20160421-高盛-Control,_uniformity,_tax__Making_sense_of_recent_cross-border_regulations_15页_539kb

Summary of Asia Pacific: Branded Consumer Goods Report

Core Content

This report analyzes the evolving regulatory landscape for cross-border e-commerce (CBEC) in China, focusing on the implications for branded consumer goods companies, particularly in the areas of product approval, taxation, and market dynamics. The new regulations aim to increase control over product safety, ensure uniformity between online and offline sales, and address taxation discrepancies. These changes are expected to reshape the CBEC market and impact both local and foreign companies operating in China.

Main Viewpoints

• Regulatory Motivation: The Chinese government is introducing new policies to regulate the CBEC market, driven by the need for control, uniformity, and taxation. The policy framework is still in development, with more details expected in the coming months.
• Two Key Areas of Regulation: The regulations primarily target product approval/registration and taxation. These areas are being standardized to align with offline trade practices.
• CBEC Growth Drivers: The CBEC market in China has grown rapidly due to lower prices, limited approval requirements, and a perception of authenticity. This has allowed foreign brands to enter the market with ease.
• Regulatory Impact on Companies: The changes may disrupt sales for some companies, especially those relying heavily on the CBEC channel. The impact varies based on product categories, tax elasticity, and the ability to adapt to new regulations.

Key Information

Product Approval and Registration

• The government has introduced positive lists for product categories that can be imported through CBEC, including food, personal care, and cosmetics.
• Health foods (e.g., vitamins, supplements) now require registration or filing with the CFDA, with some products eligible for the faster filing process.
• Infant formula must be registered with the CFDA by January 1, 2018, with a grace period for existing products.
• Cosmetics must now be registered or filed, similar to regular imports, which could take 6 months or more.

Taxation Changes

• A flat tax of 12% (30% of VAT) is now applied to most CBEC transactions, excluding cosmetics which face a 30% VAT rate.
• Previously, small orders (< Rmb50) were tax-exempt, but this is no longer the case.
• The direct mail (grey channel) and Daigou (parallel imports) channels may still be used, but they are untaxed and less regulated, potentially leading to a tax revenue loss for the government.

Channel Implications

• Direct Mail: Still a viable alternative for some trade, but less regulated and less efficient. It may be used as a fallback if bonded warehouses are not available or if products fail registration.
• Bonded Warehouses: Expected to expand in the future, offering a regulated, faster, and more tax-efficient channel for brands. They are likely to be the preferred method for long-term growth.

Company-Specific Implications

Blackmores (BKL.AX)

• Rating: Buy
• Impact: Less than 6% of BKL's sales are at risk due to potential registration/filing issues.
• Top Products: Evening Primrose Oil, Fish Oil, Vitamin E Hand Cream.
• Tax Impact: Consumers may face a 12% tax increase, but BKL's brand strength and growing direct sales should help mitigate this.

LG Household & Healthcare (051900.KS)

• Rating: CL-Buy
• Impact: The tax changes may benefit masstige and prestige products, which account for 78-86% of LGH&H's China sales.
• Current Exposure: 3% of total group sales are through CBEC, with most through traditional imports and brick-and-mortar sales.

Amorepacific (090430.KS)

• Rating: Neutral
• Impact: May benefit from tax changes, but the CBEC channel is still small-scale. The company's exposure is around 36% of group sales.
• Current Exposure: 6% of group sales are through CBEC, with a focus on traditional imports and brick-and-mortar sales.

Sa Sa (0178.HK)

• Rating: Sell
• Impact: The new tax rules could lower tax rates for high-end cosmetics, which are Sa Sa's core products. However, increased CBEC competition may harm its HK business.
• Current Exposure: 22% of sales are through C2C (Daigou), with 15% through B2C (bonded warehouses).

Investment Implications

• Consumer Behavior: Consumers may face higher effective tax rates, which could slow demand, especially for price-sensitive products.
• Company Strategies: Brands need to adapt to new regulatory requirements and consider the shift from CBEC to bonded warehouses or duty-free shops.
• Market Outlook: The CBEC market is expected to evolve, with a focus on regulated, tax-efficient channels in the long term.

Additional Authors

• Andrea Chong, CFA: Covers Blackmores
• Christine Cho: Covers LG Household & Healthcare and Amorepacific
• Ricky Tsang, CFA: Covers Sa Sa
• George Meng, CFA, Alan Lee, Aaron Yeoh, and Ronald Keung, CFA are also involved in the report.

Disclosure

• The report may have conflict of interest as Goldman Sachs does business with the companies mentioned.
• Investors should consider this report as only one factor in their investment decisions.
• Reg AC Certification and other disclosures can be found in the Disclosure Appendix.

Conclusion

The new regulations in China are reshaping the CBEC landscape, introducing more control and uniformity but also increasing costs for consumers and companies. The impact varies by product category and company, with some brands potentially benefiting from the changes while others may face disruption. The future of CBEC in China depends on the development of bonded warehouses and the implementation of clear regulatory guidelines.