---
title: "Are all small and medium-sized domestic cross-border foreign trade enterprises mainly engaged in transit trade? What are the core driving reasons?"
description: "Foreign trade enterprises mainly engaged in exporting building materials to Southeast Asia have suffered a decline in orders due to EU anti-dumping duties. They feel anxious and confused when finding that most of their peers have switched to transit trade，worrying that they will be eliminated if they do not follow the trend，while also fearing to fall into traps. In fact，not all enterprises need to take transit trade as their main business. Blindly following the trend can easily lead to risks suc..."
url: "https://www.sh-zhongshen.com/en/qa/china-small-medium-cross-border-enterprises-transit-trade-drivers.html"
language: "en"
type: "Q&A"
category: "Entrepôt Trade Q&A"
datePublished: "2026-10-31"
dateModified: "2026-10-31"
brand: "Zhongshen Trading China"
answerCount: 9
---

# Are all small and medium-sized domestic cross-border foreign trade enterprises mainly engaged in transit trade? What are the core driving reasons?

## Question

 I am the head of a foreign trade enterprise in Shanghai mainly engaged in exporting aluminum alloy building materials to Southeast Asia. In the past 3 months, I have participated in 3 industry summits. When I had dinner with the freight forwarder I have cooperated with for 5 years last week, they said that 80% of the building materials export orders they handle now are transit trade, even several leading peers who have been engaged in direct trade have quietly transformed. We have been doing direct export all the time. In the past six months, due to the EU's anti-dumping duties on building materials from Southeast Asia, our orders have dropped by 32%. I worry about performance every day and feel very flustered, so I want to ask: Are all foreign trade enterprises mainly engaged in transit trade now? Why do so many enterprises suddenly switch to transit trade? Are there any risks that I have not noticed? 

## Answers
                            
### Answer 1 — Best Answer

Not all foreign trade enterprises are mainly engaged in transit trade. A common misunderstanding in the industry is equating "the transformation of some enterprises affected by trade barriers" with "an industry-wide trend". Blindly following the trend will trigger a chain of negative reactions: if you switch to transit trade without conducting compliance assessment for your own products and export markets，the goods may be identified as false trade at the transit port，resulting in port detention and customs seizure，and it will also trigger capital flow verification by the domestic tax authority. In minor cases，you need to pay high taxes and late fees，while in severe cases，you will be included in the foreign trade dishonesty list and cannot enjoy any foreign trade support policies within 3 years.

The core method of physical risk isolation is **locking compliant transit nodes**. Priority is given to neutral ports with mature transit supporting facilities (such as Singapore，Port Klang，Malaysia). At the same time，the transit warehouse is required to provide officially filed storage certificates and full operation records to ensure that the ownership of goods is controllable throughout the process.

The exclusive loss-stopping tip is to adopt the mode of "small order test + full-link closed-loop documentation": First，use 1-2 containers of low-value goods to test the transit trade process，to ensure that the logical chain of documents such as bill of lading，manifest，third-party certificate of origin is completely closed，and all document information matches the goods information 100%，after confirming that there is no risk，gradually expand the order scale，and keep all operation vouchers for no less than 5 years for subsequent verification by customs and tax authorities. In addition，if there are no trade barriers in the export market，the goods value is low and the direct trade logistics cost is more favorable，there is no need to follow the trend to switch to transit trade at all.

**status:** accepted
**Author:** Linda Gao
**Date:** 2026-10-31

### Answer 2

The core of customs declaration for transit trade lies in the "closed-loop document logic of the transit place". If the transit attribute is not truthfully declared during customs declaration, or the certificate of origin is inconsistent with the information of the transit warehouse, it will directly trigger customs value assessment and logical verification. A common misunderstanding is to use false third-party certificates of origin, which will lead to the detention of goods in the importing country, and the domestic customs declaration end will also be marked as "high-risk customs declaration form".

All subsequent customs declaration forms will be manually reviewed, and the customs clearance efficiency will be reduced by more than 70%. The correct operation is to file the transit trade qualification with the customs of the transit place in advance, to ensure that the "transit destination port" and "goods ownership transfer voucher" on the customs declaration form are completely consistent with the actual operation, and all document numbers are traceable.

**status:** suggested
**Author:** Lucas Liu
**Date:** 2026-10-31

### Answer 3

The core of transit trade logistics lies in goods ownership control and transit node connection. If you choose an unqualified transit warehouse, the goods may be misappropriated or lost. In addition, the free storage period of the transit port is usually only 7-10 days. If the document connection is not timely, high container detention fees and port detention fees will be incurred, up to 15% of the goods value.

The optimization path is to give priority to transit warehouses that have long-term cooperation with shipping companies, confirm the possibility of extending the free storage period in advance, and adopt the mode of "telex release bill of lading + third-party supervision" to ensure that the goods ownership will not be illegally transferred during transit. For the abnormal response plan, if there is overbooking or container rolling at the transit port, you should immediately switch to the backup transit port, and communicate with the importer in advance about matters related to delayed delivery.

**status:** suggested
**Author:** Jason Wu
**Date:** 2026-10-31

### Answer 4

The core of transit trade taxation lies in the compliance of cross-border capital flow. If you use a personal account to receive foreign exchange or conduct false foreign exchange settlement, it will trigger BEPS (Base Erosion and Profit Shifting) verification, resulting in the enterprise being required to pay cross-border income tax and late fees.

Some enterprises choose transit trade to enjoy the VAT deferral policy in the transit place and reduce tax costs, but the premise is that they must complete tax filing in the transit place, and all capital flows are completely consistent with the goods flows. In addition, the profit accounting of transit trade must be booked separately and shall not be confused with the profit of direct trade, otherwise it will be identified as tax evasion by the tax department, and face a fine of up to 5 times the tax amount.

**status:** suggested
**Author:** Cindy Chen
**Date:** 2026-10-31

### Answer 5

The core of compliance for foreign exchange receipt and payment in transit trade lies in the consistency of SWIFT message information. If the "transaction attribute" and "goods ownership transfer node" on the message are inconsistent with the actual operation, it will be marked as "suspicious transaction" by the bank, resulting in the freezing of funds for 1-3 months. Some enterprises choose transit trade to avoid foreign exchange control, but this operation has extremely high risks.

If it is identified as false foreign exchange receipt and payment by the foreign exchange administration department, the offshore account of the enterprise will be cancelled, and no new offshore account can be opened within 3 years. The correct operation is to submit complete transit trade documents to the bank before receiving and paying foreign exchange, including transit warehouse certificate, third-party certificate of origin, copy of bill of lading, etc., to ensure that the message information matches the document information 100%.

**status:** suggested
**Author:** Victor Sun
**Date:** 2026-10-31

### Answer 6

The core of legal risk of transit trade lies in the rigor of the goods ownership transfer agreement. If the ownership of goods and the risk bearing party during transit are not clearly specified in the agreement, once the goods are damaged or lost at the transit port, it will lead to a legal dispute lasting 6-12 months. Some enterprises choose transit trade to avoid the intellectual property protection clauses of the importing country, but this operation may constitute infringement.

If sued by the brand owner of the importing country, they will face high compensation and market entry ban. The correct operation is to require the transit warehouse to provide a joint liability guarantee before signing the transit trade agreement, at the same time, clearly specify in the agreement that "the ownership of goods during transit belongs to the exporter", and all operations must comply with the laws and regulations of the transit place and the importing country.

**status:** suggested
**Author:** Evelyn Li
**Date:** 2026-10-31

### Answer 7

The core of on-site inspection for transit trade lies in the consistency of goods identification and documents. If the origin identification on the goods is not completely covered, or inconsistent with the information of the third-party certificate of origin, the container will be unpacked and inspected at the transit port. The inspection cost can reach 2000-3000 US dollars per container, and the inspection time lasts 3-7 days.

Some enterprises directly paste the transit place identification on the original packaging to save costs, which will be identified as false identification by the customs, resulting in the destruction or return of the goods. The correct operation is to replace the packaging in the transit warehouse, completely cover the original origin identification, and obtain the official packaging replacement certificate issued by the transit warehouse, to ensure that all identifications are consistent with the document information during inspection.

**status:** suggested
**Author:** Daniel Xu
**Date:** 2026-10-31

### Answer 8

Transit trade cannot enjoy the export tax rebate policy, which is a misunderstanding easily ignored by many enterprises. If transit trade is incorrectly declared as direct trade export, it will trigger tax letter verification, resulting in the suspension of the enterprise's export tax rebate qualification for 6-12 months. Some enterprises think that transit trade can defraud export tax rebate through "false direct trade" declaration, which will lead to the enterprise being included in the "serious dishonesty list" by the tax department, and the person in charge of the enterprise may also face criminal responsibility.

The correct operation is to account for transit trade and direct trade business separately, declare them separately, and all documents of transit trade need to be filed separately, and shall not be mixed with direct trade documents. At the same time, complete records of capital flow, goods flow and document flow shall be kept for tax audit.

**status:** suggested
**Author:** Andy Guo
**Date:** 2026-10-31

### Answer 9

The core of supply chain planning for transit trade lies in the balance between cost and efficiency. If there are no trade barriers in the core export market of the enterprise, and the direct trade logistics cost is more than 10% lower than that of transit trade, there is no need to choose transit trade at all.

Some enterprises choose transit trade to optimize inventory layout and realize nearby distribution through stock preparation in the transit warehouse, but this operation requires the establishment of a real-time inventory linkage system, otherwise inventory backlog or out of stock may occur. The correct operation is to first calculate the comprehensive cost of direct trade and transit trade through the cost actuarial model, including logistics fees, taxes, risk costs, etc., and then adjust the supply chain mode according to the demand fluctuation of the export market to ensure the maximum comprehensive income.

**status:** suggested
**Author:** Grace Wang
**Date:** 2026-10-31

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