Tuesday, February 21, 2012

Cigarettes, Noodles, and Diapers: Profiting from China's Internal Borders

At Zhuhai's Gongbei Port (拱北口岸) in China's Guangdong province one can see a steady stream of people exiting immigration at the border between Macau and mainland China.

people exiting the Macau border control building in Zhuhai

Numerous people pass through the border for a variety of purposes. One of those purposes is very pragmatic.

Sometimes it is apparent that many people are openly carrying at least one of several items. For example, these three women were each carrying a box of instant noodles and a box of cigarettes:

three women each carrying a large box of noodles and a box of cigarettes

While some people may be bringing these items from Macau for themselves or to give away as gifts, it is clear many have another goal in mind -- selling them as part of a large grey market in mainland China.

For example, some people will sell their box of cigarettes to buyers on the other side of the street from Gongbei Port:

buyers near the Zhuhai-Macau border waiting for people selling boxes of cigarettes
People with larger colored bags are just some of the buyers that can be found in this area.

Though at other times, people can sell their cigarettes immediately upon exiting the Gongbei Port building:

numerous cigarette buyers at the exit of the Macau border control building in Zhuhai, China
Buyers (in this case all have plaid-patterned bags) quickly clear out if people with the appropriate uniforms arrive.

Especially for selling other items, some walk a little further and head down an alley with a warehouse-like building including many individual "stores". The sales patterns can vary from day to day. On one day there was a store where people could sell a brand of Japanese instant noodles (出前一丁) without waiting in line. However, people carrying another item had to stand in a long line:

people waiting in a line in Zhuhai, China

In Chinese I asked one of the men apparently working in the area, "What is this?"

He replied, "This is nothing."

I did not feel the need to continue the discussion since it was already clear that this "nothing" was in fact people selling a highly desired item in mainland China: Merries diapers from Japan.

Merries diapers from Japan

Why do these items need to be brought from Macau? Due to their status as special administrative regions, both Macau and Hong Kong sell goods that for a variety of reasons are not available (or as easily available) through official channels in mainland China. However, in some cases a grey market sales network in mainland China exists as I previously described for the iPhone 4S. The border at Macau and Zhuhai is particularly convenient for transporting some of these goods since both cities have urban areas immediately adjacent to the border. Not surprisingly, many of the stores in Macau near the border sell the very items that are most desired by mainland Chinese.

There can be a variety of reasons as to why these goods are in particular demand. For some, such as the diapers, it is due to the perceived safety and quality of equivalent products made in mainland China. The article "What Chinese Shoppers are Buying Online" on Forbes discussed this issue:
Recalling the terrible fall 2008 mass poisoning incident when six Chinese babies died and hundreds of thousands of children were sickened by melamine-tainted milk, it is no surprise that Japanese-made infant powdered milk is among the top-selling products. Some Chinese believe that direct Internet sales and home deliveries of powdered milk products would ensure that the contents had not been altered...

Also in the “baby” category are best-selling Japanese diapers, including the Kao “Merry” or Unicharm “Moony” brands (128 yuan/US$19)–again, priced higher compared to local brands. Chinese parents believe that the diapers contain no harmful chemicals that cause allergies or rash, and the materials are top-notch, preventing spillage.
And it is not just Chinese who are concerned. Some foreigners residing in mainland China have also turned to the Internet to purchase baby supplies produced elsewhere (see here for one perspective).

Based on what I saw, it appears that due to customs' restrictions people are very limited in the number of items they can bring to Zhuhai (I rarely saw people carrying more than one package of the above-mentioned items). However, last August Dan Harris on the China Law Blog commented that the situation was far more flexible at another border at that time:
An interesting thing is happening on the "border" between Hong Kong and China.


Let me explain.

Like virtually all countries, China has various limits and duties relating to what can be brought into the country. China is generally quite good at enforcing these limits and duties.

Except for quite some time now it has been looking the other way when it comes to food imports from Hong Kong. If you go to the border between Hong Kong and China, you will see what I mean. There you will see many, many people bringing back into China massive quantities of baby formula and the customs people are doing nothing. Nothing. The same is true for all sorts of other packaged foods being brought into China.
It is not uncommon for the various border "policies" to change (sometimes without official notice) so this difference comes as no great surprise.

There appear to be several other fascinating aspects of how the various grey markets seen at the Zhuhai-Macau border operate such as people being typically paid in Macanese currency, sellers reportedly making multiple trips in a day across the border, and variations on which items are "popular" from day to day. I will refrain from commenting on them, since I am still fuzzy on a number of issues. Regardless, it is striking that a grey market can apparently thrive for items such as instant noodles that need to be carried one by one across two immigration checkpoints.

So, like the Shanghainese reader who expressed an understanding for Macau's and Hong Kong's borders due to concerns over protecting cities' cultures, there are other mainland Chinese who may have their own reasons to appreciate the borders. While some mainland Chinese are not supportive of the policies which restrict their travel within China, for others the borders combined with special rules for Hong Kong and Macau provide an opportunity for profit.

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