Post on 09-Jan-2023
© 2012 EU SME Centre 1
Report: Selling online in China
Selling online in China
The E-commerce market has grown rapidly over the last ten years, spurred on by the advent of third party
platforms such as Taobao and third party payment systems which have made Chinese consumers more at ease
with spending online. It is estimated that around 160 million Chinese are now shopping online and this figure is
set to increase to 231 million by 2013. The fast growth of E-commerce presents an attractive opportunity for EU
SMEs to access Chinese markets, allowing them to promote their goods to a vast market spread across a large
geographic area, for relatively little cost. This report outlines the development of China’s E-commerce market
and describes the key models that EU SMEs can utilise to sell online.
1. Background to selling online in China
1.1 The size and growth rate of online retail market in China
E-commerce (or „online selling‟) has grown at a remarkable rate in tandem with internet usage. After a
slow start the industry took off around 2004 as new payment mechanisms (predominantly Alipay) and
Alibaba‟s platforms (Taobao and Alibaba) began to catch the attention of the fast growing number of
internet and mobile phone users.
Chart 1. Internet users Chart 2. Mobile phone users
In the last seven years online retail sales have grown at a startling rate, from a relatively low base
when online sales only made up about 0.15% of all retail in 2004, totalling CNY 4.5 billion (EUR 495
mil1); since then online transactions have grown to make up about 7.25% of total retail revenues,
equating to CNY 495 billion (EUR 54.5 billion) in 2010.2
1 Currency conversion as at November 8th 2011: CNY 1 = EUR 0.11 (Bank of China); EUR 1 = CNY 8.7 (Bank of China); 1 USD = 0.76 EUR (Bank of America) 2 Online Retailing in China 2011, Access Asia
137
210
298
384
457
0
100
200
300
400
500
2006 2007 2008 2009 2010
Mill
ion
s o
f u
sers
Source: CNNIC
440 530
633 750
859
0
200
400
600
800
1000
2006 2007 2008 2009 2010
Mill
ion
s o
f u
sers
Source: MIIT
© 2012 EU SME Centre 2
Report: Selling online in China
Chart 3. E-commerce market size (2004-2011, EUR bn)
Online consumers selling to other consumers (C2C) and business to consumer (B2C) sales in China
have been increasing at a CAGR of 121% and 108% between 2004 and 2010 respectively. C2C sales
are dominant making up 88% (CNY 436 billion, EUR 47.74 billion)3 of the transactions in 2010, but
B2C sales are catching up and projected to take up an increasing share of the market.
1.2 Market forecast – strong growth predicted
Statistics from international research firms such as A.T. Kearney and Access Asia demonstrate
different perspectives on the size of the E-commerce market but they are united in their confidence of
strong growth over the next five years and with higher speed in the B2C market in particular.
According to A.T. Kearney, the online B2C market is expected to grow five times at a CAGR of 52%
from 2010 to EUR 54 billion by 2014. The total B2C and C2C market is expected to grow by over
three times to EUR 133.8 billion by 2014 from 2010 at a CAGR of 33% (see chart 4).
Access Asia forecast that the online B2C market will grow ten times at a CAGR of 79% from 2010 to
EUR 69.2 billion by 2014. In 2015, B2C online retail sales will account for 9% of total retail sales
from 0.9% in 2010 (see chart 5).
3 Online Retailing in China 2011, Access Asia, the EU SME Centre
0.48 1.2 2.4 5.6
14
30
56
0
10
20
30
40
50
60
2004 2005 2006 2007 2008 2009 2010
C2C B2CSource: Access Asia, NBS
© 2012 EU SME Centre 3
Report: Selling online in China
Chart 4. Online B2C & C2C market historical
data and forecast by A. T. Kearney, 2011 (EUR
bn)
Chart 5. Online B2C market historical data
and forecast by Access Asia, 2011 (EUR bn)
1.3 Key portals and players
Several Chinese E-commerce giants have emerged in recent years and are holding significant shares of
the China E-commerce market. Among them, Taobao under Alibaba Group held close to 75% of total
online retail market (C2C & B2C) in 2009.
Overall, there were 370 million registered users on Taobao and Taobao Mall (Tmall) in 2010 browsing
through 800 million items of merchandise listed by 3.65 million C2C sellers and over 30,000 B2C
sellers. Apart from Tmall, the top three B2C sites in 2009 were 360Jingdong Mall, Dangdang and
Joyo Amazon.
On the B2B front, Alibaba.com.cn (also under the Alibaba Group) is the undisputed leader accounting
for almost half of the total B2B online trading revenue in China.
Table 1. Top B2C portals 2009
Rank Company Revenue 2009 (CNY mil) B2C retail market share
(%)
Sector
1 360Jingdong Mall 3,600 13.09 comprehensive
2 Dangdang 1,600 5.82 comprehensive
3 Joyo Amazon 1,500 5.45 comprehensive
4 Newegg 1,000 3.64 comprehensive
5 Redbaby 400 1.45 comprehensive
6 Vancl 380 1.38 fashion
7 Mecox Lane 350 1.27 fashion
8 icson 250 0.91 comprehensive
9 99read 160 0.58 book
10 Moonbasa 120 0.44 fashion
11 green3c 120 0.44 3C
12 Suning 110 0.4 home appliances & 3C
13 Menglu 100 0.36 fashion
14 Gome 80 0.29 home appliances & 3C
15 coo8 60 0.22 home appliances & 3C
16 zbird 60 0.22 jewellery
17 vipshop 55 0.2 fashion & home products
43 55 67 80 20 31
43 54
63 86
110 134
2011 2012 2013 2014
C2C B2C
14 26
43
69
106
2011 2012 2013 2014 2015
B2C
© 2012 EU SME Centre 4
Report: Selling online in China
18 mpshow 50 0.18 cosmetics
19 Shishangqiyi 50 0.18 fashion
20 wl 50 0.18 books & cosmetics
21 togj 47 0.17 Fashion & home products
22 Masamaso 45 0.16 fashion
23 okbuy 40 0.15 fashion
24 kela 39 0.14 jewellery
25 9diamond 38 0.14 jewellery
26 Yihaodian 25 0.09 comprehensive
27 La Miu Lingerie 23 0.08 fashion
28 Zoshow 20 0.07 fashion
29 rayi 16 0.06 3C
30 olomo 15 0.05 fashion
Total top 30 sales 10,403.00 37.82
Source: iResearch and CEO & CIO China magazine & EU SME Centre
Table 2. Top B2B portals 2010
Rank Company Traded Value 2010
(CNY bn)
% Share in B2B Trading
1 Alibaba 1607 45%
2 Globalsources 255 7%
3 315 (commodities) 241 6.8%
4 Made in China 191 5%
5 Hc360 165 5%
6 Netsun 137 4%
7 b2b.cn 25 0.7%
8 Dhgate 5 0.2%
9 busytrade 3 0.1%
Others 933 26.2%
Total 3562.4
Source: Analysys International
Table 3. Top C2C portals 2010
Rank Company
C2C retail
market share (%)
2009
C2C retail
market share (%)
2010
Revenue 2009
(CNY bn)
Revenue 2010
(CNY bn)
1 Taobao 86.2 82.5 205 359
2 Paipai 10.1 9.9 24 43
3 Eachnet 7 3.3 17 14
Source: iResearch, CCID, Access Asia & NBS
1.4 Stand-alone E-commerce website
To operate a stand-alone E-commerce website with a server located in China, foreign invested
companies need to obtain ICP licences from government agencies.4 At the time of writing this report,
regulations regarding the application of the ICP licence are unclear, with different interpretations of
the law being applied in different regions. The process for applying for an ICP licence can also be a
time consuming process. This explains why owners of stand-alone E-commerce websites in China are
4 See section 3
© 2012 EU SME Centre 5
Report: Selling online in China
mostly the larger international companies who have more resources and whose core business demands
precise control of a unified brand image.
In 2010, stand-alone websites accounted for 6.6% of total online retail value (including C2C), and 54%
of B2C online retail. The market share of stand-alone websites is expected to drop in the coming years
and online transactions will be concentrated in a number of dominating platform websites such as
Taobao. Platform websites will become increasingly specialised and offer customised services to
attract business users, saving business the hassle of creating and maintaining a sophisticated E-
commerce website.
1.5 Consumer behaviour
In 2010 there were estimated to be around 160 million Chinese shopping online (35% of the 457
million internet users in 2010). This figure is forecast to reach 231 million (40% of internet users) by
2013.5 Most of these users have broadband access and mobile E-commerce is also a growing trend;
those using their mobile devices to buy and pay for goods online doubled from 3.5% at the end of
2008 to 6.8% by the end of 2010.
Chinese consumers are regularly comparing the prices between online stores and physical stores, and
opting for the cheaper choice. To remain competitive, companies need to build in responsiveness to
daily price changes in both their online and offline retail platforms.
More and more products are being placed online every day. In 2010, the most popular categories for
online shopping in terms of spending were 3C6 / home appliance, fashion and publications/recordings.
European brands are particularly strong in five out of the six highest growth categories including
fashion, cosmetics, 3C/home appliance, daily goods, food and baby products.
Over 90% of online shoppers are aged between 10 and 39, come from urban areas (over 70%) and
have a monthly income of under CNY 5000 (Euro 575). They are most likely students (28.6%),
managerial and non-managerial white collar staff (18.2%), self-employed/freelance (16.4%) and
professional technicians (10.8%). Women account for 45% of all internet users from only 20% ten
years ago. The top sellers in 2006 were 3C products primarily aimed at men, but the top categories
now target female buyers, such as fashion and cosmetics.
According to a survey by iResearch, the top reasons why some are still staying away from shopping
online are 1) needing to see the actual product, 2) worry about after-sales service, 3) payment system
is too complicated and 4) do not have debit/credit card. As online platforms become more
sophisticated, providing more detailed ranking and review systems, and, as payment processes become
simpler, more and more users will be tempted to purchase online.
C2C transactions still make up the bulk of E-commerce, however, B2C consumption is quickly
catching up.
5 CNNIC 6 Computers, Communications, Consumer
© 2012 EU SME Centre 6
Report: Selling online in China
Table 4. Sector breakdown by value and growth rate, 2010
Value (CNY bn) Growth (%)
3C/home appliance 23.34 123.35
Fashion 9.64 136.7
Publications/recordings 8.97 114.33
Cosmetics 4.07 124.85
Jewellery 2.82 54.22
Daily goods 2.39 122.01
Food 2.18 122.01
Baby products 1.76 102.92
OTC healthcare 0.62 96.83
Other 4.9 155.18
Total 60.69 120.63
Source: Access Asia, Online Retailing in China 2011
Table 5. Percentage of online shoppers buying in 2008
% of online shoppers buying in
the 12 months of 2008
Apparel 57.1
Books & audio visual products 46
Beauty & personal care 40.6
Digital products 35.4
Online game & mobile cards 32.1
Home accessories 29.2
Telecommunication products 27.4
Toys & gifts 24.7
IT products 23
Small home appliances 22.1
Jewellery & watches 20.3
Food & health products 19.7
Baby products 11.5
Large home appliances 2.9
Others 2
Source: Access Asia, Online Retailing in China 2011
1.6 Growth by region
Coastal provinces and municipalities in China account for 46% of the total online shopping value. The
top regions are Shanghai, Guangdong, Zhejiang, Jiangsu and Beijing. Consumer activity is rapidly
moving inland, new markets will grow quickly where logistics and supporting services are in place.
Table 6. Total online spending on Taobao by city, 2009 - 2010
Top cities Total online spending on Taobao (EUR bn)
Shanghai 1.98
Beijing 1.34
Shenzhen 0.75
© 2012 EU SME Centre 7
Report: Selling online in China
Hangzhou 0.65
Guangzhou 0.56
Nanjing 0.40
Suzhou 0.39
Tianjin 0.33
Wenzhou 0.33
Ningbo 0.33
Source: Taobao, A.T. Kearney
Among the 344 cities in China, 314 are inland cities of various sizes, generating 65% of China‟s GDP.
By the end of 2010, there were about 120 million middle and higher class households with annual
disposable income exceeding CNY 50,000 (EUR 5747) in China, and 87 million more7 will emerge in
the next decade. Among them, 77% will come from inland cities. As the market growth in the coastal
cities slows, the expanding middle-class households in inland cities will look more attractive and be of
greater significance to a company‟s success.
2. The different models for online selling
We identify four key models for B2C online selling in China all of which have their own advantages
and disadvantages.
2.1 Selling via a stand-alone website outside China
The path of least resistance to selling to Chinese consumers is for an EU company to sell from their
existing site outside of China. This site can be upgraded to include Chinese language and to accept
Chinese credit cards. The presumption is, in this case, that the company‟s operations are also based
abroad and so deliveries of goods are treated as imports into China. Apart from the additional cost in
tailoring the site, consumers will also have to bear high delivery costs (including any necessary tariffs)
and long waiting times. After sales service at a distance will also be hard to manage and will not
provide Chinese consumers with the ideal experience. A final drawback is that an external site cannot
obtain China‟s ICP licence and will therefore be susceptible to being blocked by Chinese authorities.8
2.2 Selling via a stand-alone website in China
A stand-alone website in China gets around many of the problems of delivery and after sales service
(presuming that the company‟s operations are also based in China). However, it also gives rise to the
costs of building and maintaining a separate site in China. Another major limitation is that only a legal
entity can apply for the necessary ICP licence, so an EU company must either set up an entity in China
or find an adequate partner (distributor or agent) that can help them to register the site.
7 Nomura Research Institute, Strategic Use of Online Sales Aimed at China‟s Rapidly Growing Consumer Market 8 See section 3
© 2012 EU SME Centre 8
Report: Selling online in China
Case: Everwines.com (www.everwines.com)
Everwines.com, a B2C channel of TORRES CHINA, is an online wine retailer that has been selling wines from
renowned wine-producing regions and family-owned wineries to the Chinese market since May 2010. TORRES
CHINA retails wine products through its own retail stores and runs wine appreciation events. Most Everwines
customers are white collar office workers who have a preference for foreign wines and who are used to shopping
online.
The number of Everwines‟ online members reached over 20 thousand in 2011. Although not yet profitable on its
own, online retail provides a promising prospect and an important channel for the group company to publish
latest available stocks and their features to wine lovers, driving up both online and offline sales.
Full case study available for download at: www.eusmecentre.org.cn
2.3 Selling via a third party platform outside China
Selling via a third party website like Amazon or Ebay outside of China is the cheapest option but is
unlikely to be successful. Most Chinese consumers will not intuitively use these platforms and the
barriers in terms of delivery times and having the relevant debit or credit cards will, in most cases, be
overwhelming.
2.4 Selling via a third party platform inside China
Selling via a site like Taobao in China has many advantages. Chinese customers are already buying
items from these websites in droves and so are used to the platforms‟ interface and functionality.
Assuming that the company‟s operations are based in China, delivery times are very quick and the
sellers can rely on the platform‟s established logistics companies to carry out the delivery. EU
companies will have to get used to the administration of these websites though and particularly the
ranking systems. To set up a shop on platforms like Taobao Tmall will require the payment of an
annual fee, this cost is rising dramatically from CNY 6,000 (EUR 690) per year in 2010 to CNY
30,000-60,000 (EUR 3448 to 6897) in 2012.9
Case: Plastered 8 T-shirts (plastered8.tmall.com)
Plastered 8 is a design and marketing company whose designs „just happen to be on a T-shirt‟. It was established
in 2006 by Dominic Johnson-Hill, a British backpacker who came to China in 1993. The brand features retro and
iconic Chinese images, and is popular among young Chinese white collar workers and expatriates.
The company set up its online C2C shop on Taobao in 2008. By 2009 it moved to Tmall, Taobao‟s B2C
platform, because Chinese in general trust business retailers more than individual sellers. Tmall also offers better
services for companies to setup and manage their online shops. According to Dominic, Taobao is a “monster”
and Plastered 8 has already devoted two out of ten staff to managing its Taobao presence. Although, online sales
only make up a small part of Plastered 8‟s revenues, growth has been about 400% in the last three years.
Full case study available for download at: www.eusmecentre.org.cn
9 http://service.tmall.com/support/tmall/knowledge-1123773.htm
© 2012 EU SME Centre 9
Report: Selling online in China
Table 7: Online selling models
Advantages Disadvantages Examples
1. Selling via a stand-alone
website outside China
For Chinese consumer
Access goods not available in
China.
For EU Sellers
No need to go through Chinese bureaucracy (ICP
licence).
No need to build a stand-
alone site especially for China.
For Chinese consumer
Not sure whether to trust.
Delivery speed.
Shipping cost and risk.
Postal formalities and risk.
No after service.
May not have credit card.
For EU sellers
Targeted marketing required.
Higher IT maintenance costs (for Chinese version).
Import agent required.
May be blocked without
notice.
Operations outside of China www.asos.com
www.net-a-porter.com
www.cn.forzieri.com
Operations in China flora2000.com/Shopping/China.a
sp
plasteredtshirts.com (operations in China)
lollipopbakery.cn (operations in
China)
2. Selling via a stand-alone
website in China
For Chinese consumer
Faster delivery speed.
For EU Sellers
Can offer a targeted offering to Chinese consumers.
For Chinese consumer
Trust less than third party
platform.
For EU sellers
Need to tailor website to Chinese consumer.
Effort required to generate traffic.
Site must be registered to company established in
China. IT maintenance costs import
agent.
www.song-hua.cn
www.jennyshop.com.cn
www.everwines.com www.organicfarm.com.cn
3. Selling via a third party
platform outside China.
For Chinese consumer
Access goods not available in
China.
For EU Sellers
Can understand easily how the platform works.
Low cost.
For Chinese consumer
Language
Credit card
Delivery speed
Shipping cost and parcel risk
Custom tariff
No after service
For EU sellers
Cannot target market.
amazon.com
etsy.com
ebay.com shopping.yahoo.com
4. Selling via a third party
platform inside China.
For Chinese Consumer
More likely to trust.
Easier online payments.
Faster delivery.
After service.
For EU Sellers
Low cost.
Benefit from platform‟s
existing traffic.
For EU sellers
Language
Marketing
Company registration in China
Certification requirements
loreal.tmall.com
only.tmall.com
veromoda.tmall.com adidas.tmall.com
jockey.tmall.com
plastered8.tmall.com
organic-farm.taobao.com
© 2012 EU SME Centre 10
Report: Selling online in China
The operations behind online selling
Operating an E-commerce portal is hard work. Substantial investment is required at the beginning and
a considerable amount of time is needed to employ and train personnel. There are many processes that
have to be managed including: building and operating the site, receiving orders, handling enquiries by
phone and e-mail, conducting inventory management, issuing instructions for shipments and package
deliveries and handling complaints and returns. To lessen their burden EU SMEs should consider
outsourcing a part, or even all, of the operations related to online sales. For example, Taobao has a
growing database of service providers that can be found on at http://fuwu.taobao.com/serv/index.htm.
Business-to-Business
Chinese B2B portals are built for Chinese suppliers and exporters to find foreign buyers. Alibaba
(www.alibaba.com) is a clear leader in this field with a database of close to 18 million users, 2.9
million of which are from the European Union. Other well-known B2B portals are:
globalsources.com
globalmarket.com
toocle.com
chinatexnet.com
chemnet.com
3. The legal environment for E-commerce
With the rise of E-commerce in 1999 and its increasing demands, there have been great improvements
in the law. However, generally speaking, the regulatory framework governing this sector is still
fragmented, inconsistent and unevenly implemented. Regulations under the jurisdiction of the
Ministry of Commerce (MOFCOM) and the Ministry of Industry and Information Technology (MIIT)
are key in governing online selling in China.
Table 8: Relevant legislation
MOFCOM/NDRC
Regulations on foreign-invested
companies
Measures for the administration of Foreign Investment in Commercial
Fields
Catalogue for the Guidance of Foreign Investment Industries (Amended in
2011)
Notice on Issues Related to Examination, Approval, and Administration of
Online Sales and Vending Machine Sales Projects of Foreign-Invested
Enterprises (“Notice [2010] No. 272”)
MIIT
Regulations on telecommunications
business
Measures for the Administration of Internet Information Services
(promulgated on, and effective as of, September 25, 2000)
Provisions on the Administration of Telecommunications Enterprises with
Foreign Investment
© 2012 EU SME Centre 11
Report: Selling online in China
Other relevant regulations Telecommunications Regulations of the PRC
Administrative Measures on Internet Information Services
Measures for the Administration of Telecom Service Operation
Provisions on the Administration of Foreign-invested Telecom enterprises
Interim Measures for the Administration of Online Commodities Trading
and relevant Services
Notice of the General Office on Issues Related to Examination, Approval,
and Administration of Online Sales and Vending Machine Sales Projects of
Foreign-Invested Enterprises
Electronic Signature Law of PRC
Source: Nomura Research Institute, 2011; EU SME Centre
In this section we outline the different approaches for foreign investors to set up online-selling in
China.
3.1 Setting up online through a third party platform website
In principle there is no explicit prohibition or restriction in Chinese law regarding online selling by
foreign companies through a third party platform. In practice the feasibility of establishment of online-
selling depends on the requirements of the respective platform service providers. Some service
providers like Taobao Mall, though, will request that the sellers have a registered company in China.
3.2 Setting up an online shop through own stand-alone websites
The conditions under which foreign investors can set up an E-commerce site are the subject of much
debate. Although „retailing‟ was opened to wholly foreign owned investment in 2004, it was unclear
whether online selling was included under „retailing‟ and so selling online remained restricted.
In August 2010 MOFCOM issued a notice10
which purported to clarify the position, indicating that
Foreign Invested Enterprises (FIEs) with a trading licence or production licence could engage in
online selling directly without going through any additional approval process.
However, it should be noted that the application of this notice, according to our information, has only
been enforced by a few local authorities. EU companies with processing or trading licences looking to
sell online should therefore approach their local authorities to clarify the applicable requirements.
ICP licences
Laws under the jurisdiction of the Ministry of Industry and Information Technology seek to regulate
the information and communications industry. According to these laws a „commercial Internet Content
Provider (ICP)‟ licence is required to provide commercial Internet information services. However,
following Notice No. 272, where a company sells its own products via the Internet, then this activity
does not constitute „commercial Internet information services‟.11
In these instances a non-commercial
ICP licence will be sufficient. A non-commercial ICP licence is much more straightforward to obtain.
It is only in the case where a company offers its platform to other companies (e.g. trying to set up a
competitor to Taobao) that a commercial ICP licence will be required. Another case where a
commercial ICP licence is likely to be required is for the selling of content or information services
10 Notice on Issues Related to Examination, Approval, and Administration of Online Sales and Vending Machine Sales Projects of Foreign-Invested Enterprises (“Notice [2010] No. 272”) 11 Nomura, 2011
© 2012 EU SME Centre 12
Report: Selling online in China
online. It seems that for now, only the selling of a company‟s own physical products will be exempted
from the commercial ICP licence.
Applying for a commercial ICP licence is a time- and cost consuming procedure for foreign investors.
According to our experience Chinese authorities are currently unwilling to issue these licences to
foreign investors.
3.3 Sites outside of China
Operating an E-commerce site on a server located abroad is not subject to the Chinese ICP
requirements since it is deemed that the services are not provided within the territory of China. But
there is always the risk that the website could be blocked by the Chinese authorities without warning.
If for example, content should appear on your website which is seen to contravene Chinese law or
policy, then your site can be blocked immediately. If you have an ICP licence (commercial or non-
commercial), in the instance where there is contravening content on your website, you will normally
be given a chance to remove it.
4. Payment methods
It was estimated by Access Asia that about 150 million would use online payment systems in order to
pay for their online goods in 2010. This has marked a distinct turnaround in recent years which has
been driven by the increasing distribution and use of credit cards and the development of third party
payment systems such as Alipay and Tenpay. These systems have enabled Chinese shoppers to feel
more secure when purchasing online and as a consequence it has also been a key factor in the
explosive increase of online shopping.
4.1 Key payment methods
Table 9: Most common payment methods
Third party platform (e.g. Alipay) 58.7%
Direct payment through online banking 21.1%
Cash on delivery 12.5%
Bank transfer 2.7%
Payment by credit card 2.3%
Postal money order 1.2%
Payment at convenience store 1.1%
Mobile phone payment 0.3%
Phone payment 0.1%
Source: iResearch, 2009
© 2012 EU SME Centre 13
Report: Selling online in China
4.2 Third party payment systems
By far the most popular method of payment is by third party payment systems.12
Through
these systems the buyer is presented with a selection of card brands from which to choose and
then must submit an account number with password in the issuer‟s webpage. By combining
gateways of several banks, these third party platforms made it much more convenient for E-
commerce companies to integrate online payment methods into their websites. These
platforms also managed to overcome one of the biggest barriers to doing E-commerce
business in China – trust – by offering an escrow service. In this capacity the platform acts as
middleman ensuring that the buyer is satisfied with the goods she receives before remitting
funds to the seller.
The settlement process consists of two steps, an inter-bank credit transfer from the
consumer‟s account to the third party provider‟s account, and a credit transfer from the third
party provider‟s account to the seller‟s account. In practice, the third party service provider
always settles the payments with the sellers periodically instead of trade by trade.
Another benefit of third party payment systems is that they are relatively straightforward to
apply for and install on a company‟s standalone website. For Alipay, for example, the process
is carried out by downloading and installing on your website the relevant applications from
the Alipay website.13
The fees charged by Alipay depend on the amount transacted in a year
and is based on a sliding scale; the more you transact the lower the charge.14
Table 10. Alipay fees
Transaction amount Charge 0 to 60k CNY 1.20%
60K to 500K CNY 1.00%
500k to 1m CNY 0.90%
1m to 2m CNY 0.80%
2m to 5m CNY 0.70%
Above 5m CNY Negotiated on case-by-case basis
For example, if you transact 120k CNY in one year then the charge is 60k *1.2% + 60k * 1.00% = 1,320 CNY
Alipay is by some distance the largest third party payment provider and it is no coincidence that the E-
commerce industry in China took off when the company introduced its services.
Table 11. Top five payment platforms
Alipay Alipay is the leading third-party online payment
platform in the world. As of March 2010, it had more
than 300 million registered users. The platform is
mainly used for C2C (taobao.com) and B2B
(alibaba.com) transaction payment as well as online
game, digital content, and air tickets.
Market share: 51% (based statistics of 2010 4th
quarter)
http://global.alipay.com
12 As of May 2011, there are 27 qualified third-party payment platforms, the most popular of which is Alipay.com Co Ltd (from the Alibaba
Group) followed by Tenpay.com (Tencent Holdings Ltd) and Shengpay (Shanda Interactive Entertainment Ltd). 13 http://club.alipay.com/read.php?tid=9976972 14 https://b.alipay.com/order/productDetail.htm?productId=2011060800327556
© 2012 EU SME Centre 14
Report: Selling online in China
Tenpay TenPay is an online payment solution offering both a
solution for companies looking to install an online
payment system as well as a payment solution
powering a variety of Tencent‟s offerings such as
PaiPai (online trading platform) and Qzone (SNS).
Market share: 21% (based statistics of 2010 4th
quarter)
www.tenpay.com
99Bill 99Bill is a Shanghai-based independent third-party
payment service provider mainly used for C2C, B2C,
B2B, donation, discount bond, and mobile phone
recharge transaction payment.
Market share: 7% (based statistics of 2010 4th quarter)
www.99bill.com
Yeepay YeePay is a Beijing-based e-payment service provider
enabling users to make and receive payments over the
Internet, mobile and telephone, especially for e-ticket,
tourist, and digital content payment.
Market share: 4% (based statistics of 2010 4th quarter)
http://yeepay.com
PayEase PayEase is mainly used for B2C, B2B, and public
billing (mobile phone recharge, Internet access fee,
exam entry fee, and donation).
Market share: 3% (based statistics of 2010 4th
quarter)
www.payeasenet.com
Source: iResearch, 2009
4.3 Online banking systems
Online banking systems in the early stages of E-commerce (pre-third party platform) were the
key method of payment. The underdeveloped credit card system meant that banks were given
an open field to develop their own individual payment schemes. No widely accepted
standards existed and so commercial banks took the opportunity to develop their B2C e-
banking services and began to offer online payment gateway services which enabled
merchants to accept payments from consumers‟ bank accounts. The Bank of China (BOC)
first established this business in 1998 and other leading commercial banks followed quickly.
However, to set up the bank‟s payment system on their website, sellers have to install an
application to establish the communication with the issuer‟s gateway and also to identify
himself to the issuer. To settle payment, the merchant needs to open a settlement account with
the issuing bank. This in short, means going to the bank and applying for the online payment
service; if there are many bank gateways from which a seller would like to receive payment,
the process of approaching each bank is a cumbersome process. With the advent of third party
platforms this method of payment is fast diminishing.
© 2012 EU SME Centre 15
Report: Selling online in China
4.4 Cash or payment on delivery
Cash or payment on delivery is also still popular in China. Although increasing rapidly, credit cards
are still not pervasive and many Chinese shoppers still do not trust online systems enough to carry out
the transaction online. These shoppers prefer to pay when the goods have arrived at their door step
either by swiping their card (if they have one) in the deliverer‟s point of sales (POS) machine or by
paying cash.
5. Logistics
China‟s logistics industry is still in the early stages of development. Late deliveries, damaged
and lost parcels, negative attitudes from delivery people and poor return procedures are not
uncommon. The underdevelopment in the logistics infrastructure will be one of the key
bottlenecks impeding the growth of China‟s E-commerce industry.
Given the lack of scale and capabilities, most E-commerce companies outsource their delivery
services to third-party express companies. Those selling through Taobao mall will also have
to choose one of these companies. Companies with large network coverage such as Shunfeng,
Yuantong, Yunda, Shentong, Zhongtong, Zhaijisong, Tiantian Express and EMS can provide
basic delivery services but they do not offer more complex services such as scheduled returns,
exchanges or cash-on-delivery (COD).15
At a more regional level, companies like Topname
and foreign companies like Fedex and TNT cover a smaller area but are able to provide more
specific services such as warehousing, COD and customised delivery. These companies are
also known to be more reliable and consistent in delivery.
EU SMEs looking to deliver their goods in market should consider using companies at the
regional level to target specific cities and if shipping further inland or to remoter areas is
necessary, then EMS and those companies with larger networks can be considered. However,
these latter companies are also more expensive. If volumes are large enough or if the EU SME
is selling goods which require particular handling e.g. temperature control, then setting up
your own distribution network could be considered. Of course, this will entail more fixed
costs which companies will have to balance against the rewards of offering a superior service.
Customs
For those European companies shipping goods from outside of China, Customs tariffs will have to be
paid depending on the value of the product.
Business to Consumer (B2C) including internet shopping shipments theoretically cannot be cleared as
personal effects, instead they should go through general Customs clearance process which would
require the importer (i.e. the receiver of the package) registering at the local customs authority.
This discourages Chinese online shoppers from buying directly from overseas E-commerce sites.
15See table below.
© 2012 EU SME Centre 16
Report: Selling online in China
Table 12. Comparison on key logistics players in China
Company China Post EMS Shunfeng (SF)
Express
Zhaijisong (ZJS)
Express
Shentong (STO)
Express
Yuantong*
(YTO) Express
Zhongtong*
(ZTO) Express HT Express* Yunda* Tiantian
Website www.ems.com.cn www.sf-
express.com www.zjs.com.cn www.sto.cn www.yto.net.cn www.zto.cn www.htky365.com
www.yundaex.co
m www.ttkus.com
Network
coverage
20 000 locations 2 000 cities
200 countries
2 000 locations 1 550 cities
32 regions
2 000 cities
32 regions
315 cities
32 regions
1 300 cities
34 regions
405 cities
32 regions
349 cities
31 regions
397 cities
31 regions
1 200 cities 34 regions
185 countries
Special
coverage National coverage
Guangdong
Hong Kong
Zhejiang Jiangsu
Shanghai
Zhujiang River Delta
Yangtze River
Delta Bohai Gulf
offshore regions
Price
comparison** CNY 731
Ground Delivery:
CNY 300 Standard Express:
CNY 412
Same Day Air Express:
CNY 1 320
CNY 324 CNY 410 CNY 402 CNY 402 CNY 249 CNY 327 CNY 405
Delivery time 2 - 2.5 days Within a day 2 days 3 days 2-3 days 3 days 3 days 3 days 3 days
Services of
note
Cash on Delivery Warehousing
International
express delivery
Cash on Delivery
Warehouse Fee Free Packaging
Materials
International express delivery
Cash on Delivery Packaging
Storage International
express delivery
Cash on Delivery
Logistics Warehousing
Packaging
E-commerce and distribution
Cash on Delivery
Packaging
Cash on Delivery
Packaging
Cash on Delivery
International Express Delivery
Note: *These firms are all affiliated to STO
** Beijing – Chengdu Measurements: 100*100*100 Weight: 40kg
© 2012 EU SME Centre 17
Report: Selling online in China
6. Conclusions and recommendations
China has a huge and growing number of consumers willing to shop online. Starting from a low base a
decade ago, people are increasingly willing to buy clothes, electronics, books and food from websites.
Platform websites, and notably Taobao, have played a prominent role in boosting online consumption
and payment systems such as Alipay have done much to reduce the fears of buying online. E-
commerce in China looks set to stay.
For EU SMEs, selling online is a good way to access China‟s markets. Third party platforms in
particular will give EU companies a relatively cheap mode of promoting their goods to a vast audience
while avoiding many of the complications of ICP licensing. Third party logistics providers are also
growing with increasing network coverage and will allow EU SME goods to reach more and more
Chinese cities.
E-commerce though is a mode of business that should not be taken lightly. Setting up a shop front on
Tmall or building your own standalone website will bring about little success unless it is combined
with the right operations management and marketing strategy. Resources will have to be dedicated to
the company‟s online efforts. For the many companies that have already embarked on selling online in
China, they realise that this mode of selling is still in its nascent stages and that it will take time for it
to generate profits and become self-sustaining.16
Recommendations
The trend for E-commerce is large and growing and should be a serious consideration for any EU
SME looking to access China‟s markets.
Before embarking in E-commerce in China though the whole process should be considered
carefully, from when the customer first clicks on „go to cart‟ to when the goods are delivered.
After sales services (e.g. returns) should also be taken into account.
As part of this process, the company‟s logistics strategy should be looked at particularly carefully:
Which cities should be targeted and which logistics providers will the company use to deliver to
these cities?
Whether on your own platform or on a third party platform, great efforts will have to be made in
marketing in order to distinguish the company‟s online offering from the multitude of other
offerings. Use all the electronic marketing tools at your disposal including search engine
optimisation (SEO), key word advertising and social networking platforms.
For third party platforms, make sure you understand how the ranking systems work. Losing half a
star from your ranking will have a significant impact on your sales.
Do not underestimate the resources (time, capital, human) that you will require to develop and
maintain your online offering. Third party platforms will have to be monitored constantly and this
combined with online marketing and operations will require, in all probability, a separate
dedicated team.
16
See Everwines, Organic farm and Plastered 8 case studies at: www.eusmecentre.org.cn
© 2012 EU SME Centre 18
Report: Selling online in China
Resources
Further reading
Strategic Use of Online Sales Aimed at China‟s Rapidly Growing Consumer Market
http://www.nri.co.jp/english/opinion/papers/2011/np2011162.html
http://www.nri.co.jp/english/opinion/papers/2011/pdf/np2011163.pdf
Published by: Nomura Research Institute, May 2011
Accessed on: October 2011
China‟s online retailing market, 2011
http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue90.pdf
Published by: Li & Fung, October 2011
Accessed on: October 2011
China Internet Development Statistics Report - 28th
Edition
http://www1.cnnic.cn/download/2011/cnnic28threport.pdf
Published by: CNNIC, July 2011
Accessed on: October 2011
China's E-commerce Market: The Logistics Challenges
http://www.atkearney.com/images/global/pdf/Chinas_E-commerce_Market.pdf
Published by: A. T. Kearney, April 2011
Accessed on: July 2011
Online Retailing in China 2011: A Market Analysis (paid source)
http://www.marketresearch.com/Access-Asia-v213/Online-Retailing-China-6142741/
Published by: Access Asia, February, 2011
Accessed on: July 2011
Useful Websites
Ministry of Information and Industry (MIIT)
The latest statistics on China‟s ICT and telecommunications industries from the Chinese government.
www.miit.gov.cn
China Internet Network Information Centre
The latest statistics on internet usage in China.
http://www.cnnic.net.cn/en/index/
China IPR SME Helpdesk
Useful advice and guides on how to protect IPR in China.
www.china-iprhelpdesk.eu
© 2012 EU SME Centre 19
Report: Selling online in China
The EU SME Centre assists European SMEs to export to China by
providing a comprehensive range of free, hands-on support services
including the provision of information, confidential advice, networking
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The Centre‟s range of free services cover:
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information purposes only and does not
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Whereas every effort has been made to
ensure that the information given in this document is accurate, the EU SME Centre
accepts no liability for any errors, omissions or misleading statements, and no warranty is
given or responsibility accepted as to the
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Date: January, 2012
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