China’s new strategy: Cross border e-commerce

July 10, 2020: While Chinese exports are facing resistance on many fronts, The CBEC pilot zones are designed to boost China’s import and export businesses (especially export). As China has been putting much effort into upgrading its manufacturing infrastructure, it is seeking opportunities to export products with higher value and margin.

COVID-19 has thrown the retail sector into a downward spiral. The once booming sector is now faced with diminished store footfalls, and experts predict it may take months for traffic to rebound and possibly even years before retail can return to pre-pandemic levels. For some experts, they predict brick-and-mortar retail may never recover to its pre-outbreak levels.

A survey by McKinsey concluded that “the pandemic is causing some retailers to reassess their footprint and future format.” About one-third of executives are considering not reopening under-performing stores, and a similar portion are reassessing the launch of new stores. Recognizing the pitfalls of physical retail, approximately three-quarters of apparel executives are now aiming to venture deeper into their e-commerce offerings.

Now more than ever, e-commerce is set to dominate the retail sphere. Amid the pandemic, Chinese e-commerce titan Alibaba announced solid sales growth and has set out a bullish outlook for 2021, thanks to the evolving shopping trends and consumer habits that emerged amidst the pandemic. The e-commerce giant reported revenues for its fiscal fourth quarter increased by 22%, amounting to $16.1 billion, outperforming analysts’ predictions.

China is not only the global factory, but it is also a huge consumer market. Based on a study from the consulting firm Equite, Chinese consumers are responsible for about 40% of the global luxury market, and that figure is expected to rise to 50% by the next decade.

Naturally, luxury brands from across the world have flocked to this lucrative market: Paris-based fashion house Balenciaga is one of the latest brands to join Alibaba’s e-commerce platform, openening its Tmall store in May. Contrary to the US government that is resisting inflow of Chinese goods, many US brands are flocking into the Chinese market.

US fashion brand Michael Kors has launched its digital flagship store on Tmall and has been collaborating with Alibaba since July of last year. Another US-based company Allbirds has also found its entry into the Chinese market by partnering with Alibaba: “Being on Tmall works for two important reasons. First and foremost, that’s where the consumers are in China. Secondly, because of the way the platform runs, it does allow us to operate like a direct to consumer brand,” Erick Haskell, the President of Allbirds International said.

China betting on cross border e-commerce
Cross-border e-commerce (CBEC) – activities of purchasing or selling products via online shopping across national borders – is gaining momentum in China.

To fuel this engine of China’s import and export growth, the government is supporting by enhancing the country’s international shipping capacity in 2020, new CBEC pilot zones and pilot cities for CBEC retail importation are being developed, the CBEC retail import list is being extended, and tax and tariffs are being lowered.

The CBEC pilot zones are designed to boost China’s import and export businesses (especially export). As China has been putting much effort into upgrading its manufacturing infrastructure, it is seeking opportunities to export products with higher value and margin

In January 2020, 50 cities were added to the existing 36 pilot cities for CBEC retail importation. In May 2020, the State Council unveiled 46 new comprehensive pilot zones for CBEC, bringing the total CBEC pilot zones in China to 105.

Last year in December, the “List of Goods under Cross-border E-commerce Retail Importation” was extended to allow more foreign goods to be delivered to Chinese consumers through CBEC retail importation program. The list, also dubbed ‘CBEC positive list,’ has taken effect this year.

By far, the State Council has approved five batches of 105 comprehensive pilot zones for cross-border e-commerce (CBEC pilot zones), covering almost all the provinces except for Tibet. Most zones are located in coastal regions like Beijing (1), Shanghai (1), and the provinces of Guangdong (13), Zhejiang (10), Jiangsu (10), Shandong (7), and Fujian (6).

These CBEC pilot zones have been pivoted as the ideal home for manufacturing companies, e-commerce export enterprises, e-commerce platform companies, logistics enterprises, and financial service firms.

In addition, the CBEC can also help foster new industrial chains like cross-border logistics, cross-border financial payment, and supply-chain finance, adding impetus to China’s economic growth. At the micro level, the CBEC pilot zones are also enabling entrepreneurship, connecting domestic small- and medium-sized companies (SMEs) and local industries with the world.

Hangzhou CBEC Pilot Zone, the first CBEC pilot zone in China, hosts established import e-commerce platforms (like Tmall Global, NetEase Kaola, and JD Worldwide), export e-commerce platforms (Jollychic and club factory), third-party payment platforms (Alipay), logistics companies (EMS, SF Express), and other enterprises providing supporting services, such as credit insurance, for CBEC businesses.

The Hangzhou CBEC Pilot Zone has taken the lead in innovating the management mechanism. They call it “six systems and two platforms” – the “six systems” refer to the information sharing system, financial service system, intelligent logistics system, e-commerce credit system, statistics monitoring system, and risk prevention and control system; the “two platforms” refer to the online integrated service platform and offline industrial park platform.

The mechanism can achieve information sharing among customs, taxation, foreign exchange, and other government departments, which largely shortens the period of goods export declaration. Meanwhile, it builds up CBEC enterprises’ credit database and risk prevention and control systems, and provides enterprises with more innovative services in financing, guarantee, foreign exchange settlement and sale, and intelligent logistics.

Conclusion
CBEC is becoming a more prominent channel for import and export in China. In the past six years, the proportion of China’s CBEC exports in the country’s total foreign trade jumped from 2.2 percent to 11.25 percent.

This year, from January to February, China’s import and export volume of CBEC retail was RMB 17.4 billion (US$2.45 billion), up 36.7 percent year-on-year, despite the COVID-19 pandemic. In 2019, the number reached RMB 186.2 billion (US$26.25 billion), five times that of 2015, showing an average annual growth rate of 49.5 percent, according to the official data.

The Chinese government is trying to promote CBEC business to stabilize and promote foreign trade. It is expected that China will scale-up favorable policies to support the growth of CBEC as well as roll-out further measures to regularize CBEC.