With globalization and digitization of trade, netizens around the world have the opportunity to buy products from any country. On one side, Chinese e-commerce enthusiasts are looking for international product availability. On the other side, international brands are seeking to establish themselves in the Chinese market. Especially with the Covid-19 crisis, cross border e-commerce faced a surge. In 2021, these CBEC platforms are looking for international brands to promote and sell.
Cross-border trade in China represents a great opportunity, the middle class is still rising and the taste for imported products is growing. What are the Chinese netizens looking for? Authentic and unique products that are not available yet in the Chinese market. For instance, 67% of Chinese consumers made a cross border e-commerce order in 2017. Among them, 65% order once a month and 11.6% once a week.
You want to be part of this trend, get the most of what the Chinese market has to offer but you still have many questions about how to launch your own business? No worries, here are the answers to your questions.
1 – What is cross border e-commerce in China?
Cross-border e-commerce is simply the importation of goods from sellers from foreign countries. The regulations are specific to each country. To facilitate trade, China has established specific zones for cross-border e-commerce allowing fast transactions and simplified logistics.
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Key Figures on CBEC in China in 2021
The impact of cross-border e-commerce in China is tremendous. In China, there are currently 850 million internet users. From an international point of view, you may consider a Chinese netizen is not necessarily a Chinese buyer. Surprise! In 2020, there are approximately 750 million online shoppers in China. This figure kept increasing by 20% per year.
With such an important online consumers base, the potential sales generated by CBEC in China are huge. CBEC sales in China are expected to reach almost $200 billion in 2022. This is the reason why cross-border e-commerce platforms like Tmall and JD.com are vividly looking for international brands to promote.
Key Measures Implemented by the Chinese Government
On November 21, 2018, Chinese Premier Li Keqiang modified the organization of these areas. At the end of this meeting, it was decided to add 22 cities to 13 initials in order to optimize the CBEC and improve the organization and results of the Chinese economy. In the same context, the conventional transaction and annual transaction limit have been increased by 3000 RMB and 6000 RMB respectively.
From now on, the transactions authorized in China are:
- Conventional transactions: 5000 RMB
- Annual transactions: 26000 RMB
During this meeting, Li Keqiang also stated on the authorized products in China. The “positive list” specifies the products you can import to China. We will present it in detail at the end of this report. It was also during this meeting that new products have been added.
2 – What are the cross border e-commerce purchasing trends?
Cross-border e-commerce is developing in many different sectors. Some of them are significantly booming in comparison to others: cosmetics and care products, food, fashion products. Luxury goods are increasing since Chinese customs are toughening restrictions on the business of Daigou. In the meantime, the products for moms and babies have a very interesting potential market:
Fashion items have always been very popular with the Chinese simply because counterfeiting is very present in China. Chinese are looking for authentic products. Social image and recognition are very important overseas. Having luxury apparel will allow them to distinguish themselves… And CBEC authentication and quality guarantee prevail. This mentality is deeply rooted in the middle class, which is now reaching 630 million people in China.
Cosmetics, as well as baby products, are much sought after by the Chinese because many scandals have erupted in recent years relating to the composition of these products. For baby products, the scandal of adulterated milk started in 2008. For several months, components of milk for children have been modified using toxic components to make them appear richer in protein.
However, as Chinese consumers are constantly looking for new and unique products, the possibilities offered by CBEC are numerous.
3 – What should be the first step for launching my business?
It is very important to increase your brand visibility and attractivity. The competition in China – especially in the e-commerce sector – is fierce. China is facing the highest number of competitors per category. To be clear, your brand will face 5 to 10 times more competitors in China than in any other country. So, you need Chinese netizens to notice your company and products in order for your business to have a chance to grow in China.
Weibo & WeChat: The Key Social Media in China
You will have to work on social media marketing and leverage the Chinese social network to get the most visibility you can get. Here are the various possibility you have:
- Weibo: Pretty similar to the western social network Twitter, Weibo is a brand mass marketing tool. That will allow you to communicate with a wide range of users. You have plenty of options to market your brand/products: all the paid options (Weibo ads: fan headline, fan tunnels, SEO, display ads, welcome screen ads) that can increase the traffic on your page. And you also have the option of working with key opinion leaders (KOLs) on various types of campaigns: you can include them in your marketing campaign, you can sponsor their post, you can pay them to review your products, etc.
- WeChat: WeChat is a more closed platform. It allows closer relations with users. Meaning that the type of relationship that you are creating between the company and the user is very different whether your working on Weibo or WeChat. However, you can do marketing campaigns on WeChat too, with KOLs, and interactive campaigns with the followers of your brand.
These are two very important social networks you must use to increase brand awareness. But there are other networks that you can use, among others: Douyin, Toutiao, Xiao Hong Shu (Little Red Book).
Now you may wonder, how much does it cost? Difficult question… It could start from 10 000 RMB per month to 50 000 RMB per month without KOL budget. Obviously, Key Opinion Leaders are likely to be more expensive because they help you to activate your sales.
4 – How to export my products?
Technically, from cross-borders, there are 3 different ways to export products to China:
Option 1 – Universal Postal Union
With “Universal Postal Union” UPU an informal export technique that allows mainly to send small parcels in China. Once in China, it is the national post service that takes over to deliver the package to the destination designated. Thanks to this policy, it is not essential to have an import permit.
In addition, customs do not necessarily inspect parcels. However, they may be subject to a tax of up to 15/30/60% depending on the nature of the product in the package. 15% for the following of type products: food and beverages, electronics, and video games; 25% for footwear, personal use products, bags, and other general categories; 50% for high-value products such as alcohol, tobacco, and cosmetics. If you are not concerned by these categories, you will not receive any tax. It is possible not to pay a fee if the parcel only if it is not examined by the customs or if the amount of the tax is less than 50 RMB.
Option 2 – B2C Import
Import into B2C (a formal export model of product). For this type of shipment, the package is declared via a platform to alert customs of its shipment. This type of shipment corresponds to categories of products such as food, cosmetics, and high-end consumer products.
Option 3 – Bonded Import
The in-bond import model requires the storage of exported products in storage locations either in Hong Kong or in special areas for CBEC to expedite shipment processing. So, the products are sent to China even before it has been ordered by the consumer. This type of shipment corresponds to product categories such as consumer goods, low-value goods, or heavy goods vehicles.
For the last two types of export (business commercial imports & bonded imports) shipments are subject to import tax payments, VAT and consumption tax. As for the product tax, it is generally 11.2% for the largest category of product or 25.5% for high-end cosmetics as well as luxury care and perfume.
A new type of shipment has been emerging for some time, the principle is easy. You do not need to deliver the package through a CBEC special zone. You should only send the package near the Chinese border, Hong Kong for example. Another option is to store the product before sending it during an order. The advantage is that if the product is not ordered in China it is still possible to sell it through other channels in Asian countries.
5 – What is “the positive list”?
The positive list is a product list that was released in April 2016 (for the first version). This list includes all products authorized for import into China. To this date, there are 1321 product categories that can be imported via CBEC.
Products on this list have a preferential import tax. Besides, you can import them without having an import license or other certificate related to the product import in China. THE EU SME has translated this list and allows you to have an overview of all legal products for import.
6 – What are the limitations to imports?
The positive list manages the products eligible for import, for the products not mentioned in the list it is necessary to:
- Join an import permit to the products
- Have a registration form, such as a CFDA permit for nutrition-related products (required for customs clearance of the goods)
As mentioned before, the limit values in terms of November 2018 standards are 5,000 RMB per order and 26,000 RMB per year.
For shipment by UPU, the total value of the parts must not exceed 1000 RMB for 6 products (ie that if there is only one product the value of the latter does not matter). Be careful, however, if you choose the mailing, it is important to take a look at the restrictions and prohibitions in terms of import in China: it is possible to find the complete list on the FedEx website. You do not need any special authorization. However, the customs may ask you to detail the contents of the shipment.
7 – How do I deal with customs clearance?
Accepted CBEC businesses should manage the supervision of custom clearance over their importation of products. This means that you can either deal with yourself for custom clearance or hire some logistic company to help you deal with multiple steps during the procedure.
What would you need to deal with? Customs registration, declaration, and inspection of imported products, payment of taxes and exchange control, customs clearance. You should know that the latter requires buyer identification information: a Chinese ID.
8 – Payments are made in RMB, how does the exchange rate apply?
The CBEC is not a problem in the eurozone, but how is FOREX doing in establishing business with China? Indeed, paying or being paid in a foreign currency before exchanging it in the currency of one’s country can lead to the payment of unexpected costs. In the meantime, it could nibble the margins made on sales. All of this is due to fluctuating exchange rates and can have a significant impact on the break-even point of the company.
To facilitate these transactions Alibaba and Tencent have created their system using the already popular platform: Alipay and WeChat Pay by creating cross-border payment versions.
The two giants of the digital offer an alternative with advantages and disadvantages, however, it is important that both require a foreign business license but do not necessarily require the possession of a Chinese bank account.
WeChat Pay: The creation of the WeChat Pay account is free. The cost of the transaction is 3% of the total amount. The transaction agreement is for a minimum of $ 5,000, if the amount is less than the service charge may be charged. WeChat allows transactions between Chinese Yuan and Euros, US Dollars, Japanese Yen, Pounds Sterling, Australian Dollars, Singapore Dollars, Hong Kong Dollars and the South Korean Won.
Alipay: unlike a WeChat Pay account, the creation of the Alipay account is not free. You will spend an amount of $ 1000. The transaction cost is also 3% (can be reduced if the total amount of this transaction is greater than 1 million RMB). The transaction agreement must be a minimum of $ 5,000 or may be negotiated per week/month or quarter. Alipay supports all WeChat Pay supported currencies plus Canadian Dollars, Swiss Francs, Swedish Kroner, Danish Kroner, and Norwegian Kroner.
For each transaction, Wechat Pay and Alipay support the exchange rate through the partnerships they have with local banks. For instance, Alipay will send the payment to your account abroad. Then, the money will be sent to your company’s account. But only when you reach the amount of the agreement.
9 – What about the VAT?
The VAT is an indirect tax on consumption. Like many other countries, China applies a 0% VAT rate on exports. It is thus possible under request to obtain a refund. You should obtain the amount you paid for VAT in the import payment fees upon presentation of proof of the sale of your products.
10 – How long do I want to operate in cross-border e-commerce?
It all depends on the goals of your business. Are you planning to become fully established in China? Or to maintain a position for exporting only in China?
I would like to establish my brand in China
If the goal is to enter China in retail, then CBEC can be a good alternative to start and test the market. You can gather customer feedback and test your concept before taking more risks. The steps to establish your brand in China require patience and time. It is better to be convinced of your project before launching. The CBEC is a smart first step.
If would like to export my brand in China
If the goal is instead to keep this e-Commerce system then it is important to take into consideration the regulations regarding the import channel. Indeed, the import of products in China can prove to be a headache depending on the product being imported.
Firstly, for brands wishing to import foods or nutrition and/or health-related products, there are specific terms. You will require registration with the often lengthy China Food & Drug Administration. This step can take from a few months to several years and requires major financial resources.
Another heavily affected area is cosmetics, which requires brands to compulsorily prove the non-toxicity of their beauty products. Since January 2021, China abandoned animal testing. In Europe, especially since the trend of “cruelty-free” cosmetics brands is booming. This new policy can be a major opportunity for brands claiming cruelty-free and vegan values to export to China.
11 – What is the budget of a CBEC strategy?
Even with a lower investment compared to establishing an offline business in China, the budget to be established before launching a CBEC must take into consideration several points.
First, the creation and maintenance of Internet platforms, their design, updating andoptimization.
The choice and the implementation of WMS information system (Warehouse management system which is a software allowing the logistic follow-up mainly of the orders), ERP (Enterprise Resource Planning which allows as its name suggests to manage its financial resources as well that physical to have at all times a state of what is made of these resources), TMS (Transportation management system that can be integrated into the ERP or not, which allows the monitoring of the transport part only), or the APS (Advanced Planning System which allows to pre-plan sales, production of products, etc.), and other software allowing management of sending/storage/delivery, etc.
Obviously, the shipping costs (whether UPU or other) and the storage method (warehouse) must be taken into consideration. Finally, you should include the budget allocated to advertising and marketing campaigns for the product, by the various social networks, WeChat, etc.
12 – Storage Management
If you decide to embark on cross-border e-commerce, the question of storage of your products will very quickly arise. One must therefore consider whether it is essential to invest in a storage area in a CBEC zone.
If your business is just starting, it is probably not necessary to immediately invest in storage space. Because if you are not sure of the selling opportunity of all of your products it will end in money loss.
However, as you grow and your sales increase, the forecast of your sales will be more precise and in a concern to improve the customer experience, it is wise to use a warehouse to store your products. You will then offer to your local consumers a faster delivery.
13 – Is having a local partner essential for my business?
It all depends on the size of the business and goals again. However, the logistic management of the orders and sends can be particularly laborious if you wish to manage everything yourself. (and we can help you)
An on-site partner can help you implement your strategy by offering you knowledge of the Chinese market. But also, it can offer you its engines to optimize your approach and improve your objectives. They are aware of changes in the laws relating to your business and how they may impact your business. Moreover, in Chinese culture, relationships prevail over business: the “guanxi” culture. A good relationship between your partner and your company can only be fruitful for your business.
However, if your company is a multinational, having the means to invest in units to manage sends and handle orders, then it is not essential to start looking for a local partner.
14 – What is the best platform for my online store?
When setting up the website for your business, there are several options available to you, each with its advantages and disadvantages.
Creating your own website
The benefits of creating your own site are of course the freedom you have for the company’s history, storytelling, and direction of your business. You have control over the entire digital strategy because you have direct access to your clients’ data and can therefore adapt to their needs and better target your actions. Of course, you set your own prices, depending on your strategy. Also, you establish your own marketing campaign and so on.
However, you need to create a site on a Chinese domain to be accessible on Chinese search engines. Even with that, it is difficult to generate traffic on completely foreign sites. Besides, you are a master of everything, so you have to manage everything from the development of the strategy to the entire chain of distribution, customer service, which can sometimes be overwhelming.
Create a shop on a large Chinese E-Commerce platform (Tmall, KJT, YMATOU)
The obvious advantage of being on such an important platform is the traffic and visibility it can bring to your brand, it also ensures the reliability of your business and your services. It also provides a favorable environment for the development of your business with a network of suppliers and partners who know the market and whose reliability is certain. It is also possible to collect data on the traffic of the platform and thus to adapt your digital marketing strategy. Read this page to know more
The disadvantages are firstly a significant competition if the platform brings you traffic, the latter is also here for several other brands. Especially since the Chinese love big platforms for the choice of brands, to have the opportunity to benchmark the opportunities available for them. In addition, the financial investment to integrate an e-commerce giant is important and is not within the reach of any stock. Finally, it is important to know that platforms like Tmall Global have many rules that must be followed rigorously including the obligation to provide fast delivery, to make reductions during major events (11/11 single’s day, 12 / 12 and the balances).
Create a shop on WeChat using WeChat mini-programs
The advantages are firstly the fact that the mini-programs are integrated into the WeChat ecosystem so navigation is simplified, and faster, this is also due to the maximum storage capacity of pages (2 megabyte) which speeds up the loading of pages. The WeChat shop also allows you to keep the freedom of content, design, prices, etc.
However the disadvantages are quite similar to the disadvantages of the independent site, indeed the ability to generate traffic is quite difficult since the WeChat ecosystem is relatively closed. The capacity of creation of Mini Programs is limited to 2 megabytes, which can make you have to make compromises on the design, the contents, etc. It is also impossible to engage the customer using push notification, so if the customer does not follow you on your official, you have no opportunity to restart if you want to inform him of news, promotions, or other marketing promotions.
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