“A “woman” cannot be interpreted as someone who “reasonably believes” that she is a woman, and a deer cannot become a horse because someone “reasonably believes” that it is a horse” – Tonyee Chow Hang-tung, arguing in the appeal to the Court of Final Appeal.

“Some people may say that the king’s lack of clothes is obvious to everyone, so what difference does it make whether or not it is said? … If we want to see changes in the outside world, we cannot remain unaware of them.”

“We must continue to burst the lies of power.” ‘No matter how many bubbles of lies, they are still fragile.’ ”It is not impossible to win, even if we have to pay a price.” — Written speech by Tonyee Chow Hang-tung

Introduction: Dissolved Hong Kong Alliance in Support of Patriotic Democratic Movements of China (HKASPDMC) Accused of Two Offenses

The Hong Kong Alliance in Support of Patriotic Democratic Movements of China, or the Hong Kong Alliance in Support of Patriotic Democratic Movements of China (HKASPDMC) for short, is a former pan-democratic political organization in Hong Kong. It was founded on May 21, 1989, in the midst of the global Chinese mass rally in support of the 1989 pro-democracy movement in Hong Kong. From 1990 to 2019, the HKASPDMC has been organizing the June Fourth Rally and the Victoria Park Candlelight Vigil for 30 consecutive years to commemorate the June Fourth Incident and to express its insistence on the protection of China. For the first 22 years of its existence, the HKASPDMC was chaired by Mr. Szeto Wah, who was regarded as a lifelong patriot.

On August 25, 2021, the National Security Bureau of the police wrote to the Standing Committee and the person-in-charge of the HKASPDMC, stating that based on the police investigation, the Commissioner of Police had reasonable grounds to believe that the HKASPDMC was an “agent of a foreign country”, and requesting the HKASPDMC to submit the information and the relevant supporting documents to the Police Headquarters in writing, in person and in accordance with the requirements of the 5th Schedule of the 43rd Schedule of the Hong Kong National Security Law, within 14 days (September 7th).

On September 7, four members of the Standing Committee of the HKASPDMC submitted a letter to the Police Headquarters in Wan Chai, explaining their refusal to submit information on the membership and finances of the HKASPDMC as requested by the Police’s National Security Bureau. In its reply to the Police, the HKASPDMC said that the HKASPDMC was not a “foreign agent” and the Police had no right to request the HKASPDMC to provide the information. The HKASPDMC also considered that the Police had committed a legal error in requesting the HKASPDMC to provide the information, and was dissatisfied that the Police had not provided any justification for the refusal in the letter, which was considered to be a violation of the principle of natural justice.

On September 8, the Vice-Chairman of the HKASPDMC, Ms. Tonyee Chow Hang-tung, and members of the Standing Committee, Mr. Leung Kam-wai, Mr. Tang Ngok-kwan and Mr. Chan To-wai, were arrested by the Police National Security Bureau (NSB) at different locations in the morning and detained for investigation. Four of them were detained for investigation. Later, together with Tsui Hon-kwong, five people were charged.

On September 25, 2021, the EGM passed a resolution to dissolve the organization.

Subsequently, Leung Kam Wai and Chan To Wai, who had already been imprisoned for more than the maximum sentence for the alleged offense, pleaded guilty and were sentenced to three months’ imprisonment and released immediately. Tonyee Chow Hang Tung, Tang Ngok Kwan and Tsui Hon Kwong pleaded not guilty and were convicted on March 11, 2023 and sentenced to four and a half months’ imprisonment. Their appeals to the High Court were dismissed and they finally appealed to the Court of Final Appeal.

At present, the HKASPDMC, Lee Cheuk-yan, Albert Ho and Tonyee Chow Hang-tung are still being prosecuted for one count of “inciting subversion of state power”. The case has been referred to the High Court, and the trial date is tentatively set for May 6 this year, but the court said it may be postponed due to the judge’s lack of time to hear the case.

A Rare Small Victory

The HKASPDMC’s refusal to hand over information was unanimously ruled in favor of its appeal by the Hong Kong Court of Final Appeal (CFA) on June 6, with the convictions of Tonyee Chow Hang-tung, then vice-chairman of the HKASPDMC, and two former members of the Standing Committee of the HKASPDMC, namely, Tang Yuek-kwan and Tsui Hon-kwong, being quashed. The three were originally convicted and jailed for refusing to submit information about the organization to the police and were charged with violating the implementation details of the Hong Kong National Security Law. This is the first time that a case involving the Hong Kong National Security Law has been won at the Court of Final Appeal and the convictions quashed, a rare victory for Hong Kong’s pro-democracy camp.

The first case involving the implementation details of the Hong Kong National Security Law.

The HKASPDMC, famous for hosting the annual June 4 Candlelight Vigil in remembrance of the 1989 Tiananmen Square Incident, was disbanded in 2021 under the shadow of China’s enactment and full implementation of the Hong Kong National Security Law. Prior to its dissolution, the Hong Kong police’s National Security Bureau demanded that the organization provide information on its operations and finances, such as its members and donors, and accused it of being a “foreign agent” and of receiving HK$20,000 from an unnamed organization on suspicion of having ties to an overseas pro-democracy group. However, the HKASPDMC refused to cooperate, arguing that the authorities had arbitrarily labeled pro-democracy organizations as foreign agents and had no right to request information from them.

In March 2023, the Hong Kong Court of Appeal in West Kowloon stated that based on the background of the Alliance, the activities it organized and its relationship with people in Hong Kong and overseas over the past years, the Police had reasonable grounds to believe that the Alliance was a foreign agent. The judge found all the defendants guilty of the charge, as he considered that the activists were obliged to comply with the notification requirement to provide information, but did not intend to do so. But now, two years later, five judges of the Hong Kong Court of Final Appeal have unanimously held that the prosecution’s actions had “denied the defendants a fair trial” and ruled against the Department of Justice, which prosecuted on behalf of the Government.

In their judgment, the five Hong Kong CFA judges, headed by Chief Justice Andrew Cheung, said that the prosecution’s removal from evidence of the only material that would have established that the Alliance was a foreign agent was counterproductive to the prosecution’s case and “deprived the appellants of their right to a fair trial, resulting in their conviction involving an unfair trial”. Specifically, the Department of Justice had to prove that the HKASPDMC was in fact an “agent of a foreign state”, and the invocation of “public interest immunity” to substantially cover up the NSA’s investigation report denied the defendant access to the prosecution’s case, deprived him of his right to a fair trial, and rendered the Department of Justice’s conviction unsafe without any evidence to substantiate its case.

The Court also pointed out that the trial magistrate, Mr. Justice Lo Tak Chuen, had emphasized that in order to “effectively” safeguard national security, it was sufficient for the police to have reasonable grounds to believe that the HKASPDMC was an agent, and that the High Court Judge, Ms. Justice Lai Yuen Kei, had further ruled on appeal that the Defendant was unable to challenge the validity of the police notification letter, and that the ruling of the High Court Judge was wrong in both cases. The Court of Final Appeal pointed out that the courts could not ignore the protection of rights in the discharge of their duty to safeguard national security. This is the first time that a national security defendant has been acquitted in a final judgment. In the past, the Court of Final Appeal has lost national security cases, including the bail case of Jimmy Lai, the bail case of the defendant in the “Guardians of the Sheep Village” case, and the case of Lui Sai-yu’s commutation of sentence. Before leaving the court, Chow smiled and raised the “V” sign. Outside the court, Tang said “justice lies in the hearts of the people”, while Tsui replied that “unjust incarceration is untenable”.

From an oasis of rule of law to a “police state

During a hearing at the Hong Kong Court of Final Appeal in January this year, Tonyee Chow Hang-tung defended herself in court, saying that the case highlighted what a police state is, and that a police state is the result of the courts’ connivance of such abuse of power. This connivance must stop immediately. China’s state security apparatus, which has always operated largely in the shadows, has been expanded in recent years by the Communist Party as a defender against threats to Communist rule, public order and national unity. With the introduction of the Hong Kong National Security Law a few years ago, China’s police state was rightfully extended to Hong Kong, where the Chinese security agencies will not be subject to the supervision of local laws and courts.

The open and unregulated nature of the security agencies’ operations represents a significant change for Hong Kong, which has long labeled itself an oasis of law and order. Hong Kong’s national security law introduced vaguely defined offenses, such as secession and collusion, that could well have been used to stifle protests. This was also the case when, on the first full day of the law, the Hong Kong police arrested protesters as a demonstration of the new powers given to the police under the law.

Although the Court of Final Appeal overturned the original verdict, Tonyee Chow Hang-tung , Tang Yuek Kwan and Tsui Hon-kwong were sentenced to 4.5 months in prison for “failing to comply with the notification requirement for the provision of information”, and all three of them have already served their sentences. In fact, for this kind of situation where the sentence is very short and the case is still under appeal, it is entirely possible to apply for bail. However, I do not know whether it is because the application of the Hong Kong National Security Law has increased the political sensitivity of the case that bail was not granted in this case. And it seems that there is no follow-up protection for the three people who have already served their sentences, so one cannot help but ask – is justice belatedly done, or is it still justice?

The June 4 Candlelight Vigil in Victoria Park was an annual event in Hong Kong to commemorate the victims of the June 4 Incident, organized by the HKASPDMC every year from 1990 to 2019, and held at the hard-surface soccer pitch in Victoria Park. The event was once the world’s largest June 4 commemoration, with tens to hundreds of thousands of participants each year. Hong Kong used to be the only place in Chinese territory where the victims of the June 4 Tiananmen Square incident in 1989 could be publicly commemorated, but in recent years the commemoration has gone underground. Since the central government imposed national security laws on Hong Kong in 2020, almost all forms of dissent have become criminalized in the city. As of early March this year, Hong Kong authorities have arrested 320 people on charges of endangering national security, of whom 161 have been convicted.

The Future of National Security Law in Hong Kong’s Judicial Practice

As a high standard common law jurisdiction, Hong Kong should strike a reasonable balance between safeguarding national security and protecting human rights. Specifically, it should not only implement the Hong Kong National Security Law, but also respect and protect the requirements of the Basic Law and the International Covenant on Civil and Political Rights (ICCPR). Under common law principles, the law should be understood as a whole. Therefore, when the court interprets the elements of Schedule 5 to the legislation, it should not only consider the textual formulation of the Schedule, but should also consider the elements of Schedule 7 to the legislation where necessary and relevant. For example, in applying to the Court for an order to furnish information or produce material, the judge has to be satisfied that there are “reasonable grounds” for suspecting that a person is in possession of the information or material and that the information or material is likely to be relevant to the investigation.

Of course, the Court of Final Appeal’s ruling does not undermine the police’s investigative powers in national security cases. Even if it cannot be proved for the time being that a person or an organization belongs to “a foreign agent, a Taiwanese agent, or an agent or manager thereof”, the police can still apply to the court on the basis of “reasonable belief”, and after sufficient evidence has been provided, the court will issue an order for the provision of information or the production of materials in accordance with the law. This arrangement is in line with the propriety of the legal procedures and demonstrates the respect and protection of human rights.

Commenting on the final judgment of the case, Mr. Sun Qingnuo, Deputy Director of the Office of National Security of the Central People’s Government in the Hong Kong Special Administrative Region, when asked whether there were loopholes in the Hong Kong National Security Law that needed to be amended, said that the Hong Kong National Security Law could be improved continuously, including through the National People’s Congress (NPC)’s interpretation of the Basic Law. On the other hand, Professor Albert Chan of the Faculty of Law of the University of Hong Kong is of the view that the case of the HKASPDMC only involves the interpretation by the Court of Final Appeal of individual provisions of the implementation details, and does not involve the interpretation of the Basic Law by NPC. Mr. Ronny Tong, a member of the Executive Council, also analyzed that an interpretation of the Basic Law by the NPC is unlikely at this stage. The SAR Government has already indicated that it will study the judgment and the relevant legal principles, and examine how to further improve the relevant legal system and enforcement mechanism, so as to more effectively prevent, stop and punish acts endangering national security, and to continue to strengthen law enforcement power.

In recent years, the Hong Kong Government has repeatedly emphasized on different occasions that safeguarding national security is a top priority for Hong Kong. The protection of national security is not a work in progress, but a work in progress. Meanwhile, the international community has never ceased to worry that the Hong Kong National Security Law will further undermine civil liberties and fundamental freedoms, and a number of international organizations have been committed to calling for the repeal of this law and for the cessation of interpreting co-operation with United Nations agencies as a threat to national security. It is conceivable that after the first final victory for the defendants of the Hong Kong National Security Law, these two forces will further tussle with each other – whether Hong Kong’s long-proud judicial independence will be reduced to a tool of the Hong Kong National Security Law, or whether this case will rekindle Hong Kong people’s hopes for the re-establishment of a civil society is still very much an unknown. This is still a big unknown.

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Earlier this month, Cheung Kong Hutchison, controlled by the Li Ka-shing family, announced that it had reached an in-principle agreement with a consortium led by U.S.-based Blackrock to sell 80 percent of the assets of its CK Hutchison Port Group. The deal involves 43 ports and supporting logistics networks in 23 countries around the world, and is one of the largest port sales in the world in recent years. It is expected that the final agreement for the sale of Panama Ports will be signed by April 2nd. However, Beijing’s dissatisfaction may cast a shadow over the deal. With all the parties speaking out, the issue continues to attract strong attention and has become a new battleground in the U.S.-China wargame.

The uncertainty of the sale agreement

After US President Donald Trump threatened to repeal the Panama Canal transfer agreement due to Chinese manipulation, the issue of the right to operate this key international waterway has become a hotspot in US-China relations. A few days ago, Hong Kong’s richest man Li Ka-shing’s Cheung Kong Hutchison Holdings Ltd. has planned to sell its 43 overseas ports to a consortium led by BlackRock for US$19 billion, including the Panama Canal-related business, which Trump claimed “poses a national security problem for the U.S.”. Trump praised BlackRock after the deal was announced. Cheung Kong’s sale does not include its HPH Trust, which manages port facilities in Hong Kong, Shenzhen and other Chinese ports, including Yantian International and Hong Kong International Terminals.

The deal bears the mark of Li Ka-shing, the Hong Kong billionaire who has been dubbed “Superman” for building his vast business empire. Now, to avoid being drawn into a wider showdown between the U.S. and China, Li is looking to stay out of the line of fire by selling his business to a group of well-heeled U.S. investors for US$19 billion. However, a number of Chinese media outlets have recently published articles questioning Cheung Kong’s port deal, saying, “Don’t be naive, don’t be foolish,” and that “great entrepreneurs are all geniune patriots”, and questioning why CK Hutchison has so easily transferred so many of its important ports to “unsuspecting U.S. forces”. CK Hutchison responded to the skepticism by saying that the transaction was purely commercial in nature. It must be said that Li Ka-shing’s sale of global port assets other than China, especially the Panama port, once again demonstrates his precise grasp of capital market trends in the global geopolitical landscape.

It remains to be seen whether there will be any complications in the countdown to the signing of the agreement. The Hong Kong and Macao Affairs Office of the State Council of China has recently forwarded a number of commentaries to Ta Kung Pao, criticizing Li Ka-shing for “succumbing to U.S. pressure” and “betraying the interests of the country”. “The article “All Great Entrepreneurs are Geniune Patriots” begins with a series of five questions to CK Hutchison, including “In the face of right and wrong, how should an entrepreneur make choices and where should he lead his enterprise? The article said, “Great entrepreneurs are never cold-blooded speculators seeking profits, but passionate and proud patriots. Although the article did not name Li Ka-shing, it cited Henry Fok, Pao Yuk-kang, Tso Kwong-piu, Ko Lin, Ko Ching-ping and other deceased Hong Kong and Macau people who contributed to the country during the early period of the founding of the Communist Party of China (CPC) and after the reform and opening up of the country as a comparison group of Li Ka-shing, and emphasized that entrepreneurs have to have a spirit of “the greatness of the businessman is to serve the country for the sake of the people”. At a time when Beijing’s political pressure is escalating, CK Hutchison’s share price has fallen, underscoring the investment market’s heightened concern about Beijing’s involvement in geopolitical risks.

Who dares to invest?

Hong Kong’s richest man, Li Ka-shing, has built a multinational port business empire that has been able to expand, not only because it has gained trust from China, helping to promote important national strategic interests such as “One Belt, One Road”, but also because it has gained trust from the international community, proving that the group is not a spokesperson for China under Hong Kong’s unique position of “one country, two systems”. However, in recent years, with the entry into force of the Hong Kong National Security Law, the west sees Hong Kong as losing its autonomy, and it is difficult for Li Ka-shing’s multinational port business kingdom not to be viewed by the international community as a “Chinese enterprise” and become a target of attack by various countries.

According to a report by the Mercator Institute for China Studies in Germany, China has placed considerable emphasis on its global port presence, with 110 ports in 67 countries, and the roles of Chinese companies in these ports can be categorized into three types: operator/owner, developer, and funder. Among these ports, CKH owns or operates 78 ports in 37 countries, of which 33 are owned or operated by Chinese companies. The two ports that CKH intends to sell served 39% of the container ships in the Panama Canal last year, with the US being the largest user of the canal, accounting for 73% of the traffic. China was second with 21.4%. If CKH were to sell all of its overseas ports, it would mean an instant loss of 40 percent of this strategic node for China. The Chief Executive of the Hong Kong Special Administrative Region (HKSAR), Mr. Lee Ka-chiu, has already said that the concerns raised by Li Ka-shing’s deal “deserve to be taken seriously”.

Subtly, in the case of CK Hutchison’s port sale, it is different from the Chinese government’s direct statement and even intervention in the TikTok and Huawei’s Meng Wanzhou cases. This time, the Chinese government did not make a direct statement, but expressed its attitude through the official media department’s newspapers in Hong Kong, in order to incite nationalistic sentiments to flog a private enterprise. The fact that Li Ka-shing has not violated any laws or regulations, but has been subjected to a lot of pressure from public opinion, is questionable. At the same time, the fact that the government has not yet intervened directly shows that the Chinese top management may still be exploring and evaluating the situation. On the one hand, the matter is so big that it has to be taken care of, but on the other hand, since it is an offshore transaction of a foreign enterprise, it is not good to intervene. According to sources familiar with the matter, the Chinese authorities have begun to investigate the sale of Li Ka-shing’s overseas port business, and a number of departments, including the State Administration for Market Supervision, have been instructed by senior state leaders to examine whether there are any potential security loopholes or antitrust violations in this transaction.

In recent years, Hong Kong’s status as an international trading port has been facing serious challenges. Over the years, Hong Kong has become the world’s seventh-largest re-export port for goods by virtue of its independent tariff zone, with re-export trade supporting a quarter of Hong Kong’s economy. However, the Trump administration’s imposition of tariffs on Chinese goods and the inclusion of Hong Kong for the first time in the scope of the same tariffs have directly impacted this position. A few days ago, China’s official newspaper Ta Kung Pao commented that the agreement between CK Hutchison and BlackRock was “profit-oriented, forgetting righteousness in the face of profit,” and that it was related to “national interests and national justice. This kind of open contempt and warning to a private company in the media is reminiscent of “Cultural Revolution-style criticism” and will scare away many potential foreign investors. Beijing’s increasing interference in Hong Kong’s business community – pressuring business leaders to be patriotic through statements and visits by Chinese officials – suggests that it is becoming increasingly difficult for Hong Kong companies to dissociate themselves from Chinese politics.

Geopolitical Risks Create Increasing Uncertainty

In the face of the intensifying US-China game, companies are naturally more concerned about whether they will be more easily victimized by the geopolitical rivalry between the big powers. If companies want to operate or expand their business in the international market, they have to strengthen their ability to anticipate geopolitical risks. Li Tzar Kuoi, the son of Li Ka-shing and chairman of Cheung Kong Hutchison, said in a statement accompanying last week’s financial results that the business environment for Cheung Kong Hutchison this year could be “volatile and unpredictable”. With just a week to go before the scheduled date for signing the agreement, any attempt by Hong Kong or Beijing to block the deal would be extraordinary. Chinese companies often have to get permission from regulators to move money out of mainland China. CK Hutchison operates ports around the world, including in China, but none of the 43 ports involved in the BlackRock deal are in China. None of the 43 ports involved in the BlackRock deal are in China, and CKH’s shares are not listed on the mainland.

Since 2012, shortly after Xi Jinping took power, Li has sold many of his real estate investments in mainland China and reinvested most of his money in Europe. His actions have been widely criticized by Chinese nationalists, but from a financial perspective, it was smart. He managed to divest himself of these investments before the start of the Chinese real estate market crash in 2021, which has continued to deteriorate ever since. It has since been argued that this sale of overseas ports, like the one that foresaw the dramatic changes in China’s real estate market, was strategically far-sighted if analyzed purely from a business perspective, avoiding possible political risks while realizing an asset at a very attractive price and leaving the group with plenty of room for its future strategic deployment. However, all these are based on the foundation that the agreement can be signed smoothly.

As geopolitical tensions between the US and China intensify, access to information on the flow of goods through key waterways will be crucial in the event of a “supply chain war”. Trump has repeatedly advocated regaining control of the Panama Canal and surrounding areas for reasons including the threat posed by Chinese influence. U.S. media revealed that the White House has asked the Pentagon to provide military options to ensure U.S. “free access” to the canal. In addition, the Office of the U.S. Trade Representative’s proposal to levy high fees on Chinese-made ships has triggered tremors in the international shipping industry. China’s influence in the global port network has also seen more setbacks than advances over the years, with a net overall decline in the number of ports owned directly by China or operated by third parties. As a result, Beijing is bound to take action against Li Ka-shing’s agreement to sell these two important ports. This standoff is a test of how far China’s top leader, Xi Jinping, is willing to go in exercising control over Hong Kong’s commercial sector, and the U.S. will certainly not stand by and watch. The global supply chain and control of ports are developing into a major battleground for great powers, and the future is sure to be a smoldering one.

Years ago, when globalization was in full swing, not many people questioned which country a company belonged to, but now, with the dramatic changes in geopolitics and the global economic crisis, ideology has once again taken over the high ground of public opinion. For example

TikTok is incorporated in the U.S., with corporate headquarters in Los Angeles and Singapore, but is controlled by the board of directors of the Chinese company, TikTok. Even if public opinion glosses over it, TikTok is a global private company: 60% of its investors are global institutions, 20% of its shares are held by its founder, Yiming Zhang, and the other 20% are shared by all its employees; and three of its five board members are Americans. But it’s hard to explain in a few words the real money at stake behind the scenes. And like most major Chinese companies, the Communist Party of China (CPC) set up a party branch at Beatnik in 2014, which probably says a lot. As for Li Ka-shing’s Cheung Kong Hutchison, there is breathing room in today’s searing situation only because of its reliance on Hong Kong, the former Pearl of the Orient, which has evolved into a multinational enterprise through decades of Chinese investment. The deal puts Beijing on the horns of a dilemma, as any major move to jeopardize it could aggravate tensions between the Chinese government and the Trump administration. As you can imagine, there will be consequences to this port sale, and even if the deal is signed, Beijing will be ready to “settle scores in the fall,” and there will be more to come.

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U.S. President Donald Trump signed a presidential executive order on February 1 that imposed additional tariffs on goods imported from Mexico, Canada, and China, specifying that small-dollar imports of less than 800 U.S. dollars would also be included in the scope of the tax. The move is believed to target Chinese e-commerce companies such as Temu and Shein, which have taken advantage of the duty-free policy on small-value imports to rapidly expand their share of the U.S. market. The latest news is that Trump has signed another executive order temporarily freezing tariffs on low-cost packages from China so that specific arrangements can be made. The White House did not specify how long the administration plans to delay the tariffs.

Fast Fashion Brand SHEIN Dominates Overseas Markets with Low Prices

Chinese e-commerce is pervasive

Temu has been expanding overseas since September 2020, and ECDB (e-commerce database) figures show an exponential increase in web traffic and app downloads in May 2023 compared to April. Not only Temu, but also Shein, Aliexpress, and JD have taken their domestic competition to the global market, creating a wave of Chinese e-commerce platform shopping around the world. In the midst of the Russian-Ukrainian war and the inflationary impact of the new Covid-19 pandemic in Europe and the United States, low-cost products have become more attractive to European and American consumers, and have even relieved them of their tight wallets.

In the U.S., Temu bills itself as a 2022 Boston-based, Delaware-registered business that ships products directly from manufacturers and suppliers. According to industry analysis, Temu’s primary operator is its Chinese parent company, Pinduoduo, which was founded in Guangdong in 2019. Leveraging Pinduoduo’s experience in grabbing the market with low prices in China, Temu has not only rapidly built up its user base in Europe and the U.S. through extensive advertising and referrals from friends, but has even attracted consumers who boycotted Amazon because they thought it was a monopoly e-commerce company. On the other hand, Shein is a cross-border B2C Internet enterprise focusing on women’s fast fashion, which was founded in October 2008 with the goal of “enjoying the beauty of fashion for everyone”. Shein’s business focuses on women’s fast fashion, and it has entered major markets such as North America, Europe, the Middle East, Southeast Asia and South America, and directly serves consumers in more than 150 countries around the world, with an APP that covers more than 50 languages globally, and owns 11 private labels. 2020, during the outbreak of the New Crown epidemic, the apparel industry was hit hard, and Zara announced that its revenue had been cut by half in February-April, and it decided to close 1,200 stores. Zara announced that its revenues would be almost halved from February to April and decided to close 1,200 stores. At the same time, Shein’s sales exceeded $40 billion in the first half of 2020, and with a total valuation of more than $15 billion in E-round financing, it has become the apparel brand that is most likely to challenge Zara’s leading position.

One of the secrets of these e-commerce companies’ “pie in the sky” approach to overseas markets is their ability to understand and take advantage of local laws. The costs of cross-border e-commerce include marketing, customer acquisition, cost of goods, and transportation. Currently, Temu and Shein are taking advantage of the Universal Postal Agreement to utilize free parcel post and tariff exemptions to significantly reduce costs. In the U.S., for example, if the value of imported goods is less than $800, duty-free measures apply (the De Minimis rule); the De Minimis rule has been used by Temu, Shein, and other Chinese low-cost e-commerce companies that have been growing rapidly in the U.S. and elsewhere in recent years. These companies deliver goods directly from Chinese factories and warehouses to U.S. consumers through air transportation and other means, realizing non-taxable sales and thus suppressing prices. Compared with U.S. e-commerce companies such as Amazon, which have built warehouses and logistics networks within the U.S., Chinese e-commerce companies have stronger price competitiveness. Trump’s latest tariff policy has changed the status quo.

Building warehouses in the U.S., in addition to increased customs declaration fees and tariffs, but also additional transportation costs, and inventory and management logistics costs, it is clear that operating costs will increase significantly.

Seeking survival in the midst of uncertainty

Trump’s policy is a bit like the wolf coming to the rescue. Today he says he will levy taxes, but tomorrow he says he will not do so for the time being. Just when the media are clamoring that cross-border e-commerce overnight, the U.S. tariff policy has changed again – Trump signed an executive order that will continue to allow low-cost product parcels from China to enter the U.S. tariff-free for the time being. The U.S. will continue to provide “de minimis” tariff exemptions for goods from China until the Department of Commerce “establishes adequate systems to fully and expeditiously process and collect tariff revenues”. This change is a win for Chinese e-commerce platforms such as Temu and Shein, which ship directly to the U.S. and are very popular with cost-conscious shoppers, and a relief for U.S.-based consumers, who face higher costs on retail goods shipped from China.

According to statistics, approximately 4 million small-dollar packages valued at less than $800 are shipped from China to the U.S. every day. While this may not be a “big deal” in the huge volume of U.S.-China economic and trade transactions, the pain of eliminating the small-dollar exemption could easily and quickly be transmitted to the nerve endings of U.S. society, given that most of these packages consist of items that American citizens and businesses need on a daily basis, such as low-priced apparel, toys, and electronics, as well as production necessities such as screws and valves, and so on. Perhaps this immediate impact on people’s livelihoods is the main reason behind the policy’s hasty braking.

Nevertheless, Chinese cross-border e-commerce companies such as Temu and Shein are still trembling in fear of Trump’s unpredictable style of governance. In the future, in the face of unpredictable tariff policy changes, cross-border e-commerce large enterprises will choose to enter local warehouses to reduce tariffs, but a group of cross-border e-commerce ordinary sellers are complaining that because of the lack of ability to large-volume warehousing, it will be even more affected in the future. In particular, if the United States takes the lead, will Europe and Japan follow suit? There is a trend in the European Union to remove the exemption for goods under 150 euros, and Japan has a tax-free policy for parcels under 1,000 yen in value. If the whole world adjusts the tax exemption policy for small parcels, the future days of ordinary cross-border e-commerce sellers in China will definitely not be as good as before. In response to the uncertainty of U.S. trade policy, Shein and Temu have opened distribution centers in the U.S. that allow sellers to ship their goods to the U.S. and store them in local warehouses, from which they are shipped to U.S. consumers. As they have become the largest and most monopolized supply platforms, these changes will of course drive up the price of goods, but in the absence of strong competition, it is believed that these companies are still quite capable of facing new challengers.

Who pays the price?

With the slogan “Shop like a Billionaire”, Temu is using an extremely low pricing strategy that is killing it in overseas markets. Against the backdrop of shipping overseas, Temu sells sneakers for RMB 45, glasses for RMB 13, sunglasses for RMB 8, cell phone holders for RMB 9, drones for RMB 110, and handheld vacuum cleaners for RMB 40, which is an unbelievably low price. In fact, this comes from the plight of China’s foreign trade since 2022: due to the dynamic zero and “de-risking” of China’s foreign trade suffered a super-expected decline, domestic enterprises have a large amount of inventory backlog. This backlog of inventory is better than rotting in warehouses, no matter how low the price is, as long as the payback cycle is fast. This, coupled with high inflationary pressures in Western societies after 2023, has led to a huge increase in consumer demand for cheaper goods. Against this backdrop, Temu has become the world’s second largest e-commerce company after Amazon, and behind its glittering results are dealers who are crying out for help. Shein, the same fast-fashion brand as Temu, also offers ridiculously cheap clothing. In this supply chain, a large number of laborers working in textile factories in Panyu, Guangzhou, are being squeezed – companies are squeezing social justice and the rule of law to keep costs down, and leaving all the costs to suppliers and employees.

The emergence of this phenomenon was very similar to the oppression of workers’ rights by capitalists after the Industrial Revolution. Workers migrated from the countryside to the cities, leaving the land that provided the basic living conditions, and had to rely on their labor to earn a living, without the ability to bargain with the capitalists. Eventually, social instability evolved over a long period of time, resulting in a slight improvement for workers in developed countries through the enactment of labor protection legislation by the government. Cross-border e-commerce like Temu and Shein, where the benefits go to the company and the costs are passed on to the suppliers and workers, is very unlikely to happen in developed countries. However, the same cannot be said for populous countries such as China or India.

Product Quality and Intellectual Property

Consumers may order from these Chinese e-commerce platforms to save money, but product quality is a growing concern in many countries. In addition, counterfeiting is another issue that has been cited as a major market disruptor for low-cost products in China – the protection of anonymity and low thresholds for use on the internet have made e-commerce platforms the best place to sell counterfeits, and Shein’s history of plagiarism is legion, with international brands such as Ralph Lauren, Levi’s, and Zara, as well as Chinese Taobao, being some of the best sellers. Shein has a history of copying everything from international brands such as Ralph Lauren, Levi’s, and Zara to popular clothing on Taobao in China, and has even been accused by the Mexican Ministry of Culture of directly copying the workmanship and patterns of the traditional Mexican embroidery, Huipil. In the face of these lawsuits, Shein seems to be unaffected by the controversy, claiming that the infringing goods were designed independently by the merchants, and that the liability and compensation are borne by the merchants, not by Shein, and that Shein’s huge profits are shared by the entire community.

Personal data becomes a commodity

What’s more, the security of personal data is a matter of great concern. Not many people are aware that when a person makes a purchase on an online platform or uses a service (such as enjoying a TikTok video or one of China’s most popular dramas), the user not only receives the service, but also becomes part of the collective data collected by the platform. These data can be used to analyze various human behaviors, and to know and predict their activities and reactions in other areas. The platforms can also use the feedback to change the services they provide to the users or the products they recommend, thus controlling the users to stay on the platforms. Therefore, if these cross-border e-commerce companies become significant suppliers of shopping to people in other countries, it can be argued that they also become a way for China to influence other countries.

For example, Temu collects more information than is necessary for online shopping, including personal biometrics (such as fingerprints) and other data. The difference between China and the West in terms of data ownership is that the West uses data through accountability systems, but Chinese companies and governments are very vague about how they will use consumer data, and you don’t know how the data you leave behind will be used.

Conclusion

Temu and Shein are two cross-border platforms that have long been under the scrutiny of Western governments due to their “over-success” in penetrating Western societies and their enormous potential to influence society. Plus, they have long been criticized for labor exploitation in their supply chains, prompting investigations into their ethical sourcing practices. Ironically, while countries like Europe and the United States are pointing fingers and blaming China for its human rights situation, their people are consuming and enjoying products produced by forced labor and low wages; especially at a time of rampant inflation, consumers in the Western world will “vote with their feet” and make their own choices whether to boycott or to comply.

Trump’s order to cancel the tariff exemption for small packages today has attracted global attention as to how much it will affect these companies, and whether it will lead to a new direction of development in the globalization of cross-border e-commerce, so let’s wait and see.

Article/Editorial Department Sameway Magazine

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