February 25, 2014, 4:31 PM

How Shanghai’s free-trade zone creates e-retail opportunities for foreign brands

Overseas companies can avoid paying the 17% value-added tax China charges on most retail goods by shipping through government-backed Kuajingtong, which is based in the new free-trade area.

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A government-backed company based in Shanghai’s new free-trade zone says it can help foreign brands reach Chinese online shoppers at a lower cost.

A big part of the saving is that foreign goods sent through the free-trade area are not subject to the 17% value-added tax China charges on most retail goods, according to a spokesman for Shanghai Kuajingtong International Commerce Co. Kuajingtong is backed by Shanghai’s city government and says it is the only e-commerce company registered in the free-trade zone, a 29-square-kilometer pilot project China’s government launched in September 2013.

The company, which began operating in December, says it is helping more than 50 offshore companies sell to Chinese online consumers directly from overseas. Kuajingtong.com lists about 500 products in such categories as cosmetics, food, bags and luxury. 

One of the best-selling products on Kuajingtong.com is the glass-bottled Starbucks mocha Frappuccino coffee drink. Its final price for Chinese consumers is 178 yuan (US$29) for a box of 12, the same price a U.S. consumer can find on Amazon.com.  The price on Yihaodian, a Chinese e-retailer, for the same product is 212 yuan ($35). Yihaodian, which is 51% owned by Wal-Mart Stores Inc., is No. 6 in the newly published Internet Retailer China 500, which ranks the leading online retailers in China by their web sales.

Kuajingtong provides an online selling platform for overseas brands, and is not an e-retailer itself. The company lists products on its site and directs visitors who click on those products to the e-commerce sites of the brands or their distributors. Kuajingtong takes a commission on each sale, which it declines to specify, other than to say that it’s less than the percentage taken by other leading online marketplaces. 

Kuajingtong says it provides free consulting services to help overseas e-retailers register their products with Chinese customs authorities. After registration, customs clearance time for imports is reduced to about 2 days from up to several weeks, the company says.

While it ramps up its new business in the Shanghai free-trade zone, most of Kuajingtong’s revenue comes from its sister company, Orient Electronic Payment Co., an online payment service provider. Orient Electronic Payment enables Chinese consumers to purchase products from overseas companies using Chinese currency.  The overseas merchants receive the funds in U.S dollars and pay Orient Electronic Payment a 2% transaction fee, according to Kuajingtong.  

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