Daigou might be the biggest industry you've never heard of. The Mandarin term, which translates as "buy on behalf of", is used to describe Chinese buyers who purchase sought-after products abroad and resell them back home for profit by dodging taxes and duties. It's like bringing cheap fags back from your holiday to flog to your friends, but on a much, much larger scale.
Daigou sell products cheaper than they are available in China, where taxes on luxury goods are high. They also capitalise on high distrust among Chinese consumers: fakes are ubiquitous, and health scares like the 2008 milk scandal – when six children died from melamine-contaminated baby formula – mean products purchased abroad are often perceived as safer and more legitimate. Some estimates claim there are now over one million daigou working globally, but before growing into a slick grey market operation it was a fairly innocuous pastime.
"It started out really innocently – you know, people go abroad and people go, 'Hey, can you send me home this kind of handbag?'" says Wade Shepard, author of On the New Silk Road: Journeying Through China's Artery of Power. "And it kind of grew from this informal, grassroots thing into a $100 billion a year industry."
Daigou – which can be used to refer to the practice as well as the people doing it – grew alongside a boom in China's middle class over the last decade. The scale of China's population is dizzying: it's the most populous country on Earth, boasting over 100 cities with more than 1 million residents each, and its economic growth means a large number of those people now have more disposable income than ever before.
While the country's 400 million-strong middle class represents a relatively small share of its 1.4 billion person population, in absolute terms it is one of the biggest markets in the world. According to the consulting firm McKinsey, Chinese consumers spent £120 billion on luxury goods in 2018 – a third of the global total. This is the spending power that daigou capitalise on: by exploiting both heavy taxes on luxury items for consumers in China and lax customs control on goods coming into the country.
Fashion graduate Liz was quick to spot how much money could be made from the daigou market. She started off by selling to her followers on social media when she was at university in the south of England, and her business quickly took off from there. Like a lot of daigou, she focused on the luxury market, with brands like Chanel, Hermes and Bulgari popular among her customers.
Liz developed a low-key smuggling empire with little more than a smartphone and regular visits to the Post Office. She would simply take orders, buy the items legitimately in the UK and then post them to China. Profits rolled in and packages were rarely picked up by the authorities.
"Chinese customs wasn't that strict," she says. "Ninety percent [of orders] were successful, but occasionally customers had to go to local customs to pay tax." Liz says she would sometimes cover half of the duty to keep things smooth with her clients, but it didn't eat into her profits too much – and on a good day, those profits were huge: "About £10,000," she says, nonchalantly. "That's not every day, don't get me wrong, but eight years ago, because no one was doing this, the opportunity was there."
Liz says that tougher competition and stricter policing by the Chinese government squeezed her profits to such an extent that she has decided to stop trading. A new Chinese e-commerce law that came into effect at the start of 2019 is hitting the luxury daigou trade hard; the rules requires daigou to register as companies and pay taxes, leaving less room to skim the profits of a few years ago. Liz is now using her social media platform to make money working legitimately with some of the brands she used to sell on the black market.
Although we may have reached peak daigou at the luxury end of the market, the industry as a whole shows no sign of folding just yet. "It definitely put a damper on things, but it forced daigou to change their strategies," Wade tells me.
Now, daigou are using methods that are harder to detect when selling their products, such as utilising WeChat's "moments" function, which works a bit like a group chat by creating a private communication channel between a user and their friends. There have also been reports of daigou posting drawings of products instead of pictures when advertising on social media in order to avoid detection.
There is also still huge demand for products that consumers either can't get, or don't trust, in China, even if it means paying over the odds for them. "It's become almost a trendy thing not to buy certain products in China, to have daigou send them back for you," Wade says. "They're still not able to regulate it, and that trade is alive and well."
These lower-value, commonplace items – such as milk powder, skincare products and vitamins – are usually harder to detect when passing through borders, and even if they are picked up, duties are lower than on luxury goods. Despite taking a hit from the 2019 e-commerce law, daigou is still going strong. "It's always going to exist," says Wade. "Chinese culture tends to be really innovative, the ways they can subvert authority, get around the rules."
But those rules are growing stricter and more draconian. This year's e-commerce law is just a small part of China's wider move to formalise and digitise its surveillance apparatus. The country is pushing to become the world's first cashless society, which could be tied to its already dystopian social credit system. With the state monitoring all of its citizens' transactions, the stakes in the game of cat and mouse between China and its one million daigou will be raised further.