Warren Goreham Lamont International HR Journal China Watch
Spring 1998 Concerns of Expatriates Stationed in China Importing Household Effects
Nearly every business executive traveling frequently to China has heard of nightmares with China’s customs authorities. To be fair, U.S. customs is no welcoming committee, either. Foreign business executives, particularly from Asia and Latin America, have bitter complaints about U.S. customs. However, American citizens returning from business abroad generally sail through customs with little trouble. They are far more likely to feel that China’s customs service is arbitrary or confusing, especially as the cultural norms of American executives are not generally shared by Chinese customs agents.
Many American executives have had personal experiences like the publishing executive whose laptop computer was confiscated by Chinese customs a few years ago. He was told that it was taken because he had entered the “nothing to declare” line at the airport. Although when asked, he readily stated he was carrying a laptop computer in the black nylon bag usually used for such purposes, he had not known that it needed to be declared. In fact, he saw many people walking through the “nothing to declare” line carrying such bags, presumably all containing laptop computers. However, he was told he was guilty of a crime by his failure to list the laptop computer on his customs declaration form. He was helpless to stop customs officials from seizing, examining, and keeping his computer.
In order to avoid unknown further penalties, the executive’s legal counsel advised him to meet with customs authorities. He received a lecture on a foreigner's responsibility to know China’s laws before crossing the border. Some of the items his translator told him he could not legally bring to China, like illegal drugs, excess quantities of liquor, etc., seemed evident, but the electronic items were part of an ever-changing list. While one wristwatch was acceptable for personal use, at that time, one laptop for personal use was not, unless specially declared. The executive, having patiently listened to the lecture, was told that he would be allowed to have his computer only when he left the country, even though he needed it for the business he came to China to conduct. He was given to understand that he was lucky to receive it back at all.
Since China’s laws are strict, but sporadically enforced, a foreign business executive is justified in approaching travel or residence with some trepidation. International business travel is premised on the assumption that as long as one adheres to a general moral code one is relatively safe from punishment. If business travelers were required to study the law of each nation before entering its boundaries, most would be ineligible to leave home. However, China has a few unusual, and frequently changing rules of which to be wary, such as the rule in effect a few years ago that use of a computer modem in one’s hotel room would subject the user to prosecution and criminal penalties. Some hotels were kind enough to post the notice right next to the modem jacks they had installed for guests’ use. Similarly, new regulations this year criminalize use of the internet without first registering with Chinese public security authorities.
On the positive side, new regulations in effect this year ease tariffs and encourage the import of items for use in certain industries. In addition, under pre-existing law, a foreigner holding long-term employment in China is allowed to import a reasonable quantity of personal belongings for personal consumption during his or her residence in China.
Qualified personal belongings are defined as portable items owned by resident foreign businesses, Chinese and foreign joint ventures, foreign invested businesses, or the employees of any of these organizations. Such items include clothing, small household appliances wine, and books. There is another category of items, “luxury goods,” which includes furniture and automobiles. The official price of automobiles is, not surprisingly, much higher than the usual price in the US.
A long-term resident is allowed to bring in a reasonable quantity of personal belongings without paying tax. However, be prepared to discover that a Chinese customs officer’s concept of a “reasonable quantity” of anything does not match that of an American executive’s. Assuming that some amount of personal effects will exceed the reasonable quantity limitation, tariff rates must be faced. If customs determines that the quantity of goods is far in excess of a reasonable quantity, it will refuse to allow the import of the excess. As with most of China’s regulations, broad discretion is allowed to the agency, making the determination of “reasonable quantity” highly subjective.
While the process for import of personal household goods is the same at any of China’s thirty-nine major ports, the ports most frequently encountering foreigners are said to be a little more relaxed about what is “reasonable." However, even in Shanghai, one of the most urban ports, the customs service has found 25 suits and 50 shirts to be far in excess of a reasonable quantity for a business executive. For this reason, executives who travel frequently arrange to bring a little excess with them each time.
The first requirement to importing personal belongings is proof of residence in China. This is shown by presenting a copy of the foreigner’s long-term residence certificate to customs. Such a certificate must be obtained from the local Public Security Department. The last appearance of this column (Fall 1997) discussed obtaining such a certificate and other documents. Along with the long-term residence certificate, the foreigner must submit to customs authorities his or her passport, the employer’s business license, and all available receipts and invoices for the items to be imported. The service requires that the original of all these documents be submitted, along with copies. The originals will be returned.
The second requirement is that the item must be for personal use or consumption. Customs has discretion to determine whether an amount is reasonable or not for personal use. The third item is that a tariff of at least 20% must be paid for most imported items. Many items are taxed at even higher rates, and some are taxed at 100% of the official value of the item. The tariff is not refundable, even when the items are taken out of China. The penalties for under-reporting, or failing to pay duty can be very serious. If the amount of tax evaded exceeds RMB 500,000 (about US$62,000 at today's exchange rate), the criminal penalty can be life imprisonment, or even capital punishment under “serious circumstances." Even RMB 50,000 (about US$6,200) in evaded taxes can result in up to three years imprisonment. (Customs Law of the PRC, Articles 28-44, and Criminal Code of the PRC, Article 153.) Objections to a Customs decision on smuggling can be appealed to Customs within thirty days of the initial decision. Customs must issue a reconsideration decision within 90 days. At that point, if the defendant wishes a further appeal, he or she may bring the action to the judicial system within thirty days of the issuance of the Customs reconsideration decision. (Detailed Regulations on Administrative Enforcement of the Customs Law, Articles 5-26.)
Shipping time usually takes between four and eight weeks from the US to China. It is advisable to ship household goods well in advance of arrival in China, so as to be on hand if any questions or complications arise over the items. It generally takes about three days for customs to process personal household effects after they arrive in China. While the rate of tax on the goods may be set by evidence of actual price paid, there are certain luxury items, such as automobiles, for which the official price supercedes any actual price paid. For other items, the actual price paid may be ignored if customs authorities deem that the evidence shows a price paid that is far below the market value. Customs has substantial discretion in these matters and there are many areas for conflict over valuation.
The list of duty-free items is not extensive: books and periodicals, educational video tapes, original audio tapes, gold and silver, and only a few other items. However, this list will cover most of those items that are most personal, such as legitimately produced original music CDs and tapes, books, photo albums, and jewelry. Cameras are taxed at 100% of their retail value, wine and tobacco products at 200%. Clothing, if in excess of a reasonable quantity, is taxed at 30% of fair market value, and electric appliances (excluding cameras and movie cameras), bicycles, watches, clocks and similar accessories are taxed at 50% of retail value. All other items not specifically listed in customs regulations are taxed at 20% of retail value. (The PRC Customs Services’ Method for Taxing Items of Entering Tourists and Parcels Posted, Articles 1-10.) Because the list of smaller dutiable items changes each year, it is advisable to be prepared and obtain a copy of this list from your local consulate, or your China legal counsel, before shipping your goods. Certain goods may not be worth taking to China once the duty has been calculated.
If a foreign executive wishes to have a car in China, he or she may import one, although the duty rates are quite high, between 80 and 100% of the official price. The official price is much higher than the price of a car in the US. The January 1998 official price of a Lexus LS400, for example, is RMB 1,060,000 (about US$ 132,500). The official price of a Mercedes Benz S320 is RMB 1,550,000 (about US$ 194,000), and the official price of a Honda Accord is RMB 332,000 (about US 41,500). In addition to duties of 80 -100% on the official price, there is a 20% license plate tax.
Expatriate employees stationed in China receiving their salaries in US dollars may be due for a windfall this year. While authorities in China have publically vowed to keep the Renminbi pegged to the US dollar, many are skeptical. Chinese authorities say that China is fundamentally different from south east Asian nations, both in size and in the greater diversity of its industries. Such arguments, however, ignore the fact that China’s hard currency has been largely earned from importing manufactured consumer goods to the west. China has directly imitated the successful model of the “four tigers," as they used to be known. All four tigers are facing serious currency devaluation problems.
As long as China holds to its vow not to devalue the Renminbi, American and European goods will not become any more expensive relative to the Renminbi. But, goods made in Thailand and other South Asian nations have become more attractive compared to Chinese made goods. To the extent that a lot of American household goods are actually imports from southeast Asia, they will remain more attractive than Chinese made goods. Thus, a long-term foreign employee of a joint venture in China is unlikely to shift their buying patterns for now. However, if the Renminbi is allowed to fall, as many expect must happen in 1998, the currency devaluation will accomplish some of what the customs regulations are designed to do. Local resident employees paid in China will be more likely to buy Chinese made goods if they are competitive with other Asian goods, unless the customs service creates a disincentive to do so. Foreigners moving to China may expect to see changes in enforcement of customs policies if the financial situation changes.