China’s Cross-Border E-Commerce: Growth But Challenges Ahead

China’s cross-border e-commerce has seen the emergence of new business modes in recent years and some of the surprising new trends reflect the integration of new-generation information technology. But fresh domestic and external challenges have also emerged for China’s e-commerce sector，and how the sector responds has become a market focus. This article assesses the changing trends of China’s cross-border e-commerce and offers some suggestions on the path forward.

Since 2015 China’s retail e-commerce imports and exports have grown by leaps and bounds. Combined imports and exports cleared by the General Administration of Customs on its e-commerce platform climbed to 134.7 billion yuan in 2018 from 36.02 billion yuan in 2015，with an average annual growth rate of 55.22% over the period.

The rise in retail e-commerce exports has partly been due to the nation’s “go global” strategy，which encourages domestic companies to venture out into the international market. In 2018，China's exports cleared through the same cross-border e-commerce platform amounted to 56.12 billion yuan，up 67% from the year before. The top five export items were hand tools，bags，imitation jewelry，clothing and communication equipment，but outdoor gear，automotive accessories and toys have accounted for an increasing share of the total. Additionally，the number of branded products has been growing.

While exports have grown rapidly in recent years，imports still account for more than 55% of China’s e-commerce foreign trade. In 2018，imports cleared through the Customs e-commerce platform totaled 78 billion yuan，up 39.8% year on year. The top five imports were cosmetics，dairy products，sanitary products，hair care products，and suitcases and handbags. Moreover，as a result of the improvement in living standards in China，medium and high-end commodities have been particularly in demand.

According to Customs’ statistics，in the first half of 2019，there were 220 million e-commerce import transactions，worth a total of 45.7 billion yuan，up 20.9% and 24.3%，respectively，over the same period a year earlier. The increases were significantly higher than the 1.4% growth in China’s total merchandise imports during the same period. Cosmetics，dairy products，diapers and food products were the top retail import items in e-commerce purchases. Over the same six-month period，Chinese consumers placed a total of 8.08 million orders at prices between 2,000 and 5,000 yuan using cross-border e-commerce platforms. These had a combined value of 2.32 billion yuan. Among those higher priced imports，bracelets，watches，handbags and other medium- and high-end goods were especially popular.

More Balanced Regional Development

With the wider application of IT in China，cross-border e-commerce has gradually expanded from the eastern seaboard to the central and western regions. While cross-border e-commerce has made gains in China’s eastern coastal regions，it is developing at a markedly faster pace in the central and western regions. In 2018，of the nation’s 42 Customs districts directly under the General Administration of Customs，Huangpu，Hangzhou，Guangzhou，Zhengzhou and Beijing Customs were the leading sources of e-commerce exports while Guangzhou，Ningbo，Hangzhou，Zhengzhou and Chongqing Customs were the top five import centers. In the central and western regions，Zhengzhou and Chongqing saw accelerated growth in cross-border e-commerce.

Expansion Along the 'Silk Road'

As one of the largest and fastest growing e-commerce markets in the world，China continues to diversify the sources of its e-commerce imports. Foreign countries and domestic cities involved in the nation’s “Belt and Road” program，an ambitious program of international development，have also contributed to the rapid rise in e-commerce. In 2018，China's cross-border e-commerce transactions with Cambodia，Kuwait，the United Arab Emirates and Austria all showed increases of more than 100% year on year. Cross-border e-commerce in China’s cities along the Silk Road Economic Belt and the 21st-Century Maritime Silk Road also rose sharply over the same period. According to the Report on the Development Trend of E-commerce Exports in Chinese Cities by Amazon Global Selling，Fuzhou，Quanzhou and Guangzhou along the Maritime Silk Road in the 21st Century were among the top 20 exporters via e-commerce in 2018. And Xi’an and Lanzhou along the Silk Road Economic Belt were identified as two of the 22 new venues for Comprehensive Pilot Zones for Cross-border E-commerce. The strong gains in e-commerce in these cities will help boost the development in the foreign countries participating in the “Belt and Road” initiative.

Integrating New Technology

In recent years，China’s cross-border e-commerce has adopted new models due to the integration of new technology. One such innovative area is “video + e-commerce.” Amid the wide application of smartphones and mobile internet，the rising social video platforms including Kuaishou and Douyin in China have integrated e-commerce and brought up video social e-commerce (live stream e-commerce shopping). Additionally，videos are widely used in China’s major cross-border e-commerce platforms in product displays and homepage recommendations. With the application of 5G mobile technology，videos are replacing graphics on the Internet. A new round of trading innovations is under way.

Another model of cross-border e-commerce is “social e-commerce + auction.” The flash auction platform，for example，combines social e-commerce and online auctions which feature interaction and entertainment. Additionally，it provides high-quality commodities with low prices by reducing some intermediate steps on the premise that all products sold on the platform are authentic. In the future，as traffic becomes a critical factor in the competition among e-commerce platforms，online retailers will employ entertainment and interactive formats in an effort to attract potential buyers.

“Foreign trade service + artificial intelligence (AI)” is another new form of cross-border e-commerce. Traditional foreign trade enterprises are transforming themselves as providers of e-commerce services by combining new forms of IT，including big data，cloud computing and AI，with existing supply chain advantages. One such combination is the XBN Cross-border E-commerce Platform. With the aid of big data on overseas demand，it helps domestic manufacturers match supply with demand，and reduces risks in online exports. It also provides international trading companies with comprehensive services related to foreign trade，making use of their supply chain management system. In addition，such platforms also offer supply chain financial services to small and medium-sized exporters.

Opportunities and Challenges

The integration of cross-border e-commerce with other industries will not only boost China’s imports，but also increase China’s influence in international regulation of cross-border e-commerce. However，the challenges ahead include a need for enhanced domestic regulation as well as the threat from rising protectionism around the world.

Favorable Policies

China has promised to expand preferential policies on e-commerce retail imports. In late 2018，China announced new policies to encourage retail e-commerce imports. First-time retail imports would not require licensing，registration or record-keeping on e-commerce platforms. Instead，goods would receive more relaxed regulation as imports for personal use. In addition，quotas on goods eli