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November 17, 2015

This year’s China’s Double-Eleven Day, so named because it is held on November 11th, the world’s biggest online shopping event, has broken sales records again. The highly publicized event closed with 91.2 billion yuan ($14.2 billion) worth of sales registered on Alibaba’s Tmall site, 10 times more than U.S.’s Cyber Monday, leading developers to hope for a slice China’s bonded warehouse market.

By the close of trade on November 11, also known in China as Singles Day, e-commerce giant Alibaba has broken its own record with total sales up 60 percent from the previous year. This compares with Cyber Monday, the biggest online shopping day in the U.S., which hit just $1.35 billion in sales, according to data analytics firm ComScore.

The success of the event underscores a booming ecommerce sector, in particular online overseas shopping which served to highlighted a lack of bonded warehouse facilities in Mainland China. With billions of parcels to be delivered at short notice, e-commerce enterprises not only have to have sufficient goods in their warehouses but also a sophisticated logistics network. To ensure fast deliveries, online companies with bonded facilities in China will stand to gain because such facilities allow the storage of goods that have been imported in large quantities, according to Marie Jiang, Associate Director of industrial real estate services of JLL.

There are currently two models in the cross-border e-commerce import industry in China – direct purchase imports and bonded imports, explains Jenson Zhang, manager of JLL’s China logistics real estate research department.

“Under direct purpose imports, the e-commerce platform is linked to the customs network. As the goods are being shipped from overseas, the order placement information is being sent to the customhouse for clearance. After clearance, the goods will enter the domestic logistics network just like ordinary goods.”

Bonded imports refer to goods that are being shipped from overseas in large quantities and are being stored in bonded warehouse in a bonded zone, explains Zhang. After domestic orders are placed, the goods are being moved from the bonded warehouse for customs clearance before they enter the domestic logistics network.

Besides tax benefits, a key advantage of cross-border bonded imports is that it takes less than five days for a customer to receive the goods after the order is placed. By comparison, it takes two weeks or even longer to receive goods ordered via the direct purchase imports model. However, direct purchase imports offer a greater variety of goods than bonded import.

“During the Double Eleven period when large numbers of orders are being generated, e-commerce companies must keep a large enough stock to quickly meet customers’ demand. Therefore the cross-border bonded imports model is preferred, boosting demand for cross-border bonded warehouse facilities,” says Jiang.

However, the barriers of entry into the construction of bonded warehouse space are high.

Currently, only cross-border e-commerce pilot cities such as Shanghai, Guangzhou, Zhengzhou, Hangzhou and Tianjin have approved bonded import bases. The lack of bonded warehouse space in many of these cities is evident. In Zhengzhou in central China, some companies are storing goods in tents due to a lack of space. In Ningbo, bonded storage space costs as much as 0.3 yuan/sqm/day more than ordinary facilities.

Bonded warehouses come under the control of the custom office as such many projects are developed and held by businesses with government links. The government also determines policies for the use of such warehouses.

While it is currently not easy for logistics real estate developers to enter the bonded warehouse sector, the government is likely to relax land rules as cross-border e-commerce continues to flourish. Changes are already afoot in Zhengzhou, where the state government recently started to consider offer land in bonded zones to online companies with large cross-border imports, who can then have developers develop build-to-suit bonded warehouse facilities for them.

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Jenson Zhang

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