Luxury brand stocks plunged on Thursday, amid reports of a crackdown on China's “daigou” – an industry based on shoppers buying luxury goods overseas and bringing it back to China – that has led to arrests, fines and lengthy delays at airports across the country during the Golden Week holiday.
Posts widely shared across Sina Weibo and WeChat Moments showed long queues at several airports, as Chinese customs officials carefully inspected luggage and handed out fines to passengers who had exceeded individual import limits.
Customs officials inspect suitcases at Shanghai Pudong International Airport. /Image via China National Radio
According to China National Radio, approximately 100 people were arrested after arriving in Shanghai Pudong Airport on one flight alone.
Luxury brands suffer big losses
The reports led to concerns that Chinese consumption of luxury goods will be affected, with cosmetics brand Estee Lauder and fashion house LVMH seeing their stock prices fall 4.25 and 4.89 percent respectively.
Japanese cosmetics brands were also impacted, with skincare company Shiseido falling by as much as 6.2 percent.
Several online posts saw users share images of fines they would have to pay related to goods brought back from overseas, with many asked to pay thousands of yuan.
A WeChat user shows how she was made to pay a total of 17,000 yuan (2,475 US dollars) at Shanghai Pudong International Airport, after customs inspected her luggage and found 31 cosmetic products, September 28, 2018 /Screenshot via China National Radio
According to China's customs law, Chinese travelers returning from overseas are limited to an individual allowance of 5,000 yuan (728 US dollars) worth of duty-free imports upon returning to the country.
China National Radio cited a Shanghai customs official as saying travelers who exceed limits on duty-free imports should voluntarily declare their goods to customs upon entering China, and pay taxes as stipulated by law.
What is daigou?
In Chinese, the word “daigou” means “to shop on behalf of someone.”
Daigou agents either based overseas or traveling abroad buy goods on behalf of their customers in China, looking for items like luxury goods, milk powder and cosmetics at cheaper prices than those available back home.
A man holds his son and a sign saying "looking for daigou to buy Australian milk powder," in Nanjing Lukou International Airport, east China's Jiangsu Province, August 2017. /VCG Photo
After agreeing to a small commission, the daigou agents then either return to China with the goods in their luggage, or mail them to their clients as personal items to avoid paying customs duties.
Despite usually being an informal operation run by individuals, the daigou industry has grown rapidly in recent years. Xinhua reported in 2015 that as much as 70 percent of Chinese purchases of luxury brands were made abroad or via daigou.
A report by China Daily last month suggested that trade through daigou between China and Australia was worth as much as 727 million US dollars every year.
Customs crackdown comes ahead of new e-commerce law
The closer scrutiny by customs seen this week comes months before China's new e-commerce law goes into effect, on January 1, 2019.
The new law aims to better protect consumers and “maintain the market order,” according to Xinhua, and will apply not only to online shopping platforms but also to other “e-commerce operators… selling goods via social networks including the popular chatting app WeChat.”
For many daigou sellers, WeChat is the main means of communication with customers, as well as a key platform for promoting their services.
The new e-commerce law will also aim to further crack down on the domestic sale of fake goods, regarded as another major factor in the proliferation of daigou in recent years, as consumers seek guarantees of authenticity.
