China’s growing middle class and demand for quality goods have created huge opportunities for both domestic and foreign businesses. Given that 533 million people in China shop online, it’s important to understand the e-commerce market in the country.
To give you a better understanding of China’s cross-border e-commerce sales volume when compared to the overall e-commerce market in China, you can refer to the graph below.
The graph below highlights the total transaction amount of cross-border (import) retail e-commerce in China. It has been increasing steadily since 2012.
Numerous key points about China’s cross-border e-commerce development were highlighted in a recent talk delivered by CBBC (China-Britain Business Council) on 8 Jan 2018. We have summarized the key takeaways below and also added our own comments.
1. China Market Size
The huge size of Chinese Internet and e-commerce market was highlighted. China is the biggest mobile payment market.
Internet Users: As of December 2017, the number of Internet users in China reached 772 million, out of which 97.5% were mobile Internet users.
Online Shopping: As of December 2017, the number of online shoppers reached 533 million, with the majority of them using mobile phones to shop.
Mobile Payment: As of December 2017, there were 527 million mobile payment users.
(Source: December 2017, CNNIC)
2. Government Support
E-commerce development is facilitated by government support, including a shift towards consumption-driven growth and sustainable development, the 13th Five Year Plan, financial sector reform, policies to promote e-commerce/cross-border e-commerce and tax reform (e.g. reduced import tax).
The China’s Finance Ministry has made moves since 2015 to reduce import tariffs on a selection of consumer goods.
Domestic businesses cannot currently satisfy the increasing demand for quality goods among Chinese consumers. Therefore, import tariffs for certain goods have been reduced to create more consumer choice.
This is in line with China’s policy to shift to a consumption-driven economy as reduction in tariffs may lead to increased domestic consumption and decreased overseas spending.
3. Growing Middle Class
More than a third of Mainland China’s population is expected to become middle class by 2030 (Nov 2016, Economist Intelligence Unit).
4. Regional Differences
China is a big country. The distribution of wealth varies between different cities.
Example: This graph (Oct 2016, Economist) was used to highlight the disparity between different regions.
Example: This graph (July 2012, China Daily) was used to show the ranking of Chinese cities’ buying power.
We have created a map comparing the size of Chinese provinces’ GDP to other countries’ GDP.
5. Customer Segments
Chinese consumers can be segmented into urban middle class, millennial, mass market, elderly market and more.
The elderly market is likely to grow in the near future as demographic changes.
Alibaba recently introduced an “elderly-friendly” version of Taobao to tap into the elderly market. There are currently 222 million people aged over 60 in China.
6. Offline Retail
It’s important to check the locations and traffic of your physical stores.
It’s also unlikely that you can get one distributor to cover the whole of China.
7. Logistical And Infrastructural Changes
Alibaba and JD, for example, have both invested in their infrastructure and logistics.
When doing cross-border business, you need to decide if you want to ship directly to Chinese customers or ship via bonded warehouses that are located in China.
QR codes, live streaming, VR, AR and facial recognition were highlighted as some of the important innovations in China.
Alibaba and Tencent also actively invest in new startups.
9. Consumer Trust
Third-party platforms tend to dominate the e-commerce market because Chinese consumers are less likely to trust a standalone web store.
10. Tmall Store
It can be expensive to set up a Tmall store.
You can refer to our article about Tmall partner here for more information.
11. Details Are Important
Write detailed descriptions and include many photos from different angels on e-commerce platform to help Chinese consumers make an informed decision.
Example: Base Formula’s Tmall Global Store
This is certainly a very important point that needs to be considered when designing your own standalone website or listing on third-party platforms.
12. Market Share of Cross-border E-commerce Platforms
Market Share of Cross-border E-commerce Platforms (Q4 2017, Analysys):
Tmall Global (27.6%), Kaola (20.5%), JD Worldwide (13.8%), VIP (9.8%), Amazon (9.1%), Xiaohongshu (4.6%), Suning Global (2.5%) and Jumei (2.4%).
Market Share of Cross-border E-commerce Platforms (2017, iiMedia):
Kaola (25.8%), Tmall Global (21.9%), JD Worldwide (13.3%), VIP (12.9%), Xiaohongshu (4.9%), Yangmatou (4.8%) and Mia (3%).
13. Other Things to Consider
Other points that were highlighted include China’s pilot free trade zones, positive list, direct & bonded shipping models and reduced rates of VAT.
13. China’s Pilot Free Trade Zones
As of Feb 2018, pilot free trade zones have been established in Shanghai, Tianjin, Guangdong, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi.
We’ve prepared a map outlining China’s pilot free trade zones here:
14. Intellectual Property
You can apply for intellectual property protection either through the Madrid system or directly in China.
A comparison between filing through the Madrid Protocol or directly in China can be found in this post by China Law Blog.
15. Website Hosting Issue
You’ll need an ICP license, which requires a Chinese business entity, to host a website in China. If you host outside of China, it might take a long time to load your web pages in China.
Besides high latency times, it’s possible that your website is blocked in China. Use this guide to check if your website is working in China.