October 30, 2020

Opportunities and challenges for China's cross border e-commerce during the pandemic

China’s e-commerce industry has been through an almost spurt development in recent years. In 2019, China is the largest e-commerce market, with sales of $1.935 trillion, accounting for more than half of the global total, compared to just 1 percent a decade ago. Amid this, cross-border e-commerce has been very active in the last few years. In 2016, the size of China’s cross-border retail e-commerce market was $78.5 billion; by 2021, this size is expected to exceed $140 billion. But in 2020, a new coronavirus is suddenly sweeping the world with far-reaching consequences for both the economy and society. China’s cross-border retailers are also facing new opportunities and challenges brought by the pandemic.

Opportunities

Beginning in 2015, China decided to set up new cross-border e-commerce pilot zones in 13 cities based on its previous traditional foreign trade system, thereafter import and export trade has grown tremendously as a result; by 2018 the country decided to set up additional pilot zones in 22 cities. These pilot zones provide a streamlined system for cross-border e-commerce imports and exports, which simplifying regulations related to faster approval, integrated customs clearance and facilitating of information sharing. It is expected that there will be a tremendous growth in cross-border e-commerce in the coming years.

After the outbreak of pandemic, Chinese government has taken various measures to support cross-border e-commerce, adding another 46 cross-border e-commerce pilot zones. In addition to expanding the comprehensive pilot zones, a series of complementary policies for corporate taxation, regulation and facilitation have been introduced. For example, raising the limit of cross-border foreign exchange payments by payment institutions for a single transaction, simplifying the procedures for small and micro cross-border e-commerce trade in and out of goods, and giving priority to the establishment of international mail exchange bureaus as well as many other facilitation measures. 

At the same time, in the case of the pandemic, China was forced to adopt a policy of quarantine which became necessary to prevent and control the spreading of the coronavirus, and a large amount of buying demand was forced to start through online channels. Many of China’s elder consumers and those living in rather small cities may not be used to online shopping before, now have started shopping online. They have come to appreciate the speed and convenience of online shopping, which has the potential to become a new growth area for online consumption.

Challenges

Facing the global challenge of preventing and controlling virus spreading, as well as the related tasks of economic revitalization in these extraordinary times and circumstances, China has done remarkably well than any other country. As a result of this process, public opinion in China has shown a significant increase in recognition of the country and its people. This is reflected in the consumer sphere, where Chinese people, especially young Chinese, are increasingly choosing domestic brands as their national pride continues to rise. Min Deng, a Bain & Company partner in Shanghai said, ‚ÄúChinese consumer goods are expanding faster than their foreign competitors, and they are getting a boost from rising pro-China sentiment. More importantly, Chinese brands are no longer perceived by consumers as poor quality or poorly designed. They are on pair with fashionable foreign brands.” According to Jingdong Big Data, the year-on-year growth in the number of Chinese branded goods and brands, the number of people placing orders, and the number of orders in 2019 was higher than the growth rate of imported brands, with a difference of more than 20%. Due to the pandemic, this difference is widened to more than 30% in February-March 2020. 

It must be said that the pandemic is changing Chinese people’s consumption habits and the concept of domestic brands. Many Chinese are beginning to find out that many domestic brands are on an equal level with foreign brands, while at the same time domestic brands are relatively cheaper. In addition, the pandemic has given Chinese brands a logistical advantage over international brands, which has led more Chinese to switch to buy domestic products. Therefore, foreign retailers may have to face strong competition from Chinese domestic brands and need to be prepared to turn the crisis into an opportunity.

Today, the second wave of pandemic in many countries has arrived, for cross-border e-commerce companies need to recognize the challenges and opportunities, response and adjust their strategies to seize opportunities while avoiding risks.

Written by Jing Huang