China’s deregulation is a welcome boost for e-commerce

Following a year of online success in 2018, U.S. and foreign retail companies selling to China through cross-border e-commerce can look to 2019 with optimism.

As the global leader in mobile pay, China offers a trillion-dollar e-commerce market, which makes it a desirable destination for retailers and brands looking to expand through a seamless online experience in 2019.

There are a number of major advancements that will further this momentum in the year ahead.

First, there’s a favorable regulatory environment. International retail companies have reason to rejoice in 2019. The Chinese government’s recent decision to lift purchase limits on cross-border e-commerce will make it easier for international brands and retailers selling in China.

Image: Bloomberg News 

The Chinese government is expanding the scope for cross-border e-commerce to improve product tracking and taxation compared to gray market (daigou) purchases, and to protect consumers from counterfeit and inferior merchandise.

Chinese consumers increasingly seek foreign goods, which they perceive as superior in quality to domestic options. In response, Chinese government limits on cross-border e-commerce purchases have risen to $720 per transaction and $3,750 per year, up from $290 and $2,900. The government lowered taxes on inbound postal shipments from 30% and 60% to 25% and 50%. Expect China’s government to relax more trade restrictions in 2019.

Although some market watchers cite concerns over the slowing economy, young professionals in China’s Tier 1 and Tier 2 cities continue to buy premium- quality imports from the U.S. and foreign countries. Top-selling categories for cross-border e-commerce include beauty, cosmetics and apparel, and healthy, natural products across categories also sell well. AliResearch found average spending on online marketplace Tmall Global exceeded $80 for Tier 1 cities vs. $58.

As Chinese consumers increase in affluence and sophistication, they now have heightened expectations of retail companies. To adapt to savvy consumers, China’s large e-commerce platforms — including Tmall Global, JD Worldwide and Netease Kaola — procure their own inventory directly from brands and stock them in bonded warehouses closer to China. This efficient process results in lower prices, faster logistics, and a superior customer experience.

Third-party retailers selling the same brands on these platforms will find it difficult to compete on price and logistics, and may launch their own independent websites instead. Macy’s recently left the China market after closing down its Tmall store and official China website. In 2019, expect more retailers to leave Tmall Global and JD Worldwide to launch their own e-commerce platforms.

Chinese online shoppers have little patience for slow service. The large e-commerce platforms now purchase more inventory directly and stock them in bonded warehouses in China and Hong Kong. For example, JD.com pledged to purchase $15 billion U.S. in imported goods, and Kaola announced plans to spend more than $3 billion on European goods.

As a result, shipping times have fallen drastically, raising consumer expectations of fast shipping. Companies with clear, predictable demand should stock more inventory in Hong Kong or Chinese free trade zones to stay agile and competitive.

To reach mobile shoppers where they already spend their time and money, brands and retailers are turning to WeChat for its integrated social commerce, including efficient mobile pay. For small brands, WeChat stores are cost-effective for building a China e-commerce presence without paying large upfront fees for marketplace platforms or setting up a Chinese website. Big brands use WeChat mini programs for marketing, like launching limited collections, livestreaming makeup tutorials, and designing creative games.

Smaller U.S. and foreign brands will enter China e-commerce through WeChat mini programs, and bigger brands will design more creative marketing campaigns to attract Chinese consumers.
Overall, the outlook for 2019 for China’s cross-border e-commerce sector remains positive due to strong consumer demand, favorable regulations and tech-savvy shoppers’ interest in convenient mobile pay options. To reduce risk and costs, and increase their chances for e-commerce success, U.S. and foreign brands and retailers need an appropriate China market entry model, targeted marketing strategy, distinct brand image, robust e-commerce strategy and flexible approach to directly connect with Chinese online shoppers.