Customers select imported products at an exhibition center in the Hefei Cross-Border E-commerce Pilot Zone, one of 12 pilot zones for cross-border e-commerce approved by the State Council, China’s Cabinet, in early 2016 (XINHUA)
Li Jingjing started to buy foreign products—milk powder, baby clothes and toys—in 2014, when she had her first baby. The 29-year-old employee of a multinational in Beijing was following the trend of Chinese new mothers—that is, those who can afford it always buy baby products from countries such as the United States, Japan and Australia since these are regarded as being of better quality than the options available at home.
In the past, this was a complicated procedure and the buyers could not make direct purchases unless they went abroad. They had to go through agents, which made the business costly and time-consuming, and at times raised the specter of a counterfeit industry.
Around 2007, haitao, the practice of buying products via overseas online shopping platforms, began to boom, thanks to a combination of reasons: the increasing purchasing power of Chinese consumers, the heft in the renminbi's international payment capacity, and the growth of online shopping channels, which began to edge out the purchasing agents.
Later, due to the complicated procedures and language barriers encountered when buying products on overseas shopping sites and applying for transshipment services, a large number of cross-border e-commerce platforms were founded in China around 2014, offering more convenient services to Chinese buyers.
"Consumers have more choices on e-commerce platforms, where the prices are much lower than what individual agents can offer," said Kang Xue, a buyer with a cross-border online retailer in Beijing. "Platforms can get wholesale prices and provide a better delivery service."
Ren Xiaoyu, CEO of Fengqu.com, a major cross-border e-commerce platform, was reported as saying that the platforms have higher credibility than purchasing agents.
A report published by the China E-Commerce Research Center (CECRC), on August 1, provides the reasons why online retailers, or "e-tailors,“ are pushing out agents: “The uncertainty about the quality of goods from agents and the domestic consumers' increasing demand for quality products have contributed to the boom of the business-to-business (B2B) model."
Last year, for the first time, the B2B model surpassed consumer-to-consumer sales by a whopping 58.6 percent, becoming the main pattern of cross-border e-commerce in imports. With new policies and rules becoming standardized and strict, a more orderly industry of cross-border e-commerce is emerging.
Through buyers' eyes
The users of each platform have different buying habits and favorite brands. To cater to consumers' needs, online platforms have different strategies for selecting goods, ensuring the best price and sending them out quickly to compete for a bigger market share. It also entails working with the brands to get the best deals and drawing up budgets.
Kang Xue is just back with her assistant from Europe. She is a buyer with six years of experience. Her latest trip in July, when she finalized a batch of luxury goods, was exhausting. "People often think that buyers buy what they like. But in fact, the buyer is more like a data analyst," Kang remarked wryly. "You must know what customers want."
Xiaohongshu.com, an online shopping platform, goes directly to consumers to find out what to buy for them. It is designed to help its community of users, who are mainly women, share their personal experiences of products, including make-up, handbags and clothes. The goods they recommend are chosen by the platform as its main purchasing reference. Once the items are decided, the platform needs to find suppliers to purchase them and then ensure that customers receive their orders as quickly as possible.
Other platforms try to forecast needs and potential popular goods based on users' footprints on the Web. Quality mother and babycare products are seen as the best bet for a fledgling platform since children's needs are the core part of Chinese families' shopping and usually, it's the mothers who are the decision-makers when buying such things.
"The [cross-border e-commerce] industry started to boom from the diaper sale war in the beginning of 2015," said Wang Zheng, Public Relations Manager at Kaola.com, a major cross-border e-commerce retail platform. Today, it is a huge industry with players ranging from both established Chinese e-commerce giants like JD.com and Alibaba's Tmall Global to startups like Mia.com and Beibei.com, which focus on mother and babycare products.
In Wang's opinion, mother and babycare items are a good choice for a platform to catch its targeted users' interest at the beginning. "If a platform builds up users' trust in maternal and baby goods, it's easier to expand the trust to other categories," Wang told Beijing Review.
Kaola.com's target group comprises women aged between 18 and 35. It started out with imported diapers, weathered the diaper war in 2015 and earned buyers' trust. Subsequently, it expanded to cosmetics, bags, clothes and other items.
Consumers who like searching for goods worldwide are mostly aged between 19 and 35. This segment accounts for 84.1 percent of all cross-border online shoppers in China, with their number reaching 42 million in 2016, according to the report from 100EC.cn, an e-commerce research institute.
"That group of people with [generally] a higher level of education and a stable income has a strong consumption capacity and massive requirements. They have become the main driver of cross-border purchases," said Yu Simin, an analyst from the CECRC.
Most of the women in this group are married and have given birth, and they look for mother and baby products on e-commerce platforms. "[But] as the economy develops, younger consumers will take the lead," claimed Yu.
Cross-border e-commerce and its users increased rapidly in 2014 and 2015. "Alongside the development of the Chinese cross-border e-commerce market, the targeted users are expanding," Wang said. "Customers choose cross-border purchasing platforms mainly because they care more about quality and personal taste."
The transformation of the consumption pattern is contributing to the development of the industry which, in turn, is stimulating changes in the consumption concept.
According to Cao Lei, Director of the CECRC, more and more consumers are buying global products as cross-border e-commerce develops due to policy incentives, faster delivery speed, more capital investment, consumption upgrading and economic globalization.
Impending new policy
From the early buying agents, who were mostly overseas students to today's burgeoning cross-border e-commerce platforms, the market has become more mature and better regulated.
In 2012, the first five cross-border e-commerce pilot zones were opened in Zhengzhou, Shanghai, Chongqing, Hangzhou and Ningbo cities, most of which are in central and east China.
A change in the tax policy occurred on April 8, 2016, when the tax-free era for retail sales on cross-border e-commerce platforms came to an end to create a level playing field.
According to the new rules, retail goods purchased online will no longer be treated as personal articles sent by post but as imported goods, which will carry tariffs, import value-added tax and consumption tax.
Zhang Bin, a researcher with the Chinese Academy of Social Sciences, explained it, saying the tax on articles sent by post is low because the articles are meant for an individual's use, not for trade, which is exactly what online retailing is. It would be unfair to conventional importers and domestic producers, who have to pay different kinds of taxes, if e-commerce goods were delivered by post without online retailers having to pay similar taxes.
According to the new policy, the value of a single cross-border transaction can't exceed 2,000 yuan ($299.3). Also, in a year, a person can avail of such transactions totaling up to 20,000 yuan ($2,992.6). Goods that exceed these limits will be levied the full tax for general trade.
However, e-commerce consumers will enjoy a 30-percent discount on their taxable amount.
China's Ministry of Commerce said the policy, though announced last year, would start to be implemented from the end of 2017 to ensure a smooth transition for online retailers.
The deferment has been hailed by retailers. Zhang Lei, CEO of Kaola.com, said the window will give platforms time to upgrade themselves. Zeng Bibo, founder and CEO of Ymatou.com, an e-commerce marketplace that also does special sales for overseas franchise, said the policy seems overly strict and inclined to general trade in the initial phase. It needs more time for adjustments and the delay would provide that hiatus.
"Compared to general foreign trade, cross-border e-commerce still has a 30-percent advantage," Wang Zheng at Kaola.com said. "One of the advantages is various categories of goods entering the Chinese market in a more convenient way. However, cross-border e-commerce and general foreign trade are not inimical to each other; they are complementary."
Kaola.com imports commodities costing less than 2,000 yuan ($299.3) via the channel of cross-border e-commerce, and more expensive luxury commodities via general foreign trade, making the best use of both channels.
Does the new policy mean cross-border e-commerce shopping will be costlier? Liu Peng, General Manager of Tmall Global, thinks many sellers will keep their prices unchanged by squeezing their own profits.
Companies with more product variety and a higher ability to readjust supply chains and the product structure will have more chances to develop, as Liu Peng sees it. But those that solely rely on price wars and importing products illegally will be regulated, Liu said.
Wang feels customers won't mind paying more money to share the tax: "Once a shopping habit is formed, users will not mind the increased expenses too much."
"Once the policy is implemented, e-commerce platforms can still retain the advantage of lower prices by working with the suppliers directly, cutting the cost of distribution channels in between. The other way is to attract customers through sales campaigns, such as the Singles' Day online shopping festival and year-end sales," Wang said.
"Cross-border online retailers have become an important part of China's international trade," added Long Yongtu, President of Center for China and Globalization, a Chinese think tank. "China should take the lead in making rules for global cross-border e-commerce."
Zhang Lei, the CEO of Kaola.com, shares the development trend of China's cross-border e-commerce at an investment fair for Australian and New Zealand suppliers in Sydney, Australia, on June 14 (COURTESY PHOTO)
Creating a global pie
At a time the global economy has slowed down and global general trade declined, the transaction scale of China's cross-border e-commerce is expanding, with increasing imports.
The Alibaba Group is working with U.S. companies and farmers to sell American products to over 450 million Chinese consumers on its platform. Its goal is to help 1 million U.S. small businesses export to China.
In January, Jack Ma, Chairman of the group, held a meeting with Donald Trump, then U.S. president-elect, in New York. "I told him my ideas about how to improve trade, especially to improve small business, cross-border trade," Ma told reporters.
With China's middle class growing to 500 million in the future, Ma said it will make China the largest import destination and consumption market, which would be a huge opportunity for American consumers and small and medium-sized enterprises.
It's a huge opportunity for other countries as well. In April, Kaola.com announced its European Partnership Plan at a conference in Frankfurt, Germany, saying the company will buy European products worth 3 billion euro ($3.51 billion) over the next three years, enabling more than 2,000 European brands to reach Chinese consumers through its platform. It will also build six additional international warehouses in the UK, Italy, France and Spain and invest further in its European Operations Center, which opened in Frankfurt in 2016.
Outside Europe, the company has signed deals with suppliers from Australia and New Zealand. It is now the biggest Chinese cross-border e-commerce platform importing Australian products, according to Michael Clifton, Executive Director of International Operations at the Australian Trade and Investment Commission.
Now, there are 13 cross-border e-commerce comprehensive pilot zones in China to boost the sector up from the initial five. The total trade volume of those zones reached over 100 billion yuan ($14.98 billion) in the first half of 2017, up over 100 percent from the same period last year.
"Cross-border e-commerce import and export has become a new driver of China's foreign trade growth," Gao Feng, a Ministry of Commerce spokesperson, said at a regular press briefing on August 3.
Copyedited by Sudeshna Sarkar
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