Asia has the fastest-growing eCommerce market in the world and where China leads the pack. Alibaba alone claims that they will import USD 200 billion worth of goods by 2023 and the market is valued to almost USD 2 trillion.
With that said, foreign sellers have faced problems with high entry barriers, lengthy product registrations, and setup fees.
As China tries to increase the imports of foreign goods, cross-border sales have exploded but still account for just 2.2% of the online retail market.
This will inevitably change in the coming years as the Chinese appetite for high-quality foreign products grows and thanks to new regulations.
Selling cross-border is a fast-track to the Chinese market and a perfect way to get your feet wet.
Topics covered in this article:
- What is cross-border eCommerce in China?
- Regulations when Selling Cross-Border in China
- Cross-Border eCommerce Marketplaces in China
- Shipping & Fulfillment
- FAQ
What is cross-border eCommerce in China?
Cross-border is a new type of sales channel that has plenty of room for growth in China. As mentioned, cross-border sales only make up 2.2% of the online market. This is set to increase significantly in the coming years.
In short, cross-border channels were introduced to make the Chinese market access easier for foreign brands.
The advantage is that you can sell products directly to the end-consumers. If you were to sell your products on local eCommerce platforms or offline, lengthy registrations, product testing, and Chinese labeling would be mandatory.
Thus, selling cross-border is a perfect opportunity for brands that want to enter the Chinese market quickly and perhaps try it out first.
Even if the physical distribution of products is different you’ll also notice differences in tax payments, what information that’s required from buyers, and more. [sc name=”call”][/sc]
Regulations when Selling Cross-Border in China
China has faced issues with counterfeit goods and quality issues.
As a result, it has introduced and updated several regulations for cross-border trade since 2019.
Summary of the regulations:
- The Cross-border E-commerce Retail Imports Regulation (“The Circular”)
- The Notice of Improving the Tax Policy of Cross-border E-commerce Retail Imports Regulation (“The Notice”)
- The Goods List of Cross-border E-commerce Retail Imports Regulation (“Goods List”)
Key points from the regulations:
- The products must be included in the “Goods List”, for personal use, and fulfill the conditions for the application of the relevant tax policy
- The customs must be able to cross-check the transactional, payment, or logistics electronic information for products sold through cross-border eCommerce platforms
- Cross-border express delivery or postal services must provide the transactional, payment and other electronic information of the products to the customs when needed
- Foreign companies must have a responsible agent that has an entity registered in China. The agent shall take responsibility jointly with the seller to comply with local regulations and provide the best quality and services possible
For more information about the different regulations, I also recommend you check this article written by R&P China Lawyers which goes into greater detail.
Cross-Border eCommerce Marketplaces in China
Even if the cross-border eCommerce market is in an early stage, we’ve seen a handful of platforms that have taken key positions in the Chinese market.
Let’s review the biggest ones and what sets them apart.
1. Tmall Global
Tmall Global (Tmall.hk) was launched in 2014 and is owned by Alibaba, the parent company of Classic Tmall (Tmall.com).
The platform is dedicated to cross-border sellers and established brands that have products in demand in the Chinese market.
Interestingly, Tmall Global was established as an alternative for sellers of branded products on Taobao, China’s biggest local eCommerce website.
At the moment, it’s the most difficult platform to enter and you’ll also pay the highest setup and running fees.
Some of the most popular products sold on Tmall Global include fashion & beauty products, mom & baby products, food & beverages, and household appliances.
I recommend you to check our separate article that explains how you can start selling on Tmall Global as a foreign company.
2. JD Worldwide
JD Worldwide was launched in 2015 and is owned by the biggest IT company in China, Tencent. It’s one of the biggest cross-border eCommerce platforms, but with lower entry requirements and fees compared to Tmall Global.
Before the launch of JD Worldwide, we saw the introduction of JD.com, the local eCommerce platform in 2008. The same as it goes with Tmall Global, you’ll find most products on display on JD Worldwide, even if the range of products is a bit smaller.
As I’ve mentioned in separate articles, Tmall Global caters to more female buyers than JD Worldwide which is also big on electronics.
If you want to know more about how you can start selling on JD Worldwide, you can check this article.
3. Kaola
Kaola was launched by NetEase in 2015 with a purpose to increase imports from Australia, thereby its name. Things didn’t turn out according to plans and cross-border sellers from all over the world use Kaola to reach the Chinese consumer market.
Kaola has the biggest cross-border market share in China, but also a somewhat different business model compared to Tmall Global and JD Worldwide. It primarily sources and imports products directly from sellers overseas.
Worth mentioning is that the website focuses on food and beverages, but you can find many kinds of products here. One of the obvious advantages of selling on the website is that they can manage the imports and fulfillment of your products.
Even if Kaola offers the opportunity for companies to set up flagship stores, it’s not the main service of the company.
4. WeChat
WeChat is the biggest chat application in China with more than 1 billion users. It’s equivalent to WhatsApp, but over the years it’s evolved into something bigger.
Nowadays, you rarely have to leave the application as you can book everything from cinema tickets, pay for haircuts, and browse the net via the application.
WeChat has managed to create its own ecosystem and large companies do their utmost trying to promote their products through users feeds and with the help of Key Opinion Leaders (KOL).
Setting up a WeChat store is easy and you can easily convert your Shopify or Magento store into a WeChat store, with the help of UI/UX and some coding.
Compared to Tmall Global and JD Worldwide, it’s generally cheaper to start selling on WeChat and it can be suitable if you want to try out the Chinese eCommerce market.
Shipping & Fulfillment when Selling Cross-Border
We get many questions related to shipping and fulfillment when selling in China. It’s not strange, as customers request short delivery times at the same time as logistics costs can eliminate much of your profits.
You have three main options when selling cross-border in China, namely:
- Hong Kong Fulfillment
- China Bonded Warehouse
- Direct Shipping
Let’s have a look at each one.
Direct Shipping Model
The direct shipping model is suitable for light products with a high price-point. Examples include vitamins, accessories, clothes, and watches.
The reason is that you use air freight which is comparatively expensive to sea freight. Selling low-cost wines, olive oils, or vacuum cleaners are therefore not suitable.
The benefit of at least starting with the direct shipping model is that you can learn more about the shipping process, customer feedback, and where you have to improve.
When sales volumes start to pick up, you can move to a more sustainable and long-term model, such as using a bonded warehouse or a Hong Kong fulfillment center.
Some of the benefits of using the direct shipping model are:
- Packages are randomly checked by the customs
- Taxes only apply occasionally
- You don’t need to stock the products in China
- No taxes if the value is less than RMB 50
- No CIQ registration or clearance needed
Hong Kong Fulfillment
Hong Kong is one of the main fulfillment hubs in Asia and a perfect choice if you sell to clients in mainland China and other Asian countries.
In short, you send the products in bulk shipments to Hong Kong where a 3PL company helps you with the inbound, storage, pick & pack, and shipping to end-customers in mainland China.
There are many benefits why Hong Kong is a perfect location for the fulfillment of products. First of all, it has the freest economy in the world with no import duties or VAT.
If you open a Hong Kong company, you can also receive payments in RMB and manage local operations through the entity.
Below I’ve made a summary of both the pros and cons when using a Hong Kong-based fulfillment center compared to a bonded warehouse in China:
Pros:
- No tariffs when shipping products for storage in Hong Kong
- Easy and fast to register a Hong Kong company
- A good way to test the Mainland China market for your products
Cons:
- Generally more expensive pick & pack fees and storage costs
- Slower delivery times
- Goods can be held up in customs (and are subject to changes)
- Chinese consumers are subject to an annual quota of duty-free cross-border retail imports
China Bonded Warehouse
Your third option is to use a bonded warehouse in one of China’s Free Trade Zones.
Bonded warehouses are physically located within China’s borders and allow companies to import, manufacture, process, or export products back overseas without the need of paying taxes or register with local authorities.
The products are only cleared by the customs and CIQ when leaving the bonded area and shipped to the end-customer in China.
The clear benefits of using bonded warehouses are that it’s cheaper and delivery times shorter. Other benefits include:
- Pre-declared goods, quicker to clear customs
- Higher order values accepted
- Lower risk of orders being held (assuming full compliance)
- Lower cost of pick and pack and storage
- Can use local China couriers to deliver (cheaper)
That said, there are some cons of using this model as well.
First, your goods have to be transported by a bonded truck which requires extra fees and a minimum truckload each time. Besides, it’s not suitable if you plan to sell in other countries than China.
You’ll also experience strict inventory records and you can be charged for small discrepancies.
FAQ
Below I have included commonly asked questions and my replies.
What is the difference between Tmall and Tmall Global?
Tmall (tmall.com) is also referred to as Tmall Classic and a local eCommerce platform in China. In short, this means that you need to have or work with a Chinese entity that can import the products. Besides, you have to register the products with local authorities and sometimes manage product testing before you can start importing the products.
Tmall Global (tmall.hk) is solely dedicated to cross-border sales which means that you ship the products directly to end customers from a China bonded warehouse or fulfillment center.
Who pays for the VAT?
The VAT is mostly paid by the seller and included in the sales price. The shipping company that manages last-mile deliveries will pass on this cost to the online seller/merchant.
What are the import duties when selling cross-border?
If you’re registered as a cross-border seller in China and sell via a bonded warehouse or the B2C (Business Commercial model), you’re exempt from paying import duties. You can even get a 30% reduction on the VAT payments.
Do I need to register a company in China to sell cross-border?
No, foreign cross-border sellers don’t have to register Chinese entities. But, you do have to work with local eCommerce partners when selling on platforms like JD Worldwide and Tmall Global.