China is the number one e–commerce market in the world, and as such, more and more brands are looking to penetrate this very attractive market. The e-commerce market in China is expected to grow at a compound annual growth rate of 13.3% from an estimated $1.5 trillion in 2019 (larger than the USA, Japan, the UK, Germany, and France combined) to $2.6 trillion by 2023. Chine’s online population is the biggest in the world and most of the transactions are done on mobile devices. 72% of the users are below 39 years and there are 260 cities with a population of over 1 million.
Entering a foreign market is hard per se, let alone entering the Chinese market, which is huge, complex, the language is different, and so are the rules and the consumers. Cross-border e-commerce has turned up to be a great alternative approach for testing the China market, without having to register a local entity or go through lengthy product registration processes.
What is cross-border e-commerce in China?
Cross-border e-commerce is the purchase of goods from foreign companies on an online marketplace platform. This means that brands can sell and ship products directly to Chinese consumers, through special customs clearance regulations that are different from those of general trade. China has piloted free trade zones with special custom clearance gateways which enable cross-border e-commerce in the country. Foreign brand owners can stock goods in their home countries or in the free trade zones in China, reducing the inventory risk of exporting to China and stocking them in Chinese warehouses. The VAT, customs fees, and delivery fees are passed on to the customer.
Since January 2019, The Chinese Ministry of Finance introduced new regulations for cross-border purchases. The single-transaction amount increased from 2,000 RMB (291 USD) to 5,000 RMB (727 USD). The annual amount of cross-border purchases increased from 20,000 RMB (2,909 USD) to 26,000 RMB (3,782 USD) per individual. 63 new items categories were added to the positive list for CBEC purchases, including sparkling wine, beer, health care products, and fitness equipment.
Chinese consumer profile
Young, free-spending consumers in lower-tier cities are today’s growth engine of cross-border e-commerce (unaffected by slowing growth and increased prices of living). The health-conscious movement is here to stay – the majority of consumers say they are looking for a healthy lifestyle. Chinese consumers continue to be more sophisticated travelers which means they have more opportunities to try foreign brands outside of China and look for them in China in their daily life. In general, the Chinese inquire a lot before purchasing, the main source of information being word of mouth. Chinese consumers are curious about what is on offer, especially with respect to foreign products.
What costs are to be covered to start cross-border e-commerce in China?
Even if the costs are lower than doing general trade in China, there are still costs to be considered when doing cross-border as well. The costs to be considered will cover for:
- Creation and maintenance of internet platforms
- Design, update, and optimization
- Generating traffic
- Warehouse management system and warehouse for storing products
- Transportation management system and shipping
- Marketing campaigns
- Staff In charge of all processes
BrandHouse is a cross-border parcel delivery business facilitating cross-border sales to China on behalf of FMCG brand owners. BrandHouse has a proprietary and robust multi-channel e-commerce infrastructure to provide a complete end-to-end solution including cross-border logistics, technical integration, and customer service. Our local China organization has vast knowledge and experience about the Chinese consumer market. We provide customized go-to-market strategy for foreign businesses to start or expand their cross-border e-commerce in China. If you would like to learn more about how to enter or expand your business on the Chinese market, feel free to contact us at firstname.lastname@example.org.