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Smaller Chinese Sites Look to Smuggling

The founder of Chinese luxury online retailer, Xiu.com, has been extradited from Indonesia back to China in order to face smuggling charges, following a year-long investigation into his company by China Customs. According to customs officials in the Guangdong province, Ji Wenhong is on the hook for allegedly overseeing a smuggling operation, which brought luxury goods – including Gucci bags, Miu Miu clothing, Louis Vuitton fragrances, and Chanel eyewear – into China in violation of national customs law.

The Associated Press reported this week that Wending, who fled China for Indonesia last year after initially being charged with smuggling, has been “accused of arranging for his company to buy designer clothing from Europe and the United States and have it shipped to Hong Kong.” Under Wenhong’s watch, Xiu.com smuggled approximately $65.5 million worth of luxury garments and accessories into China.

According to Chinese news reports, which cited government officials, Wenhong’s company enlisted professional smugglers, who held themselves out to customs officials as travelers merely carrying “personal belongings." In furtherance of the scheme, the smugglers intentionally failed to declare the true value and nature of the goods to customs, thereby, enabling Xiu to avoid paying import duties on the goods, which range between 47 and 77 percent.

As noted by Jing Daily, this is something of a commonplace tactic for Chinese e-commerce sites, which “are struggling to make a profit, many of which, unlike the nation’s biggest sites – Alibaba’s TMall and JD.com – "do not benefit from direct relationships with brands.” Without brand connections, Chinese e-commerce sites “cannot offer [consumers] competitive pricing, and the pricing ends up being the same as it would be if consumers bought from the official brand stores in China.” As a result, a number of sites have taken to smuggling schemes to avoid import duties.

Interestingly, smaller e-commerce sites, "like Xiu.com [tend to] present themselves as more trustworthy than the bigger sites, when it comes to authenticity," according to Jing, as sites like Alibaba are notoriously rife with counterfeit goods posing as the real thing. "Yet, in order to stay competitive with regard to pricing, smuggling is a solution they often resort to."

As for Xiu.com, things appear to be business as usual. While a spokesman for the company confirmed in a statement that some individuals employed by Xiu are under investigation, he did not specifically mention founder Ji Wenhong. The company is, the rep assured, operating normally, despite the pending action.

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