Chinese vendors on Shein, Temu face double tax trouble with levies at home and abroad
News Summary
Chinese merchants selling to overseas markets via platforms like Shein and Temu are facing escalating tax and compliance burdens from both the European Union and China's domestic tax authority. The EU has agreed to abolish its duty exemption for goods valued under €150 (US$174), with the new rule set for 2028 but a temporary solution aimed for 2026. This measure primarily targets Chinese goods, as 91% of all e-commerce shipments under €150 in 2024 originated from China, with the EU citing "unfair competition" and environmental concerns. Simultaneously, a reform of China's tax regime presents a significant challenge for merchants. Effective October 2025, the Chinese tax authority mandates that all online marketplaces, even if not operating on the mainland, must report transaction data for Chinese merchants, including sales and refunds, for tax collection purposes. One Shenzhen-based merchant noted that when the US previously axed its "de minimis" duty-free rule, some sellers reported product values as $1, which increased freight costs by about 12% but was deemed "acceptable" without raising prices for US customers.
Background
In recent years, Chinese cross-border e-commerce platforms like Shein and Temu have rapidly expanded globally, attracting a large consumer base with their highly competitive prices and efficient supply chains. The success of these platforms was partly facilitated by international "de minimis" duty-free rules for low-value packages, which exempted certain goods from import duties and significantly reduced operational costs. However, this growth has raised concerns regarding trade protectionism, fair competition, and environmental impact. Major economies, including the EU and the US, have begun re-evaluating or abolishing these exemption policies to protect domestic businesses and ensure tax equity. Concurrently, the Chinese government is strengthening its tax oversight of the cross-border e-commerce sector, aiming to regulate market order and enhance tax revenue.
In-Depth AI Insights
What are the deeper implications for the business models of Chinese cross-border e-commerce platforms, and how will they strategically adapt? - The combined pressure of EU and Chinese domestic taxes will directly erode the profit margins of platforms like Shein and Temu and their merchants, forcing them to re-evaluate their "high volume, low margin" business model. This model relies heavily on low costs and tax exemptions; once these advantages are diminished, platforms will face challenges to their profitability. - Platforms are likely to adopt various strategies. First, supply chain optimization and cost control through more efficient production and logistics to offset some of the new costs. Second, enhancing product value-add through branding and design innovation to justify higher prices and absorb tariff costs. Third, market diversification to reduce reliance on single high-tax-risk markets, exploring emerging markets, or adjusting product structures to suit different tax policies. - Furthermore, platforms may increase technology investments, such as using AI to optimize compliance processes and tax declarations, to improve efficiency and reduce risks from human error. In the long run, this may drive these platforms to shift from a purely low-price strategy to a comprehensive "value-for-money + compliance" competitive strategy. What are the underlying motivations behind China's tax authority demanding transaction data from global online marketplaces for Chinese merchants? Is it solely for tax purposes? - The ostensible motivation for China's tax authority is to ensure tax equity and increase national revenue, especially given the growing scale of cross-border e-commerce. By requiring global platforms to report data, tax loopholes can be effectively closed, preventing Chinese merchants from evading domestic taxes through overseas sales. - However, deeper motivations may include strengthening capital flow regulation and data sovereignty. Cross-border transactions involve significant capital movements, and precisely tracking transaction data helps the Chinese government better monitor and manage capital outflows, maintaining financial stability. This also reflects China's push for greater influence in global digital economy governance, asserting its jurisdiction over the economic activities of its citizens and enterprises on global platforms. - Additionally, this move helps build a more comprehensive macroeconomic data system, providing more precise data support for China's economic policymaking. By obtaining detailed cross-border sales and refund data, the government can more accurately assess consumption trends, industrial development, and the impact of the global trade landscape on the Chinese economy. With the US and EU converging on tax policies, what are the long-term investment implications for the global trading system, especially for China-centric supply chains? - The convergence of major US and EU economies on tax policies targeting low-value cross-border e-commerce packages signals a rise in global trade protectionism and a renewed emphasis on the "country of origin" principle. This will challenge supply chain models that have long relied on globalization and low-cost production, prompting companies to rethink their global footprint. - For investors, this means business models heavily reliant on "de minimis" exemptions or low-tax advantages will face structural adjustment risks. Investment decisions will require a deeper assessment of a company's supply chain resilience, compliance costs, and genuine competitiveness after accounting for taxes and duties. This could accelerate the regionalization and diversification of global manufacturing and supply chains to mitigate systemic risks from policy changes in a single country or region. - In the long term, enterprises capable of effectively integrating domestic and international resources, possessing strong brand premium capabilities, or achieving cost advantages through technological innovation will offer greater investment value. Concurrently, investments in logistics and warehousing infrastructure, particularly localized setups closer to consumer markets, will become more critical to navigate an increasingly complex tariff and compliance environment.