This article is an update to last year’s “2018 China eCommerce Insights”. Here we hope to provide you with an up-to-date overview of China’s eCommerce landscape to help you establish your business’s online presence in China.
A Broad View of China eCommerce
This year, the total number of internet users in the world reached around 4.4 billion, or 58% of world’s population. This marks the first time in history that more than half the world population has been using the Internet, following an impressive 9.1% jump from 2018. Currently, estimates peg the global eCommerce retail market at about 13.7% of the total global retail market. While the pace of growth of regular retail is falling overall, eCommerce is continuing to maintain rates of over 20%.
The United States and China dominate the global rankings thanks in large to Western eCommerce giants Amazon and Ebay as well as Chinese eCommerce giant Alibaba. In recent years it has become impossible to eCommerce opportunities without mentioning the rapid growth of China’s eCommerce. The chart below shows the dramatic growth of the Chinese online retail market. Experts estimated the volume of eCommerce transaction to be around 28.1 trillion RMB in 2018. Moreover, the country experienced an overall average growth rate of 23%. Although the growth of the eCommerce market is slowing down, it still boasts an impressive 18% growth annually compared to 10% in developed countries.
Domestic B2C eCommerce
The local B2C eCommerce market is dominated by Chinese behemoths Tmall, part of China’s iconic Alibaba Group founded by entrepreneur Jack Ma, and its closest competitor Jingdong’s JD.com. Together they account for over 80% of the total China eCommerce market share. Furthermore, only a handful of other parties account for the remainder of the China eCommerce market share, whom typically are more specialized in particular product categories. This year, global eCommerce giant Amazon announced it was ending its domestic Chinese operations, following years of shrinking market share.
Traditionally, only large multinationals and smaller companies with business entities in China were able to offer their products through regular B2C eCommerce due to the nature of general trade to which it is applicable. In essence, via this method you must import products from abroad through regular trade, which requires a legal entity in China. Similarly, opening a store on a regular domestic B2C eCommerce platform requires a company with a Chinese entity.
On the other hand, cross-border eCommerce (CBEC) offers a comparatively accessible entry strategy with two primary advantages. First of all, CBEC is subject to fewer import taxes. Moreover, particular products are subject to fewer product compliance checks which will result in an easier value chain. Specifically, since April, 2016, China has maintained a “Positive List” for cross-border eCommerce. Following recent updates, the list contains a total of 1,321 product categories. Merchants can import these products into one of 22 approved CBEC bonded warehouse zones across China. Alternatively, they can ship these products from an overseas distribution center linked to Chinese customs. Neither method requires an import license or an import certificate.
If your product falls under the positive list you will enjoy a preferential tax rate of 9.1%. Products on the Positive Lists will generally be exempt from compliance China’s product standards and import requirements, originally until only the end of 2018 but now indefinitely. If you are curious whether your product is on the Positive List, then please visit TMO’s “Positive List Helper”.
In recent years, ever-increasing standards of living as well as greater exposure to foreign products have contributed to upsurge in CBEC transactions as evidenced by the graph below. Also among CBEC transactions we observe an annual double digit growth rate, in this case ranging between 17% and 19%.
However, CBEC brings along its own challenges as the competitive environment differs significantly from regular eCommerce. In particular, the emergence of online shopping and the huge number of foreign merchants created a fragmented market (see the chart below) with numerous online sales channels.
New players such as Kaola and VIP.com are challenging longtime market dominators Tmall and JD, while other new players like YangMaTou and XiaoHongShu are gaining market share quickly. The majority of cross-border transactions are performed by firms from other Asian countries including Japan and Korea, followed closely by the United States. Cosmetics in particular is a popular category, whilst childcare, nutrition, and healthcare products are increasingly becoming of interest to the Chinese consumer.
Sales Channels & Entry Strategies
Currently there are three channels through which foreign brands may consider to sell their products via CBEC, namely: through a stand-alone web shop, marketplaces, and WeChat stores. You can further divide these marketplaces into shop-fronts on online malls, hypermarkets, vertical specialty marketplaces, and flash sale websites. Although all of these channels allow you to sell your products in China without the necessity to obtain a Chinese business license, the success of your company is dependent on numerous factors upon which we will touch throughout the series.
In order to determine how foreign business can use the differing sales channels to their advantage, we can broadly define two business development strategies.
- Fast Growth Strategy (high costs, higher growth).
- Organic Growth Strategy (lower costs, slower growth).
Eventually the aim is to develop an omni-channel sales strategy whereby one may sell their products both off- and online. Omni-channel eCommerce software solutions allow for the creation of a connection between existing information systems and a unified eCommerce platform.
Would you like to know what strategy will suit you best? Or has this article spiked your interest in China’s eCommerce environment? Then reach out and get in touch regarding our eCommerce consulting services, so that we can work out a solution that works for you. Alternatively, check out our China eCommerce Market Guide, recently updated for 2019. In this guide, we go over some more specifics about demographics, legal requirements, and marketing realities of taking part in Chinese eCommerce in 2019.