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India cracks down on Chinese shopping apps

Club Factory and Shein latest to suffer, after moves against Amazon and Walmart

BANGALORE -- Fresh from a crackdown on and Walmart, Indian authorities are now putting the heat on Chinese shopping apps that have quietly carved out an outsized share of India's online retail market.

In the most recent move, India's Directorate General of Foreign Trade announced late last week that "gift" packages from abroad will no longer be allowed to come in without the collection of import duties, closing a loophole said to be frequently exploited by the Chinese services.

The step is the biggest so far by authorities in reaction to an outcry by Indian traders who claim the Chinese apps have won away business thanks to lower prices possible because of alleged avoidance of import duties and other taxes and regulations.

"Chinese goods are coming into India at 50% to 60% below the price of Indian sellers," said a spokesperson for the All India Online Vendors Association, which represents 3,500 local traders. "They are hurting small manufacturers and costing millions of jobs."

The group burned Chinese imports in a March demonstration calling for government action and the spokesperson told the Nikkei Asian Review that more protests will be held "if our voices are not heard."

The government has also recently instructed Amazon and Walmart-Flipkart to detail their top five sellers and the marketing arrangements they have with them. That move was aimed at investigating charges -- leveled by local retailers -- of deep discounting and predatory pricing, believed to hurt domestic shops and mom and pop stores.

Club Factory, the leading Chinese service in India, was the most downloaded shopping app globally last month, according to data service Sensor Tower. Some 27 million mobile phone users, virtually all in India, installed Club Factory's app during November amid a heavy sales push around the Diwali holiday festival.

Club Factory was also the most downloaded free app of any sort in India between July and September.

The widening crackdown on Chinese servies such as Club Factory and Shein, which deny wrongdoing, will come as a blow to shoppers like Mumbai advertising worker Paromita Sarkar, previously a fan of local site Myntra, now controlled by Walmart.

"I prefer Club Factory or Shein because there is far more variety," she said. "The clothes and accessories are much trendier than what Myntra offers. Also Club Factory and Shein price their products cheap. It is almost like street shopping in Delhi."

Nonetheless, Minister of Commerce Piyush Goyal has said that all online shopping services will have to register locally by next June to ensure legal accountability. Customs officials last June seized around 500 packages from Shein in a raid on a warehouse in Mumbai, saying their contents had been undervalued or misdeclared, and have recently stepped up seizures of suspect parcels in Delhi, Bangalore and other trade gateways.

Before deciding on ending the gift exemption, officials had considered limiting individuals' annual shipments but concluded enforcement would be too complex. As in many countries, international packages that are labeled as gifts and below a certain declared value -- 5,000 rupees ($70.48) in India --- have been allowed in duty-free. The loophole was intended for person-to-person shipments rather than e-commerce.

India accounts for about 60% of Club Factory's overall revenue. The Hangzhou-based company, which in October raised $100 million in new funding from investors including IDG Capital and a fund run by Germany's Bertelsmann, now claims to trail only Amazon and Walmart-owned Flipkart in the size of its Indian customer base.

"We envision an era of 'FAC' -- Flipkart, Amazon, Club Factory -- to be the future of India's e-commerce market," said Vincent Lou, chief executive and co-founder, in a statement last month. "The price competitiveness of Club Factory remains a major hit. We are growing rapidly along with the market demand in India."

The company has opened three warehouses in India and, unlike many of its Chinese peers, has established a legal presence in the country. With Bollywood actor Ranveer Singh and former Miss World Manushi Chillar as brand ambassadors, Club Factory now lists more than 1 million different products for sale to Indian customers and handles more than 25,000 daily orders.

Shein, which stopped taking orders in India for around two months after the Mumbai customs raid, ranked No. 7 globally for shopping app downloads in November and now handles around 10,000 shipments a day to India. Alibaba Group Holding's AliExpress and Romwe, another Chinese app, are handling similar volumes for Indian customers.

The pressure on the Chinese apps to set up bases in Indian could potentially rebound to the detriment of local platforms. Thanks to its Indian warehouses, Club Factory has been able to reduce its average order delivery time to under 12 days.

Though a big improvement on the multiple-week wait typical of orders dispatched by other Chinese apps, Club Factory still trails the usual 5 to 7-day delivery time of Myntra and other local services.

"The continued success of these Chinese players will depend on how they improve the fulfillment of orders and the quality of products," said Vidhya Shankar, India executive director at accounting and advisory company Grant Thornton.

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