FiFinomics by FiFi Qin

China's revised draft of tax administration law (Chinese version here) has been put on public notice and will be voted on People's Congress on March. A newly created Article 19 requires that online store owners must clearly exhibit tax registration information on their web-shop's home page. This means individual online shops, particularly Taobao sellers, will be officially taxed.

Source: Courtesy Google

I feel fortunate that I have closed my Taobao boutique selling Japanese beauty products three years ago.  It used to be a low-fixed-cost and high-profit part-time occupation, as one needn't pay for license or rents to start a business. For individually imported foreign goods, custom tax was normally evaded, too. This results in a much lower selling price for the same product than it is in entity boutiques and department stores, both of which have now been abandoned by buyers. 

On the other hand, Taobao is almost a perfectly competitive market for common goods and services. Both the entry requirement and maintenance fee are low for sellers, and there are about 0.6 billion active buyers who can choose to purchase the same good, say a Kanebo collagen facial mask, from hundreds of different sellers. Therefore, there is little chance of huge arbitrage and sellers sometimes pay extra to Taobao to promote their product and increase sales. If online business are taxed in value added method, these shop owners will suffer from both squeezed profit and discouraged buyers. It can be expected that one-third of the current Taobao sellers and 10 percent of Tmall store owners will disappear.

However, taxing on Taobao coordinates with business regulations that supervise online transaction, and can address the problems arising from Taobao's popularity. Forgery and products with inferior quality than stated are common phenomenons in today's online business that people trade on a buyer beware basis without standardized regulation. Illegal products ranging from anesthetic drugs, banned weapons to pirated publications can all be found on Taobao by typing specific jargons. For better protection of consumer's rights, Taobao certainly needs such a detox that promotes better transparency and legal activity. It also motivated store owners to improve customer service and strategize better risk management.

At the same time, not all discouraged Taobao dealers will exit from online business. Another regulation vacuum exists in China's online business administration where private social network, namely the WeChat, has become another responsive platform for commodity trading. Many Taobao sellers keep in touch with their VIP buyers through Wechat contacts and they transact directly through Alipay or bank transfers. It might be possible that more exclusive social network apps in favor of online trade will be developed for tax evasion purpose. This negative effect should also be considered and preempted before the proposed tax law takes into effect hopefully in 2016.

Dior Tokyo Pre-fall 2015. Photo: Courtesy Dior

However disappointing Abenomics is for Japan's growth prospect, Tokyo is readily happy to host Christian Dior's pre-fall 2015 collection a sumo wrestling arena, which was transformed into a stunning runway on 11th, December. This is just the replayed scenario of Shanghai several years ago, where Chanel held its Métiers d'Art Show in 2009 and Dior's resort collection in 2011. It followed that the Chinese topped global luxury consumption in 2012 and 2013. Would the same thing happen for Japan?  I think so, because a reasonable Runway Effect works in the world of business.

 A successful fashion designer identifies the future trend several seasons ahead to have their spring-summer collection presented on the previous year's September fashion week, so do their bosses, who normally have already planned the business for the next five years or more. From 2008 to 2012, China's miraculous economic growth and inflow of capital, driven by Beijing's discretionary expansion, ignited middle-class Chinese's passion for luxury goods. By offering seasonal collections tailored to the Chinese aesthetic, brands earn. Most importantly, they have to launch their collections earlier than leading economic indicators ever show market optimism. Or they fall behind. Abenomics, though not showing strong signs of recovery, is such a policy package that indeed does the right thing (re-evaluating Yen's rate, structural reforms, better workplace welfare for women, anti-deflation, etc.) and it has much potential to successfully boost Japan's economy. There's no risk for Dior and Raf Simons to have shows in Tokyo anyway, yet this cultural tour may serve to please their prospective consumers. The same bet was made by Chanel in Salzburg and Valentino in New York at this moment, taken into account ECB's potential monetary stimulus and America's strong economic recovery. Sometimes, the runway is also a leading economic indicator, and perhaps the most stylish one.