We all know that China is the world's most populous nation with the largest GDP of any nation and cultural roots dating back millennia. For the past 40 years, China's economy has remained one of the fastest-growing in the world and shows no sign of slowing down: as of last month, China's CCI is on track to reach a 10-year high1. In 2016, China's online retail sales reached US$752BN, with US$79BN driven by cross-border ecommerce sales—that is, ecommerce sales of products outside of China—and last year confirmed the same trend: cross-border ecommerce sales grew by 81% Y/Y with imports, specifically, skyrocketing by 116%.
The data is clear: China is engaging with the internet in a big way. Of today’s top 20 internet leaders, nine are in China (up from just two five years ago ) and China boasts the largest number of internet users in a single country—and they're not just messaging and gaming. In 2017, national online sales accounted for 19.6% of total retail sales, an increase of 32% compared to 2016 .
You may be thinking, "Don't get me wrong, that's all great! …but, what does that have to do with my business?" And you're right—in and of itself, this information probably means little, so let's put it in context.
China is the largest ecommerce market in the world, leading the future of ecommerce and mobile retail. Growth is driven by the penetration of mobile devices, the dominance of digital payment, constant innovations in social media, guerilla, and viral marketing, close engagement of internet celebrities and influencers, and of course, the hot competition between ecommerce start-ups, their investors, and established retailers companies.
The top leaders and innovators within the Chinese ecommerce space, Jack Ma (Founder & CEO, Alibaba), Qiangdong Liu (Founder & CEO, JD.com) and Lei Ding (Founder & CEO,NetEase [Kaola]), are actively recruiting and advocating for global brands to enter the Chinese market by launching products on their respective platforms—and you don't have to be publicly traded to do it.
What is driving cross-border ecommerce? As China's growing middle class is increasing exposed to foreign products via online/social media engagement, Chinese consumers are increasingly focused on affordable imported goods. Chinese consumer equate international goods with overall higher quality products and a significantly lower risk of counterfeiting: 61% of Chinese consumers cited guaranteed product quality as their reason for shopping internationally .
As a result of this consistently increasing demand, foreign/imported products are difficult to find (if available at all) and ridiculously expensive in Mainland China. Accordingly, Chinese consumers are turning to online retail sites, both foreign and domestic, to source overseas products, driving cross-border ecommerce.
What is Cross-Border eCommerce?
Taking a step back, cross-border ecommerce is online, direct-to-consumer sales by a foreign retailer, supplier, or manufacturer, without the need for a Chinese intermediary. How does this differ from a traditional, general import business or relationship?
Much like the US, distributors purchase product from overseas manufacturers in bulk, function as the importer of record (responsible for all taxes, fees, and regulatory compliance) before reselling to retailers. However, Chinese general import businesses must be operated by a Chinese distributor or trade agency with a designated import permit and the overall tax value for this combines import tax, value-added tax (VAT), and consumer sales tax—totaling 30%-100% of declared value, depending on the product category. For example, the overall tax for importing wine is about 60%.
With Chinese consumers' growing demand for more, cheaper, and faster access to high-quality international brands and products, a new business model has emerged: the cross-border ecommerce B2C business. The B2C model facilitates direct-to-consumer sales for international brands and manufacturers who would otherwise be unable to establish a Chinese presence or otherwise reach Chinese consumers.
I'll give you some time to digest all of that--check back later in the month for the continuation of this series.
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- The Conference Board, Trading Economics/IECONOMICS Inc.
- CapIQ, CB Insights, Wall Street Journal, media reports. Market value data as of 5/29/18. The Wall Street Journey, Recode, TechCrunch, Reuters, and the Information articles detail the latest valuations for Ant Financial (4/18), Xiaomi (5/18), Uber (2/18), Didi Chuxing (12/17), Airbnb (3/17), Meituan-Dianping (10/17), and Toutiao (12/17).
- National Bureau of Statistics of China
- iResearch 2016/Ecommerce Foundation