an editorial in 36kr, an IT website concludes.

Market research firm Nielsen estimates that China’s cross-border retail market will be worth an estimated $161 billion by 2018, making it a big battleground for Amazon and domestic players such as Alibaba and In February, Alibaba launched Tmall Global, an e-commerce site, which guarantees the authenticity of the foreign brands that it sells. In May, it also announced a partnership with US logistics company ShopRunner enabling Chinese customers to order overseas items directly via Tmall for the first time.

Sites which can guarantee a genuine product and reliable delivery times are likely to prove a big draw for the more affluent Chinese shoppers who make up the booming haitao (searching abroad) sector. Ever since the melamine milk scandal in 2008, daigou (buying agents on Alibaba’s Taobao) have forged a lucrative trade by purchasing legitimate goods overseas for Chinese customers. One survey from Bain, a strategy consultancy, has estimated that at least 60% of Chinese shoppers consumers have also used daigou to circumvent import duties, particularly for luxury goods.

Buying from Amazon will also address the quality question. But the other advantage is that it will widen the shopping choices available to Chinese buyers. Foreign brands that already have shops or sales agency agreements in China will not permit their customers to buy matching products from Amazon’s foreign sites at lower prices. But consumers who want brands and products that are unavailable in China will get new opportunities to shop on Amazon. Buyers will pay a parcel tax on these goods, but depending on the size of the purchase this could be negligible. China’s consumers will thus have a new chance to buy many of these products and do so at Amazon’s competitive American prices.

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