China tax hits Kiwi firms

Kevin Wang says a new Chinese cross-border e-commerce tax has seen Health Element's sales drop. Picture / Doug Sherring

Exporter says sales have dipped by up to 30% in the past three months.

Increased Chinese e-commerce regulation, including a new tax, is crimping demand in an increasingly important sales channel for many New Zealand manufacturers, says a major exporter.

Kevin Wang, managing director of Penrose-based Health Element, which sells Kiwi products including Comvita honey and the Trilogy skincare range directly to consumers in China, said his firm had seen a 20 to 30 per cent decline in sales over the past three months, compared with the first quarter of this year.

A new cross border e-commerce tax regime, which brought in an 11.9 per cent tax on parcels purchased online, was introduced by the Chinese authorities on April 8.

The closing of the tax loophole has removed a competitive advantage previously enjoyed by foreign companies selling their wares in Asia's biggest economy via internet-based platforms.

Wang, who told the Business Herald in February that his firm had annual revenue of around $30 million, said China's cross-border online retail market had become more heavily regulated this year.

"It's definitely having an impact," he said, adding that seasonality had also contributed to Health Element's recent sales downturn. "It's more restricted, which is resulting in a temporary sales decrease."

Another source said other New Zealand-based cross border e-commerce ventures had seen sales declines of up to 80 per cent in China.

The share prices of a number of Australasian firms - including infant formula marketers A2 Milk and Bellamy's and health supplements maker Blackmores - took a heavy hit in early April when the new e-commerce tax and other regulatory changes were announced. Market concerns about a "positive list" of products allowed to enter China also contributed to the sell-off.

An A2 spokesman yesterday said it was in its media blackout period ahead of its annual result next month.

But the alternative milk firm last month upgraded guidance on the back of strong trading, forecasting full-year operating earnings before interest, tax, depreciation and amortisation (ebitda) of $52m to $54m, up from a previous forecast of $45m to $49m.

At that time the company said it was well-placed to respond to changes in China's regulatory environment.

A2 shares hit a record high of $2.61 on February 17, but concerns about Chinese regulation have weighed on the stock, which closed at $1.95 last night.

Trilogy chief executive Angela Buglass said the company had not seen any impact on sales from the Chinese e-commerce tax changes.

Trilogy, whose shares have risen almost 10-fold in value over the past two years, estimates that 10 to 15 per cent of its sales in Australasia end up in China through various channels.

Comvita chief executive Scott Coulter also said the changes weren't affecting the company's overall sales.