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Daigou model under threat

News, 08 December 2015

BEIJING: The Chinese government is close to cracking down on the daigou business model – where third parties buy products in overseas markets to resell on the mainland – according to an industry figure.

"The government is mulling over more severe measures, like legal punishment, against overseas shopping agents," said Zhou Ting, director of Fortune Character Institute, a Shanghai-based market research unit, and a consultant to the Ministries of Commerce and Finance.


"The new policies will be launched soon," he told the South China Morning Post.

Last year the China e-Business Research Center reported that the value of daigou deals jumped 59% in 2013, as local consumers, distrustful of Chinese brands or attempting to avoid high tax levels, sought out overseas alternatives in categories ranging from baby foods to luxury goods.

And in the latter category alone, consulting firm Bain & Co estimated the value of daigou business in 2014 at between 55 and 75 billion yuan, or nearly half what the brands themselves sell through mainland stores.

"The daigou agents have not only made the government suffer a loss in tax revenue, but they have also hurt local industries, causing disorder in luxury brands' supply and pricing systems and affecting consumer interests in some cases," Zhou said.

His comments were reinforced by an unnamed mall developer who said that luxury brands were less worried about the slowing economy and anti-corruption campaign than the impact of daigou agents.

The Fortune Character Institute has forecast that luxury mainland sales will grow by only 3% this year – amounting to US$25.8bn – significantly slower than the global average of around 11%.

In a recent report it highlighted the recalibration taking place at the top end of the consumer market.

"Store openings are no longer a major way for international luxury brands to expand in the China market," said Zhou. "Over the next two years we expect these brands to close even more stores than before."

But, he added, this was not a totally defensive move. "The closures are only a small part of a thorough strategy adjustment they are undertaking in China," he added.

Data sourced from South China Morning Post, Economic Times; additional content by Warc staff