China Vamps Up Hangzhou’s E-Commerce Model

July 21, 2015 Posted by China Briefing Reading Time: 6 minutes

China E-commerce By Kimberly Wright

On June 29, 2015 the Chinese government formally released its proposal for the implementation of its integrated cross-border e-commerce experimental zones. The proposal situates Hangzhou as the focal point of e-commerce business in China and seeks to spread Hangzhou’s model for e-commerce to six other areas in Zhejiang: Ningbo, Wenzhou, Jiaxing, Huzhou, Jinhua, and Yiwu. By introducing subsidies and preferential policies for enterprises involved in e-commerce, the government hopes to facilitate cross-border e-commerce business and boost import and export business in China.

Located less than an hour south of Shanghai, Hangzhou, sometimes dubbed “China’s Silicon Valley,” was first designated as an economic and technological development zone in 1993 and has since attracted investment from over 50 countries and 57 Fortune Global 500 companies. Hangzhou’s e-commerce industrial park was established in July 2013 as China’s first experimental test point for the export of packaged goods. Hangzhou is an important center for e-commerce business in China, with more e-commerce transactions taking place in Hangzhou than any other city in China. It has over 470,000 online business entities and is home to e-commerce giant Alibaba. As of January 2015, there were over 1 million import transactions totaling RMB 230 million.

Hangzhou’s E-Commerce Zones

Hangzhou’s e-commerce zone currently follows a “one zone, three parks” model, consisting of the following three areas:

Oriental E-Commerce Park
Hangzhou E-Commerce Industrial Park
China (Hangzhou) Cross-Border Trade E-Commerce Industrial Park

According to the proposal, the government plans to integrate these e-commerce zones and to spread e-commerce business to other areas in Hangzhou as well as Zhejiang province. It will promote a “one zone, many parks” model to encourage the registration and establishment of more e-commerce parks. Qualified zones can apply to be classified as an e-commerce park, and a fund of up to RMB 1 million rmb will be issued to e-commerce parks with more than 20 cross-border e-commerce entities and that encompass an area of more than 50,000 square meters.

Government Subsidies and Preferential Policies for E-Commerce

For currency exchange, enterprises as well as individuals will now be permitted to open an overseas account for payment settling and will no longer be subjected to a US$50,000 yearly limitation. Starting August 1, the paperless management of tax refunds will be implemented to simplify the process for tax refunds.

According to the proposal, the government will provide subsidies and bonuses to motivate the transformation of traditional foreign trade entities into cross-border e-commerce businesses. Foreign trade entities that develop e-commerce business whose exports and imports exceed US$1 million per year will be qualified to receive a one-time subsidy of up to RMB 30,000. To encourage e-commerce businesses to offer services for traditional foreign trade entities, it will provide a RMB 20,000 fund to e-commerce platforms worth over US$10 million for each foreign trade enterprise that it attracts to its platform and whose annual e-commerce totals over US$1 million, providing up to US$5 million in total to each e-commerce platform.

In addition, the government will subsidize the development of e-commerce for enterprises in markets that are being dominated by e-commerce, such as electronics, clothing, and lamps. It will provide up to RMB 50,000 in start-up funds for enterprises in these markets. For any e-commerce business whose yearly transactions are over US$1 million, it will provide a one-time subsidy of up to RMB 100,000. In addition, it will provide a one-time subsidy of up to RMB 30,000 to enterprises with a total export and import value of over US$500,000.

Integrated and Localized Management of E-Commerce Business

The committee for the management of e-commerce business will be established by the Hangzhou municipal government and will be independently responsible for customs inspections, tax duties, and other administrative measures.

For the next five years, the e-commerce zones will seek to make logistics and e-commerce technology more comprehensive and integrated by establishing a one-stop service platform that provides services like customs clearance, foreign trade, and cross-border smart logistics, and cross-border e-commerce startup incubation. In addition, the proposal provides an outline for the creation of an “overseas trade” village by establishing a cross-border e-commerce center for innovation and entrepreneurship, cross-border e-commerce service center, cross-border e-commerce big data center, as well as a low-carbon ecological center, an area for leisure and entertainment, and other areas to attract businesses and talent to the area.

Investment in Human Capital

In order to fully develop the e-commerce business in Hangzhou as well as other parts of China, the government emphasizes the need for investment in human capital. It will promote the coordination between enterprises and higher education to establish specialized and professional schools like Alibaba Business College and Fair Friend Institute of Electromechanics, and it will provide up to RMB 1 million in subsidies to education institutes in Hangzhou that establish degree programs in cross-border e-commerce business that incorporate a unified national entrance exam.

Zhejiang is a major center for manufacturing and distribution in China, and the expansion of Hangzhou’s e-commerce zone is sure to increase import and export in the province. In addition to creating new zones across Hangzhou and Zhejiang, the Zhejiang provincial government has also recently established 10 public provincial-level storage centers overseas as well as a logistics line for major overseas countries in order to lower the costs for the cross-border distribution of e-commerce imports and exports. Investors are encouraged to familiarize themselves with these developments in China’s e-commerce sector will benefit their import and export businesses.

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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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