China’s Cross-Border E-Commerce: Growth But Challenges Ahead

By Li Yi

China’s cross-border e-commerce has seen the emergence of new business modes in recent years

C hina’s cross-border e-commerce has seen the emergence of new business modes in recent years and some of the surprising new trends reflect the integration of new-generation information technology. But fresh domestic and external challenges have also emerged for China’s e-commerce sector, and how the sector responds has become a market focus. This article assesses the changing trends of China’s cross-border e-commerce and offers some suggestions on the path forward.

Since 2015 China’s retail e-commerce imports and exports have grown by leaps and bounds.Combined imports and exports cleared by the General Administration of Customs on its e-commerce platform climbed to 134.7 billion yuan in 2018 from 36.02 billion yuan in 2015, with an average annual growth rate of 55.22% over the period.

The rise in retail e-commerce exports has partly been due to the nation’s “go global” strategy, which encourages domestic companies to venture out into the international market. In 2018, China's exports cleared through the same cross-border e-commerce platform amounted to 56.12 billion yuan, up 67%from the year before. The top five export items were hand tools, bags, imitation jewelry, clothing and communication equipment, but outdoor gear,automotive accessories and toys have accounted for an increasing share of the total. Additionally, the number of branded products has been growing.

While exports have grown rapidly in recent years, imports still account for more than 55%of China’s e-commerce foreign trade. In 2018,imports cleared through the Customs e-commerce platform totaled 78 billion yuan, up 39.8% year on year. The top five imports were cosmetics, dairy products, sanitary products, hair care products,and suitcases and handbags. Moreover, as a result of the improvement in living standards in China,medium and high-end commodities have been particularly in demand.

According to Customs’ statistics, in the first half of 2019, there were 220 million e-commerce import transactions, worth a total of 45.7 billion yuan, up 20.9% and 24.3%, respectively, over the same period a year earlier. The increases were significantly higher than the 1.4% growth in China’s total merchandise imports during the same period. Cosmetics, dairy products, diapers and food products were the top retail import items in e-commerce purchases. Over the same six-month period, Chinese consumers placed a total of 8.08 million orders at prices between 2,000 and 5,000 yuan using cross-border e-commerce platforms.These had a combined value of 2.32 billion yuan.Among those higher priced imports, bracelets,watches, handbags and other medium- and highend goods were especially popular.

More Balanced Regional Development

With the wider application of IT in China, crossborder e-commerce has gradually expanded from the eastern seaboard to the central and western regions. While cross-border e-commerce has made gains in China’s eastern coastal regions, it is developing at a markedly faster pace in the central and western regions. In 2018, of the nation’s 42 Customs districts directly under the General Administration of Customs, Huangpu, Hangzhou,Guangzhou, Zhengzhou and Beijing Customs were the leading sources of e-commerce exports while Guangzhou, Ningbo, Hangzhou, Zhengzhou and Chongqing Customs were the top five import centers. In the central and western regions,Zhengzhou and Chongqing saw accelerated growth in cross-border e-commerce.

With the application of 5G mobile technology,videos are replacing graphics on the Internet. A new round of trading innovations is under way.

Expansion Along the 'Silk Road'

As one of the largest and fastest growing e-commerce markets in the world, China continues to diversify the sources of its e-commerce imports.Foreign countries and domestic cities involved in the nation’s “Belt and Road” program, an ambitious program of international development, have also contributed to the rapid rise in e-commerce.In 2018, China's cross-border e-commerce transactions with Cambodia, Kuwait, the United Arab Emirates and Austria all showed increases of more than 100% year on year. Cross-border e-commerce in China’s cities along the Silk Road Economic Belt and the 21st-Century Maritime Silk Road also rose sharply over the same period.According to the Report on the Development Trend of E-commerce Exports in Chinese Cities by Amazon Global Selling, Fuzhou, Quanzhou and Guangzhou along the Maritime Silk Road in the 21st Century were among the top 20 exporters via e-commerce in 2018. And Xi’an and Lanzhou along the Silk Road Economic Belt were identified as two of the 22 new venues for Comprehensive Pilot Zones for Cross-border E-commerce. The strong gains in e-commerce in these cities will help boost the development in the foreign countries participating in the “Belt and Road” initiative.

Integrating New Technology

In recent years, China’s cross-border e-commerce has adopted new models due to the integration of new technology. One such innovative area is “video + e-commerce.” Amid the wide application of smartphones and mobile internet,the rising social video platforms including Kuaishou and Douyin in China have integrated e-commerce and brought up video social e-commerce (live stream e-commerce shopping). Additionally, videos are widely used in China’s major cross-border e-commerce platforms in product displays and homepage recommendations. With the application of 5G mobile technology, videos are replacing graphics on the Internet. A new round of trading innovations is under way.

Another model of cross-border e-commerce is“social e-commerce + auction.” The flash auction platform, for example, combines social e-commerce and online auctions which feature interaction and entertainment. Additionally, it provides highquality commodities with low prices by reducing some intermediate steps on the premise that all products sold on the platform are authentic. In the future, as traffic becomes a critical factor in the competition among e-commerce platforms, online retailers will employ entertainment and interactive formats in an effort to attract potential buyers.

“Foreign trade service + artificial intelligence(AI)” is another new form of cross-border e-commerce. Traditional foreign trade enterprises are transforming themselves as providers of e-commerce services by combining new forms of IT, including big data, cloud computing and AI,with existing supply chain advantages. One such combination is the XBN Cross-border E-commerce Platform. With the aid of big data on overseas demand, it helps domestic manufacturers match supply with demand, and reduces risks in online exports. It also provides international trading companies with comprehensive services related to foreign trade, making use of their supply chain management system. In addition, such platforms also offer supply chain financial services to small and medium-sized exporters.

Opportunities and Challenges

The integration of cross-border e-commerce with other industries will not only boost China’s imports, but also increase China’s influence in international regulation of cross-border e-commerce. However, the challenges ahead include a need for enhanced domestic regulation as well as the threat from rising protectionism around the world.

Favorable Policies

China has promised to expand preferential policies on e-commerce retail imports. In late 2018, China announced new policies to encourage retail e-commerce imports. First-time retail imports would not require licensing, registration or record-keeping on e-commerce platforms. Instead,goods would receive more relaxed regulation as imports for personal use. In addition, quotas on goods eligible for preferential policies were raised.Moreover, 22 new comprehensive cross-border e-commerce pilot zones were established in 2018 and existing retail cross-border e-commerce policies were extended to 37 cities. Favorable policies will be extended to comprehensive bonded zones in 2019. Last but not least, the China International Import Exposition (CIIE) has become a new channel for the country’s e-commerce imports. At the first CIIE, 88 e-commerce enterprises reached cooperation agreements with more than 400 international brands in more than 30 countries. More are expected in future.

Integration and Innovation

China’s cross-border e-commerce has been evolving and short video e-commerce has given it an edge. In the future, the integration of crossborder e-commerce with various industries will lead to new models for e-commerce. Ultimately,innovations applied on an experimental basis in the special trade zones will drive further growth in cross-border e-commerce throughout China. With the wide application of next generation IT, such as big data, the "Internet of Things", cloud computing,AI and blockchain, disruptive innovations are expected to arise. Cross-border e-commerce will also spur industrial upgrading. Integration and innovation between industries, especially between the modern services and advanced manufacturing industries, will provide new momentum and opportunities for traditional cross-border e-commerce.

A Seat at the Table in Determining Global Regulations

China has taken a more active role in the drafting of international rules since the First Global Cross-Border E-Commerce Conference, jointly organized by the World Customs Organization and China’s customs authorities. On January 25 at an informal ministerial conference on electronic commerce in Davos, Switzerland, China signed the Joint Statement on Electronic Commerce with 76 World Trade Organization members including Australia, Japan, Singapore, the US, the European Union, Russia, Brazil, Nigeria and Myanmar.The signatories confirmed their intention to commence WTO negotiations on trade-related aspects of electronic commerce, building on existing agreements and frameworks. In the future,China will continue to participate in making rules on multilateral and bilateral e-commerce issues.Furthermore, it will strive to boost international confidence in the multilateral trade system and economic globalization by further opening up its domestic economy.

Lack of Implementation Details for E-Commerce Law

The E-commerce Law of the People’s Republic of China took effect on January 1, 2019. Under the law China has pledged to encourage the development of new forms of e-commerce as well as innovative business models. It will also promote research and development of e-commerce technologies and popularize the application of the results of its research. Moreover, it pledged to advance the building of the e-commerce credit history system and create market conditions favorable to the innovative development of the e-commerce sector.

Nonetheless, there have been gaps in the legal framework. Even the Comments of the State Administration of Market Supervision on the Registration of E-commerce Operators— the first guidance on the implementation —has not included detailed operating rules and interpretations. This has brought challenges to local authorities. What is more, a variety of local rules may lead to uncertainty in e-commerce development.

Rise of Trade Protectionism

The rapid growth of the global e-commerce market has made cross-border e-commerce a growth point in international trade. But this has encouraged a number of countries to introduce policies that protect their domestic e-commerce markets. For example, in 2018 the US announced it was withdrawing from the Universal Postal Union. As a result of the US decision, there has been a sharp rise in costs to small and mediumsized Chinese exporters selling to the United States via postal parcels. The European Commission,the executive branch of the European Union, has plans to extend a single system for value-added tax to the online sale of physical goods, as part of its digital single market strategy. It also introduced a common EU-wide value added tax threshold,raising the cost of the online sellers from countries outside of the EU, in a move to assist the EU’s small e-commerce businesses. It also took aim at Russia, reducing the duty-free import cap. As of January 1, 2019, the duty-free limit for imports via land and water transport were cut to 500 euros from 1,500. For international mail, the limit was cut in half to 500 euros. From January 1, 2020,duty-free access will be reduced to 200 euros per parcel. These protectionist policies in major markets will create challenges for the expansion of China’s cross-border online sales.

With the expanded application of newgeneration IT, there will be more ways to conduct cross-border e-commerce, and this will result in greater competitiveness.

Greater Efficiency in Customs Clearance

Special regulations have been put in place in China’s special customs supervision zones,including cross-border e-commerce comprehensive pilot zones, bonded zones and comprehensive bonded zones, and this has greatly improved the efficiency of cross-border e-commerce customs clearance. Nevertheless, the increasing volume of cross-border e-commerce transactions increases the need for further improvement in customs clearance procedures. Suggested measures include the interconnection of databases of different Customs branches and integrating customs clearance in various special supervision zones.Special attention must be paid to the issue of returning goods imported via e-commerce. Another suggestion is to simplify inspection and quarantine procedures. At present, cross-border e-commerce products need to be inspected and quarantined in bonded warehouses, which increases transportation costs. Instead, inspection and quarantine could be conducted in places closer to the final destination of the shipment. This in turn would result in greater sharing of data around the country.

Upgrading Statistical Gathering

Precise statistics on cross-border e-commerce are often difficult to obtain due to the overlap of general trade and e-commerce. With the integration of the two kinds of trade, it becomes even more difficult to distinguish between the two. Consequently, a better way to understand the situation of cross-border e-commerce is via the use of development indices. National and regional development indexes can be constructed on the basis of technologies such as big data and the Internet of Things. The relatively mature Yiwu Cross-border E-commerce Index is one such reference, for example.

Strengthening International Cooperation

A favorable external environment is necessary for progress in China’s cross-border e-commerce.China is expected to actively expand international exchanges and cooperation in e-commerce by signing additional e-commerce agreements. At the same time, China’s participation in the formulation of global e-commerce rules will contribute to the development of the sector. For enterprises which seek to expand their business overseas, it is essential that they integrate the Chinese business model with local ones, as well as strengthen their supply chains.