SHANGHAI -- China will dramatically expand tax incentives for online purchases from overseas in January, hoping to invigorate consumer spending and extend an olive branch to the U.S. by further opening its market.
China already waives tariffs for goods bought online and imported through warehouses in special tax-protected zones, and lowers value-added and consumption taxes to just 70% of the level applied to items imported through other channels.
The government will expand these zones to a total of 37 cities next month -- including Beijing, Xi'an and Nanjing -- up from 15.
It also will raise the cap on such purchases to 5,000 yuan ($726) per order, more than double the current 2,000 yuan. The annual limit will be raised to 26,000 yuan from 20,000 yuan.
China's e-commerce market topped 7 trillion yuan in 2017. Online purchases account for 20% of China's retail sales, a much bigger share than the single digits in the U.S. and Japan.
Growth in China's overall retail sales slowed in November to 8.1% on the year, the weakest pace in more than 15 years, according to figures released by the National Bureau of Statistics. Shoppers have tightened their purse strings as the ongoing trade war clouds China's economic outlook.
Chinese tourists still tend to go on shopping sprees while abroad, though they are spending less than they once did. Beijing is eager for them to spend the money at home instead.
Boosting cross-border e-commerce "will promote steady growth in foreign trade, drive consumption and create jobs," Premier Li Keqiang said at a State Council meeting on Nov. 21.
Raising the spending limit could encourage consumers to buy more expensive items like appliances and electronics. One 45-year-old Shanghai man who buys big-ticket items on his trips to Japan said that he will "now consider buying a camera online instead."
Shoppers browse an Alibaba store in China where they can see samples of imported goods for purchase online. The company, and the government, are pushing to expand cross-border e-commerce. (Photo courtesy of Alibaba Group)
Imported goods are popular in China, where they often are considered to be safer and have better quality than domestic ones. Online sales of imported Japanese goods climbed about 25% to roughly $12 billion in 2017 while American goods jumped about 28% to around $13 billion, according to Japan's Ministry of Economy, Trade and Industry.
Diapers from Japanese personal care companies Unicharm and Kao ranked second and third, respectively, among imports sold during Alibaba Group Holding's Singles Day event, when the e-commerce company logged in sales. Japanese cosmetics as well as electronics, such as cameras and facial massagers are also popular.
"Many consumers who use cross-border e-commerce buy in bulk, which means spending per customer is high," said Hidenobu Nakamachi, president of Tokyo-based exporter Unbot, which sells Japanese goods in mainland China and Taiwan.
He expects the expanded tax break to boost online purchases of overseas products and present new opportunities for foreign companies.
In addition to boosting consumer spending, the government hopes that the change demonstrates efforts to open its market ahead of coming trade talks with the U.S.
Speaking at the China International Import Expo in Shanghai in November, President Xi Jinping touted his country's buying power by predicting that its imports of goods and services would surpass $40 trillion over the next 15 years.
"We will take further steps to lower tariffs, facilitate customs clearance, reduce institutional costs in imports, and step up cross-border e-commerce and other new forms and models of business," Xi said.
Alibaba CEO Daniel Zhang said at the same event that his company would help import $200 billion worth of goods in five years, signaling cooperation between the public and private sectors.
