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China’s Cross-Border E-Commerce: Present Situation, Development Trend and Relevant Policy Recommendations

Dec 14,2015

By Lai Youwei

Research Report Vol.17 No.6, 2015

I. Overall Situation of the Development of China’s Cross-Border E-Commerce

As a new business form, cross-border e-commerce has several advantages including lower entry threshold, fewer intermediaries, lower cost and shorter transaction cycles, which can help domestic businesses reduce the cost in international trade and facilitate the international business of domestic small and medium-sized enterprises. It has a large market and good development prospect.

Supported by government policies, China’s cross-border e-commerce has developed fast in recent years. The 2014 Report on China’s E-Commerce Market Data Monitoring released by China Research Center of E-Commerce shows that China’s transaction volume of cross-border e-commerce was 4.2 trillion yuan in 2014, achieving year-on-year growth of 33.3%. Of the total transaction volume, export and import accounted for 85.4% and 14.6% respectively, with export far more than import. Export goods of China’s enterprises are mainly consumer goods, including garments, accessories, small appliances and digital products. Transaction volume of these goods is large and growing fast. The import via cross-border e-commerce just starts but grows rapidly. The main imported goods are cosmetics, skin care products, baby and maternity products, luxury goods, fashion clothes, electronic consumer goods, food and health products.

Classified by operation models, China’s cross-border e-commerce can be categorized into cross-border B2B trade (e-commerce transactions between companies in foreign trade) and cross-border e-retailing. In 2014, cross-border B2C (business-to-customer retailing) business started on the following major e-retailing platforms: Tmall, Suning, Yihaodian, Vip.com, Amazon.cn and Jumei.com. Data of Alibaba Group shows that during the shopping spree around China’s Singles’ Day (Nov. 11) in 2014, businesses and consumers of 217 countries and regions conducted transactions on Alibaba’s platform, which indicates cross-border e-commerce kicks off the globalized mass consumption era in China.

In terms of market structure, cross-border B2B has been dominant in China’s cross-border e-commerce, taking up 93.5% of market share in 2014. Cross-border B2B trade enterprises mainly rely on such e-commerce platforms as Alibaba, DHgate, Global Sources, Made-in-China, Global Market Group and LightInTheBox for information display. E-commerce platforms act as the go-between, matching the products of all enterprises online. As cross-border B2B trade always involves large orders, only some steps of the trade are finished online. Online transaction is not completely available. Although the whole process of cross-border e-commerce will be done online in the future, cross-border B2B business will mainly involve matching information and providing information-based service in the next few years.

II. Cross-Border E-Commerce Promotes China’s Economic Transformation and Upgrading

The development of cross-border e-commerce can not only boost the growth of China’s international trade and national economy, but also promotes the transformation and upgrading of China’s economy. When it comes to promoting the upgrading of China’s economic transformation, cross-border e-commerce can play important roles in three aspects.

First, developing cross-border e-commerce can help China’s enterprises adapt to the needs of international clients and competition environment. Cross-border e-commerce is a typical “Internet Plus” industry. Relying on fast and efficient Internet platforms and international logistics, China’s businesses have direct contact with the customers all over the world. They can display their products and communicate with international customers. In this way, they can not only have a better and timely knowledge of the development trend in the international market, but also understand and satisfy customers’ need more quickly. This will help enhance their capability to innovate products, and make “Made-in-China” and “China Service” more competitive in the international market.

Second, developing cross-border e-commerce can facilitate the transformation and upgrading of China’s export industry. Since the outbreak of international financial crisis in 2008, overseas importers tend to purchase in small and medium volumes instead of large ones, place short term orders instead of long term ones. As a result, large-volume transactions in containers often seen in traditional foreign trade are gradually replaced by “fragmented” transactions in small batches and quantities as well as of high frequencies. By developing cross-border e-commerce, expanding and promoting application of e-commerce, China’s export enterprises are able to adapt to the new development trend of the international market and cultivate new advantages of China’s open economy.

Third, developing cross-border e-commerce facilitates the cultivation of brands of China’s enterprises. Cross-border e-commerce reduces intermediaries, enables large number of China’s enterprises to step to the front, get sales channels within their own control and develop their own brands. With direct connections between export enterprises and end customers. The Original Equipment Manufacturer (OEM) model is changed. All these help create better opportunities and channels to make China’s brands better known and reputed. New development space is created especially for some “small and competitive” small or medium enterprises.

III. Development Trend of China’s Cross-Border E-Commerce and Relevant Policy Recommendations

1. Gradually establish the policy and regulation systems for cross-border e-commerce

In order to support the development of cross-border e-commerce which is a new form of commercial activity, General Administration of Customs of China (GACC) keeps reforming the regulatory model for customs clearance. Since 2012, GACC has started pilot work in some cities with enough cross-border e-commerce activities and establish new type of regulatory model for cross-border e-commerce. In Aug. 2013, the General Office of the State Council forwarded Opinions on Implementing Relevant Policies to Support Cross-Border E-Commerce Retail Export jointly issued by nine departments including Ministry of Commerce, National Development and Reform Commission, Ministry of Finance, the People’s Bank and GACC. Six major support policies were proposed as follows: to establish a new type of customs regulatory model for export by e-commerce and record the data in a special program; to set up a regulatory model for e-export inspection; to support foreign exchange collection and settlement of e-exporting industries; to encourage banking institutions and payment agencies to provide payment services for cross-border e-commerce; to implement tax policies suitable for e-export; and to build a credit system for e-export. Pilot cities of e-commerce, including Shanghai, Chongqing, Hangzhou, Ningbo, Zhengzhou, Guangzhou and Shenzhen, are encouraged to actively and effectively promote the pilot and demo programs based on their respective specific conditions. In these cities, preferential tax policies are offered to cross-border e-commerce. Overseas merchandise purchased through this channel are levied only “personal postal articles tax”, equivalent to personal articles, and are eligible for the waiver of “tariff plus value-added tax plus consumption tax” collected on general imported goods. Thereafter, in July 2014, GACC approved the model of bonded import in this industry by issuing Announcement on Issues Concerning the Regulation of Goods and Articles Entering and Exiting China through Cross-Border Trade E-Commerce and Announcement on Adding a Customs Supervision Model Code. In January 2015, the State Administration of Foreign Exchange raised the upper limit of a single transaction in cross-border e-commerce from $10,000 to $50,000. In March 2015, in order to support cross-border e-commerce, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) issued Opinions on Deepening the Reform of the Regulatory Model of Inspection and Quarantine, and Supporting the Development of Pilot Free Trade Zone. Based on the pilot work and exploration in the starting period, the State Council released Guiding Opinions on Promoting Sound and Rapid Development of Cross-Border E-Commerce, focusing on providing solutions to the prominent problems hindering the development of cross-border e-commerce. The solutions are to optimize the customs clearance procedures for cross-border e-commerce, to promote improve regulatory policies and measures of inspection and quarantine, and to provide positive fiscal support, so as to facilitate procedure-based development of cross-border e-commerce.

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