Cross-border e-commerce, a boost for China’s economic boom
By Rabi Sankar BOSU
It’s no secret that cross-border e-commerce (hereafter CBEC) has been escalating at a remarkable pace in China in recent years, thanks to a higher standard of living in China combined with a greater exposure to, and knowledge of, foreign products and of course, convenience of online retail. The size and growth figure of the Chinese e-commerce market make every entrepreneur’s mouth water. It’s really an encouraging fact for China’s booming e-commerce industry that China will become the world’s largest market for buying and selling products online by 2020, with the total value of commodity sold by e-retailers to overseas consumers likely to reach a whopping $994 billion, as predicted jointly by Alibaba and Accenture. In 2016, China eclipsed the US to become the world’s largest retail market with total sales of $4.886 trillion, compared with $4.823 trillion in the US, according to eMarketer’s latest worldwide retail report. CBEC has now become an important way to develop foreign trade and to promote the Belt and Road initiative.
The CBEC platforms are the most efficient means for international companies to sell their products to China’s burgeoning consumer classes, regardless of whether or not they have a physical presence in China. By 2020, a quarter of China’s population, amounting to more than half of all digital buyers, will be shopping either directly on foreign-based sites or through third parties. According to China’s Ministry of Commerce, CBEC in China reached 6.5 trillion yuan (US$1.02 trillion) in 2016, accounting for 20 percent of China’s foreign trade. It is anticipated that CBEC will grow annually at over 30 percent in the next few years, becoming a new growth point for the e-commerce industry in China.
When China and e-commerce are mentioned in the same breath, it should be pointed out with delight that China’s CBEC has evolved quickly since 1999 and is now considered essential for maintaining stability in economic and social development in a globalized world. According to a survey report on China’s CBEC published in the China Daily on February 16, 2017, more than 15 percent of the Chinese population purchased goods from abroad worth $85.8 billion in 2016. The affluent and sophisticated Chinese buyers spent an estimated average of $473 each on cross-border purchases in 2016, representing 4.2 percent of the total retail e-commerce market, the survey found. A joint report from Accenture and AliResearch predicts that the transaction volume of imported goods purchased online in China will reach US$245 billion by 2020, making the country the largest cross-border business-to-consumer market in the world.
In 2014, China surpassed the US as the largest e-commerce market and over the next 5 years, it is expected to double in size. There are several factors responsible for the rise of CBEC in China. The continued rise of the upper middle-class in China and increasing disposable incomes have pushed up the country’s standard of living higher. China’s population has become more sophisticated and tech savvy, and the country now has the most internet users of any country in the world. According to the National Bureau of Statistics of China, there are over 632 million internet users in China, of whom 47 percent are online shoppers, which is hovering slightly below the entire population of the U.S.
Chinese middle and upper-middle-class consumers are looking to trade up everything from clothing and cosmetics to baby formula and supplements. Online retail sales in China totaled approximately US$630 billion in 2015, making the market nearly 80 percent larger than the US retail e-commerce market. China’s middle- class today, according to McKinsey & Co., is expected to reach 630 million by 2022. And they are hungry for authentic, high-quality foreign products. According to the “Annual Report on Tmall Global Data 2016”, quality consciousness was one of the top three reasons for buying items from abroad, along with a change in personal circumstances and demand to experience new things. Jack Ma, the founder and executive chairman of Chinese e-commerce giant Alibaba, extended his invitation to US citizen small businesses to the e-commerce site as a way to sell their products in China. In his article published in The Wall Street Journal on July 14, 2015, he said: “Today, China’s middle class is equal in size to the entire US population and is expected to double within seven years.”
With the internet reaching all over China now, cross-border is no longer confined to coastal cities but is expanding to third and fourth-tier cities. Currently, China has 10 pilot zones for cross-border e-commerce, including Tianjin, Shanghai, Hangzhou, Ningbo, Fuzhou, Pingtan, Zhengzhou, Guangzhou, Shenzhen and Chongqing, where business is conducted as a “bonded import” or “direct purchase import”. More than 20 cities such as Changsha and Shenyang can undertake cross-border e-commerce for exports. At least 12 new cross-border e-commerce business parks have been built and attracted about 330 enterprises. Some top international e-companies from USA, Sweden, UK, Malaysia, Holland, Japan, South Korea, Denmark, Australia and New Zealand have stepped up their presence in China with a strategic partnership with the 4 free trade zones situated in Shanghai, Guangdong, Tianjin and Fujian. According to the data of China’s Ministry of Commerce, China currently has over 5,000 cross-border e-commerce platforms. Some 14,500 international brands from 63 countries and regions have opened virtual stores, 80 percent of which made their first Chinese foray through with the help of Tmall Global, operated by Alibaba.
With the gradual perfection of China’s CBEC policies and institution and driven by e-services, China’s e-commerce enterprises have been now utilizing overseas business opportunities. Taking advantage of products made in China, Chinese leading online platforms have been promoting the transition from “Made in China” to “Marketing in China” and “Created in China”. China’s homegrown dominant marketplaces like Alibaba and JD.com positioned themselves well to capitalize on growing consumer demand by creating their own payment systems (e.g., Alibaba’s Alipay) and logistical services (e.g., JD.com operates a self-owned logistics network). In fact, more than 75 percent of Chinese e-commerce is transacted through Alibaba, which includes Tmall.com and Taobao.com (Alibaba’s consumer-to-consumer sales site). Tmall Global, established in 2014, has enabled overseas brands to sell their goods directly to savvy shoppers in China via the internet. At last year’s G20 meeting, Alibaba forged collaboration with Canadian and Russian companies to expand its presence overseas.
Last year in March, Alibaba Group Holding Ltd became the world’s largest retail platform as its trading volume surpassed Wal-Mart’s annual sales. Last year Alibaba’s record-breaking sales of 120.7 billion yuan ($17.79 billion) on the annual Singles’ Day online shopping fiesta offered insight into China’s transitioning economy and added further evidence that China’s booming e-commerce industry led by Alibaba is changing the global trade landscape and pattern. In comparison, sales on Cyber Monday, which is considered the biggest online shopping day in the US, hit $3.45 billion in 2016, data from Adobe Digital Insights showed.
Since China’s e-commerce and especially CBEC has become an important platform and bond for the Belt and Road Initiative, the Chinese Government is seeking to more closely regulate the e-commerce sector and has brought in some rule changes on CBEC. To further protect the rights and interests of Chinese consumers, improve product safety and protect state revenue, the Chinese government made a number of amendments to the regulation of CBEC in the country recently, including a new tax policy and a ‘positive list’ of 1142 categories of products to be imported via CBEC. The National People’s Congress (NPC), China’s top legislative body, turned its attention to drafting an e-commerce law in 2013. After three years of preparation, the NPC’s Financial and Economic Affairs Committee came up with a draft of China’s first e-commerce law in 2016. At the 25th session of the 12th NPC Standing Committee, held on December 19-25, 2016, the draft law on e-commerce was submitted for its first reading on December 19 and two days later, was put on the NPC website to solicit public opinion. Domestic and foreign companies were also invited to weigh in on the draft, which is 93 articles long and covers issues beyond data security, including anti-competitive practices and payment systems.
The draft law talks of promoting cross-border e-commerce and establishing a supervision and management system that suits cross-border e-commerce activities, in order to improve customs efficiency and ensure trade safety. In October 2016, a national quality-monitoring center for cross-border e-commerce was launched in Hangzhou in east China’s Zhejiang province. Its functions include risk monitoring, evaluation and treatment, quality source tracing, and credit rating. Lu Zushan, deputy director with the NPC’s Financial and Economic Affairs Committee, pointed out that promoting CBEC conforms to China’s opening-up policy. “It will also be helpful to promote the Belt and Road initiative,” Lu said.
The draft law says besides digitalizing CBEC activities, like tax payments and quarantine procedures, China will also promote cooperation in cross-border e-commerce among countries. Besides, China will take part in formulating international rules on CBEC and work to set up dispute settlement mechanisms with the countries and regions involved. The New Tax Policy is bringing about anxiety as well as new hopes to both consumers and retailers. Liu Peng, general manager of Tmall International, opined that many sellers on the platform will keep the prices unchanged by squeezing their own profit. At this juncture, it can be boldly said that though the new policy may deter some consumers’ desire to buy, it will benefit the whole industry in the long run in an orderly way. However, in November last year, the Ministry of Commerce of China announced that the New Tax Policy Promulgated for Imported Goods via CBEC will be postponed further, till the end of the year 2017.
During the opening meeting of the fifth session of China’s 12th National People’s Congress (NPC) on March 5, 2017, Premier Li Keqiang delivered the Government Work Report. Regarding China’s role in economic globalization, he stressed that economic globalization is in the fundamental interests of all countries. China will not shift in its commitment to promoting global economic cooperation, will uphold the multilateral trading regime as the main channel of international trade, and will play an active part in multilateral trade negotiations. The government will continue to negotiate investment and trade agreements with relevant countries and regions. “China is a responsible country. We have always striven to honor the commitments we have made, and the government will firmly defend our due rights and interests,” Premier Li said. It’s true that China has embraced globalization with enthusiasm since reform and opening-up began in late 1978. Promoting economic globalization and supply-side structural reform in China means a win-win for the global economy. According to the Premier’s report, China aims to have its economy to grow about 6.5 percent this year “or higher if possible in practice.”
CBEC has been playing a growing role in China’s economic growth. The “Belt and Road Initiative” has already boosted the development of CBEC. He Lifeng, director of the National Development and Reform Commission, said at a news conference during the annual session of the NPC on March 6, 2017: “China has invested more than $50 billion in countries along the Belt and Road since the nation proposed the initiative in 2013. The initiative has won support from over 100 countries and international organizations, with nearly 50 cooperation agreements signed between governments.” He said progress under the initiative was “better than expected.”
China’s economy has been stabilized in the macro level while continuing to promote structural reforms. A few lines of President Xi Jinping’s speech at the Davos Forum in January deserve to be quoted here: “China’s remarkable achievement in poverty reduction has contributed to more inclusive global growth. And China’s continuous progress in reform and opening-up has lent much momentum to an open world economy.” We are optimistic about China’s economic prospects in 2017.
In present times, more Chinese brands enjoy international recognition. Manufacturers based in China are upgrading and trying to grow their businesses and build their brands globally through CBEC. According to the National Development and Reform Commission (NDRC), “Cross-border e-commerce will grow annually at over 30 percent in the next few years, becoming a new growth point for the e-commerce industry.” It is expected that China will develop institutional reforms in the business sector. We can expect that the Chinese government and the marketplaces should handle the difficulties which consumers encounter when they shop online across borders, providing information on their rights and giving advice and assistance with their complaints and the resolution of disputes. We believe CBEC will play a growing role in China’s economic growth.