Alibaba is going to save HK from parallel traders

Updated: 2014-07-25 04:33

By Jony Lam(HK Edition)

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A few years ago the rise of the mainland's middle class was big news for everyone outside the mainland. Big news for everyone that is, except those from Hong Kong, a former British colony lying on the edge of the mainland and now one of China's special administrative regions. To the Hongkongers' horror, mainlanders have a seemingly insatiable demand for essential household supplies such as baby formula, without which local infants under 36 months cannot survive.

There was a time when it was difficult for a mainlander to enter Hong Kong and grab some baby formula. In 2003, restrictions on cross-boundary travel were relaxed by a new Individual Visit Scheme (IVS), which allowed mainland visitors to come to Hong Kong without joining a tour group or obtaining a business visa.

The IVS is part of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). The CEPA has the appearance of a bilaterally negotiated Free Trade Agreement, but is in reality an administrative measure aimed at boosting Hong Kong's economy after the devastating after-effects of the SARS outbreak that claimed almost 300 lives and terrorized the city.

On July 28, 2003, less than a month after the CEPA signing ceremony at Government House, the first batch of mainland tourists arrived under the new scheme. At its launch, the IVS was open only to residents of a few key cities, such as Beijing, Shanghai, Guangzhou and Shenzhen. It has since expanded to 49 cities, helping to push the number of mainland tourists to 40 million last year out of 54 million total arrivals. SARS was gone, but the IVS is here to stay. For some Hongkongers, the IVS is equally dreadful, as tourists compete with them for the finite amount of resources.

Whereas local government officials have been leaking possible plans to cut the number of tourists, such a policy alone may not be able to solve the issue of milk powder shortages, because much of the baby formula going to the mainland is being taken over the boarder by Hongkongers. They are the parallel traders buying their tax-free stock in Hong Kong and reselling it at a profit north of the border. Parallel trade in Hong Kong can be traced back to the Qing Dynasty (1644-1911), and forms a part of our intangible cultural heritage. Today, we can see their descendents queuing up in Sheung Shui Station, waiting to get across the boundary with packages of staples such as Yakult.

A restriction on the unlicensed export of powdered formula was the only possible solution, and it was duly implemented on March 1, 2013. Individuals can now only take two tins of formula across the border, but the policy is barely keeping the problem under control.

Some clever people have come up with a philosophical conundrum: Why can't we provide the middle-class mainlanders with all the baby formula they want, in a way that doesn't compromise adequate supply for local infants nor involve individual cross-border traffic? In the process, mainlanders will have access to safe products and Hongkongers will make a profit. Isn't that what's meant by Hong Kong benefiting from the nation's resurgence?

This question proves to be so difficult that no one from Hong Kong, the East-meets-West knowledge economy, financial and red wine hub, can come up with an answer.

Unbeknown to Hongkongers Alibaba already has the solution: Tmall Global. Tmall Global is a new solution from the e-commerce giant offering mainland consumers high-quality, branded products from outside the mainland. When a consumer places an order through the Tmall Global website the foreign brand ships the product directly to a bonded warehouse on the mainland, the product is then sent via domestic courier straight to the consumer. The arrangement is brilliant, as a "delivered from a bonded warehouse" label projects a sense of authenticity, and the preferential policies given by local customs reduce import tariff rates.

On the mainland purchasing directly from overseas is called "haitao". It was previously the preserve of the privileged few English-speaking international credit card holders. However if Tmall Global can bring haitao to the masses while bringing prices down to competitive levels, enhancing logistical support and streamlining customs procedures, mainlanders may well find it more convenient and cost effective to purchase online rather than from Hong Kong.

It is interesting to note that the Tmall Global website address is Users may well believe it has something to do with Hong Kong, however in reality Hong Kong's role is negligible. In fact, our parallel traders will be endangered though.

The author is a current affairs commentator.

(HK Edition 07/25/2014 page9)