China Cross-border E-commerce Import Market in 2023: Trends, Opportunities, and Challenges
by Davy Huang
The cross-border e-commerce (CBEC) market in China has been growing rapidly over the past few years, driven by the country's growing middle class and increasing consumer demand for foreign goods. The COVID-19 pandemic has accelerated the growth of cross-border e-commerce as consumers shifted to online shopping, and this trend is expected to continue even as the pandemic eases.
Moreover, as vaccination rates increase and travel restrictions ease, there will likely be an uptick in outbound travel from China, which is expected to fuel the growth of cross-border e-commerce as consumers become more familiar with foreign brands and products. According to a report by eMarketer, China's retail e-commerce market is expected to reach $2.8 trillion by 2023, up from $1.9 trillion in 2019.
CBEC remains an effective channel for new brands to enter the Chinese market without setting up a domestic entity, and it has become an industry that focuses on innovation, sustainability, and price-quality balance.
In this article, we will explore the latest trends, opportunities, and challenges in the China CBEC market in 2023.
CBEC is an Effective Channel for New Brands to Enter China
CBEC remains to be the most effective channel for new brands to enter the Chinese market. This is mainly due to the platform's low entry barriers and the cost-effectiveness of the model. According to a report by iiMedia Research, China's CBEC market size is expected to reach RMB 9.44 trillion (USD 1.45 trillion) by 2025, growing at a compound annual growth rate (CAGR) of 20.9% from 2020 to 2025.
The Chinese government has been supportive of the CBEC industry, providing preferential policies to encourage the growth of the industry. For example, the government has set up a number of CBEC pilot zones to promote the development of CBEC, and it has also lowered the threshold for CBEC operators to enter the market. These initiatives have helped to attract more international brands to enter the Chinese market.
One of the biggest advantages of CBEC is that it exempts brands from registering with relevant authorities, such as the China Food and Drug Administration (CFDA) or China Customs. This can be a time-consuming and expensive process for brands looking to enter the Chinese market, and CBEC provides a way for brands to test the market without incurring these costs. In addition, CBEC provides a fixed import duty rate ranging from 9.1% to 23.1%, which is lower than the general import duty rate.
Innovation, Sustainability, and Price-Quality Balance as Key Factors
CBEC is becoming an industry that focuses on innovation, sustainability, and price-quality balance. In the early days of CBEC, consumers were buying cheap alternatives for major brands. However, now consumers are increasingly focused on products that are not yet available in China. According to a survey by Nielsen, Chinese consumers are becoming more health and environmentally conscious, with 74% of respondents saying they would pay more for sustainable products. Furthermore, Chinese consumers are looking for unique and innovative products, with 67% of consumers saying they are willing to pay more for new and innovative products.
Innovation is a driving force behind the success of many brands launching in China via cross-border e-commerce. With the increasing availability of new technologies, patents, and ethical ingredients, international brands are capturing the upscaling demands of Chinese consumers. This is particularly true in the beauty industry, where brands such as BAK Skincare are leveraging new technology to create bioactive ingredients and prebiotic formulas for anti-aging. The brand had its debut on Little Red Book and is looking to expand in new channels.
BAK Skincare is just one example of a brand that is launching innovative products in China with new functional claims and influencer endorsement. The brand has developed a range of products that utilize cutting-edge technology to deliver results that are backed by scientific research. For example, the brand's prebiotic formula is designed to promote healthy skin microbiota, which is believed to be an important factor in maintaining youthful-looking skin. The brand has also developed a number of bioactive ingredients that are designed to provide anti-aging benefits, such as improved elasticity, firmness, and radiance. Tula Skincare, acquired by P&G in 2021, launched in China in late 2022 with its "Clean + Effective" formula that uses probiotics and natural ingredients. The brand's success in China has been driven by livestreaming and marketing tools on Tmall Global, which have helped it reach a large and growing audience of Chinese consumers interested in natural skincare products.
Chinese consumers are increasingly interested in innovative products that offer new functional claims and are endorsed by influencers. In fact, according to a report by eMarketer, 60% of Chinese consumers said that they were more likely to purchase a product if it was recommended by an influencer. Brands that are able to leverage influencer endorsement and deliver innovative products that meet the demands of Chinese consumers are well positioned for success in the Chinese market.
Sustainability has become a key factor for international brands looking to launch in China, and not just in terms of environmentally friendly packaging and ingredient sourcing. Brands are now expected to consider sustainability in all aspects of their business, including managing growth and avoiding price wars. To meet the growing demand for sustainable products, brands are taking a number of steps. Many are promoting global unified inventory to meet global consumer demand while minimizing waste. This approach not only reduces waste and improves sustainability, but also helps brands avoid the risk of overstocking or understocking inventory in different markets.
API integration is also playing a key role in helping brands connect with major sales channels in China. This technology allows brands to easily and seamlessly integrate their systems with those of Chinese online marketplaces, making it easier to manage inventory and sales data. This helps brands optimize their operations and minimize waste, which is an important factor in sustainability.
Another aspect of sustainability that brands are focusing on is economic marketing. Brands are finding new ways to market and sell their products that are more efficient and cost-effective, generating awareness and sales at the same time. The trends had fueled the growth of Douyin Mini-store, as brands can leverage their existing stock in the bonded warehouse and quickly expand new channels with minimal cost. For many brands, generating real consumer interest via Douyin and converting to sales proved to be an effective way of growth. Douyin offered various models for growth hacking, including short video matrix where brands can test and evaluate various consumer angles, livestreaming where brands can filter the potential leads and convert to sales, and influencers campaigns via the Douyin Creator Platforms where brands can develop strong market awareness within a short period of time.
Chinese Online Marketplaces Becoming More Friendly to International Brands
China's e-commerce market is dominated by a handful of online marketplaces, including Tmall, JD.com, and Pinduoduo. Douyin, the Chinese version of TikTok, is also emerging as a popular platform for e-commerce. These marketplaces are increasingly friendly to emerging international brands, providing opportunities for these brands to enter the Chinese market via cross-border e-commerce.
Tmall Global, the international version of Tmall, is one of the largest cross-border e-commerce platforms in China. The platform has more than 30,000 international brands from over 4,000 categories. Tmall Global provides a range of services to help international brands enter the Chinese market, including customs clearance, logistics, and marketing support. The platform has also lowered its fee structure to attract more brands to set up official flagship stores. In 2022, Tmall Global announced that it would be further lowering its commission rates for brands that meet certain criteria, such as having high sales volumes and good customer reviews.
JD Worldwide, the cross-border e-commerce platform of JD.com, is another popular platform for international brands. The platform provides a range of services to help international brands enter the Chinese market, including brand marketing, integration with Little Red Book and Douyin, China customs clearance, logistics, and localization support. JD Worldwide has also launched a number of initiatives to support emerging international brands, such as the "Global Good Things" program, which provides support to brands that are committed to sustainability and social responsibility.
Douyin, the Chinese version of TikTok, has also emerged as a popular platform for e-commerce. The platform has launched a number of initiatives to support e-commerce, including the "Douyin E-commerce Festival," which provides support to brands that are new to the platform. Douyin has also launched a number of features to support e-commerce, such as "Douyin Store," which allows brands to set up virtual storefronts on the platform.
These online marketplaces have implemented policies to help international brands enter the Chinese market via cross-border e-commerce. One of the most important policies is the establishment of official flagship stores on the platforms. These stores provide a way for international brands to establish a presence in the Chinese market and to sell their products directly to Chinese consumers. To set up an official flagship store, international brands need to meet certain criteria, such as having a registered trademark and a business license. The platforms also provide support to help brands set up their global payment accounts for easy international settlement.
Top demanded categories in China Cross-border E-commerce
China's growing middle class is becoming more health-conscious and beauty-focused, driving demand for imported products in categories like beauty, fragrance, and nutrition. In the beauty category, imported skincare and cosmetics are especially popular, with consumers willing to pay a premium for high-quality products with unique ingredients and formulations. Fragrances are also in high demand, with a growing number of consumers looking for high-end, niche fragrances that are not widely available in China. Additionally, nutrition and mom & baby categories are also gaining popularity, as parents seek out imported formula and other nutrition products for their children.
While some categories may experience a dip in demand due to market fluctuations, those with unique ingredients or features are likely to continue to attract Chinese consumers interested in trying new and innovative products. Tmall Global is a popular destination for consumers looking to purchase imported products in these categories, and brands that can effectively market their products on this platform have a strong opportunity to succeed in the Chinese market.
Imported products have a unique value proposition in the Chinese market. Consumers in China often associate imported products with higher quality and better ethical standards, particularly when it comes to ingredients and manufacturing processes. This perception is driven in part by a series of scandals in recent years that have shaken consumer confidence in the safety and quality of domestic products. As a result, imported products are often seen as a safer and more reliable option for consumers.
In addition to quality and safety concerns, imported products also offer unique features and technologies that are not yet available in China. For example, imported beauty products often contain patented ingredients or formulations that are not found in domestic products. These innovative features can help differentiate a brand from competitors and generate interest among Chinese consumers.
Price-value is also an important factor for Chinese consumers. While imported products are often more expensive than domestic alternatives due to tariffs and other fees, consumers are willing to pay a premium for products they perceive as higher quality or unique. Many imported products offer a price-value proposition that appeals to Chinese consumers, who are often willing to pay more for a better product.
Overall, the value proposition of imported products in China is driven by a combination of factors, including higher quality, better ethical standards, innovative technologies, and price-value. Brands that can effectively communicate these benefits to Chinese consumers and effectively market their products on cross-border e-commerce platforms like Tmall Global have a strong opportunity to succeed in the Chinese market.