Cross-Border E-commerce in China

by | April 17, 2020

Cross-Border E-commerce in China

April 17, 2020

Relying on the huge market potential, China’s e-commerce platforms are an enormous success. During the past years, 1421 Consulting group has already created many articles about e-commerce in China. These are listed below

First article: History of the Future: how China takes over world e-commerce?

Second article: What Is Fueling the E-commerce Boom in China?

Third article: China E-commerce Market Trends that Foreign Companies Should Know

Click here to request our E-commerce White Paper

Something we have not discussed before is cross-border e-commerce. This type of e-commerce details how foreign companies operate in China through opening digital stores on Chinese e-commerce platforms.

 

 

The Development of Cross-Border E-commerce in China

The term of Cross-border e-commerce did not really exist until 2014. Looking back at the rise and development of cross-border e-commerce, several important time nodes can be pointed out:

Cross-border e-commerce has its roots in the interest of Chinese people for products from outside China. Starting in the early 2000s, more and more Chinese people started to study, work and travel abroad. All these people came into contact with foreign (luxury) products, and started bringing and sending them to China. Chinese people living overseas and buying products for Chinese consumers in China are called “Daigou (代购)”.

Later on around 2007, with international banking, social media, and online shopping becoming increasingly easy and popular, the sales “Daigou” became more direct and clustered. Online shopping groups and platforms where “Daigou” advertise their products began to pop up. Chinese customers can search for information about foreign goods on these platforms, and place purchase request. The “Daigou” would then send the goods to their Chinese customers in China directly by international express delivery or by a forwarding company, and this kind of transaction mode is often called “Haitao (海淘)”.

For a long time the “Daigou” has been operating in a grey area in Chinese law. On the year 2014, Chinese government issued new regulations regarding cross-border e-commerce in China. With these new laws cross-border transactions conducted through e-commerce platforms became regulated. Furthermore, this law marks the first time the Chinese government has endorsed the model of cross-border e-commerce, which has opened up many opportunities for foreign firms wanting to sell their good in China. This also confirms the needs of Chinese consumers on foreign products. Unsurprisingly, since 2014, cross-border e-commerce in China has exploded and entered a rapid growth phase.

 

Current Cross-Border E-commerce Market in China

In 2018, the business transactions amount of import cross-border e-commerce in China has arrived 1.9 trillion RMB, and it has continued to grow over the past few years.

The market of cross-border e-commerce  in China is very unbalanced, with large enterprises such as T-mall international, Kaola, JD Worldwide accounting for around 90% of the market share. According to T-mall international, in the past five years from 2015 to 2019, T-mall international introduced over 23,000 overseas brands from 80 countries and regions into the Chinese market. More than 80% of these brands entered China for the first time. This means on average, around 10 overseas brands entered the Chinese market for the first time every day through T-mall international. Among the products which enter China through cross-border e-commerce, cosmetics, personal care, and health products remain the most popular ones. Other very popular products are food, and products meant for mothers and babies.

 

Cross-Border E-commerce in China: a convenient entry strategy

Entering the Chinese market through cross-border e-commerce can save companies many costs, and save them from the headache of product registration and licensing. For instance, as for the general trade in cosmetics, the approval process can take anywhere from 3 to 12 months. The approval process of health products is even longer and can take up to 24 months.

However, when entering China through cross-border e-commerce most of the products do not need to go through the process of registration. Registration. Especially, products in categories such as food, health products, cosmetics, etc. do not have to be registered. To provide you with a better understanding we have highlighted the process of selling selling cosmetics and health products through e-commerce channels down below:

 

Cosmetics

According to the Notice of Improving the Supervision over Cross-border E-commerce Retail Imports issued by the Chinese government, the licensing, registration or filing requirements for first-time imports do not apply to retail products imported into China through cross-border e-commerce. These products are classified as personal use items. Moreover, from a legal perspective, currently there is no domestic registration requirement for cross-border e-commerce cosmetics brands. This means that cosmetics brands entering China through cross-border e-commerce , do not need to go through the registration and approval process, which includes animal testing including the animal testing. In practice, many foreign cruelty-free brands entered China through e-commerce channel. Read more about the cosmetics market in China in our previous article.

 

Food and healthcare products

According to the Food Safety Law, food products, whether domestic or imported, must be registered or filed with the national or provincial food and drug administration. However, health care products brought into China through cross-border e-commerce are exempt . According to the CFDA (the China Food and Drug Administration) , cross-border e-commerce brands that sell food are even allowed to open offline display (experience) stores. However, it is not actually allowed to sell food offline, if there are offline sales they need to apply for a food business license in accordance with the regulations.

 

The Logistics Pattern of Cross-Border E-commerce in China

To enter China through cross-border e-commerce, there are generally two main logistical approaches. First of all, there is the direct approach, where a company ships products directly to Chinese consumers from a warehouse in their country of operations. Products are only shipped and cleared by Chinese customs after an order is placed.

The other option companies have is making use of a bonded warehouse located in China. With this approach companies ship their products in bulk to China, and store them in bonded warehouses until they are ordered. After a consumer places an order, the goods are sent out directly from the bonded warehouse for customs clearance, and then delivered to the consumers. Since the products are already located in China when they are ordered, it takes less time for them to reach the customer. Furthermore, shipping in bulk and less individual shipping means that companies can save on transportation costs. Therefore, the bonded warehouse approach is favored by most companies, since it is quicker and cheaper.

Although the bonded warehouse approach is the most favored approach, it is not applicable to every cross-border e-commerce enterprises. The company’s financial capacity and it’s type of products need to be taken into account. For example, the bonded warehouse approach has high capital requirements. A warehouse needs to be rented, and stockpiling goods requires certain capital strength. In the direct approach, the capital turnover pressure is relatively low because there is no need to stockpile goods, however the delivery and clearance time take longer, and the logistics cost per unit is higher. In consideration of types of goods, the bonded warehouse approach is more suitable for commonly used goods such as daily necessities, while the direct approach is more suitable for personalized products and new products in the market testing phase.

 

What’s next?

Cross-border e-commerce paves an express way for foreign brands to enter the Chinese market, however how to market and sell foreign goods in the Chinese market is a problem that troubles many cross-border merchants. The entry cost for different e-commerce platforms, the collaboration with a Chinese operation agent, and the approach to marketing are all the important points to consider. If you have any questions about Cross-border E-commerce in China, how you can join it or invest in it, please contact us at info@1421.consulting.

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What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.