Cross-border eCommerce: The challenges and opportunity to sell directly to Chinese consumers

China cross-border eCommerce (commonly known as CBEC) is simply online shopping that allows overseas eCommerce to sell products to mainland consumers. This growing trend is the result of affluent consumers in China looking for quality products not found in domestic eCommerce platforms, while international brands looking to access the new China market potential without physical retail presence. Indeed, China's cross-border eCommerce market recorded an excellent growth in 2021 to reach US$2.03 trillion; and this growth trend is expected to continue in the coming years. 

Key challenges in China cross-border eCommerce

Currently, there are 270 million of GenZ population and they are the fastest spending segment out of any generation in the mainland. This population of digital natives are top buyers of cosmetics, fashion, luxury and tourism services on cross-border online shops. However, their experience with international eCommerce platforms has been less than satisfactory. But these challenges are largely concentrated into three areas as follows: 

1. No China payment options – most international eCommerce websites support the use of credit cards, debit cards, PayPal etc. for payment. However, over 800 million people in China today are using WeChat and Alipay for online and in-store payment services on a daily basis. The absence of localised payment methods on overseas eCommerce websites will be a huge inconvenience to consumers; and potential loss of revenue for businesses.
2. Slow and unreliable logistics service – International online shops not using cross-border eCommerce are primarily relying on Universal Postal Union (UPU) logistics channel to ship products to Chinese. This delivery method is not an official business shipping channel authorised by China customs.

3. Pay higher tax for products – When the Chinese government introduced cross-border eCommerce, its goal is to provide a fast, separate, official, and state-sanctioned trade channel for imported goods. To encourage adoption, preferential tax rates (between 9.1% to 23.1% for certain product categories) are also introduced when international merchants ship via cross-border eCommerce instead of Universal Postal Union or general trade, where the personal tax paid is between 20% to 50%.

How to build a successful cross-border eCommerce strategy in China

International brands leveraging cross-border eCommerce is a great way to create brand presence in China. However, insufficient knowledge of customs and tax regulations can be complex for foreign companies to explore this potential without local presence. Therefore, businesses need to take note of the important steps required to succeed in cross border business.

1. Ensure your products comply with China’s “positive list” – The government has a prescribed list of goods that qualify under cross-border eCommerce shipping. This list of products known as “positive list” is published in the website of China customs and are updated periodically to include more items for cross-border eCommerce.

2. Determine prices & taxes that may affect your competitiveness – Products under the “positive list” enjoy preferential tax rates. However, depending on each sales order amount (below RMB5,000 per order) and total purchase a year (not exceeding RMB26,000) by individual China customer, the allowance of tax benefits may change.

3. Support localised payment methods and currencies – WeChat Pay and Alipay contributed over 90% of Chinese consumers’ mobile payment. It is important you work with a CBEC partner that provides such localised payment options.

4. Use China bonded warehouse for faster logistic service – Merchants can ship directly to Chinese consumers from overseas warehouses or use China-bonded warehouses for pre-clearance. Upon order payment, the products can be delivered to customers within three days from the bonded warehouses - better customer experience.

5. Work with an authorised local CBEC partner –Through an official partner, your products will be registered electronically with China customs for pre-clearance and duties at bonded warehouse. Importantly, a one-step China CBCE platform licensed partner will also be able to provide you logistics, localised payment options and remittance services. 

As China government continues to introduce preferential tax policies and less restrictive customs regulations to promote cross-border trade, international eCommerce businesses will stand to gain with these new regulations. China domestic demand is yet to reach its peak and cross-border eCommerce will speed up this trend in the coming years.

More and more Chinese consumers will have greater access to buy overseas products from around the world. International merchants need to work fast and smart by partnering with local companies with cross-border eCommerce platform license. Then leverage the local partner’s competence to build your own low-cost and effective eCommerce strategy to successfully enter China. Lastly, designing an omnichannel marketing aims to provide a fantastic online shopping experience for your target audience, and grow a sustainable business in the mainland.

This China CBEC article is sponsored by XGATE.