This is a guest blog by Doug Barry PhD, who until recently was a Senior International Trade Specialist with ITA’s Office of Communications and Digital Initiatives
Despite slowing growth and a welter of government regulations, there are still good opportunities to be had in the China market, says the 2015 edition of the China Country Commercial Guide (CCG). Published by the U.S. Commercial Service in China, the CCG, now available online in bite-size nuggets, points out that while many industries remain closed to foreign participants, you’re on much more enticing ground if you’re selling medical equipment, health supplements, baby and environmental products and services, and using e-commerce to avoid most taxes and certifications to reach Chinese consumers directly.
E-commerce is rapidly increasing in China, and in May 2015 accounted for around 10.6% of all retail sales. There are over 632 million Internet users in China, of whom 47% are online shoppers. That’s slightly less than the entire population of the United States.
“The Chinese market remains strong, the retail sector underdeveloped, and logistics surprisingly improved,” says Joshua Halpern, a Commercial Officer with the U.S. Embassy in Beijing. “That combination, along with an expanding middle class, government policies that drive domestic consumption, especially in the 2nd and 3rd-tier cities and a degradation of trust for domestic-made products presents U.S. exporters with unprecedented opportunities across a comparatively streamlined and low-cost export channel.”
E-commerce sales in China totaled $449 billion in 2014, up 49.3% from $300.7 billion in 2013, according to the Chinese government’s National Bureau of Statistics (CNBS). In comparison, web sales in the U.S. totaled almost $305 billion in 2014, up 15.4% from 2013, according to Department of Commerce estimates (February 2015). China’s e-commerce market is growing more than three times faster than that of the United States. Although the official average income of the Chinese online shopper is much less than their American counterparts, personal income of the Chinese middle class grew by 10% (CNBS). The Chinese research firm iResearch forecasts that China’s e-Commerce market will grow at a 27% annual rate over the next four years.
Feet on the ground, or mail it in
U.S. Companies wanting to sell products via Chinese e-commerce platforms, including Alibaba and its affiliates Tao Bao, Tmall and Tmall International, can choose a more traditional approach by establishing a physical presence in China, or use cross-border e-commerce to sell the products directly from abroad. A presence in China can be a subsidiary company, a JV, a wholly-owned entity or a local distributor/agent. The CCG contains information on these different options for establishing a presence in China and the Department of Commerce offices across China can help you identify the right option for your business.
Within the massive growth of e-commerce in China is an approach called “bonded online shopping,” the cross border element of online shopping via government-approved websites that enables foreign brands to sell products overseas. In cross-border e-commerce, goods imported by means of bonded import will be exempt from certain import duties, consumption tax and value-added tax, and are only levied with Personal Postal Articles Tax. Cross-border e-Commerce is in a trial stage, and is likely to experience significant changes as regulations are put in place.
Also, since potential Chinese distributors comb through popular e-commerce marketplaces in search of new products, your product’s presence could lead to orders for containers, rather than oneseys and twoseys (small quantities), which still could be considerable given China’s population of 1.3 billion.
The latest CCG also contains information on the U.S. Government’s export assistance resources in China, which are most significant in the world. Good thing, too, because being successful at e-commerce in China often requires more than a passive listing or virtual store on one or more marketplaces.
Another trend to keep an eye out for is what Commercial Officer Joshua Halpern calls “C-commerce”, which is the shift in consumer behavior away from static one-directional e-commerce platform shopping toward content-rich sites and social media groups that discuss and recommend products and lifestyle activities they are passionate about. C-commerce allows Chinese consumers to trust recommendations from passionate friends in their “inner circle”. U.S. Commercial Services offices in China can advise you on developing a proper e-commerce strategy, including local service providers who can help market your product on China social media.