Selling online in China

© 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



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



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



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



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



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



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



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

http://www.everwines.com/

http://plastered8.tmall.com/

http://service.tmall.com/support/tmall/knowledge-1123773.htm



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.


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


Faster delivery speed.

For EU Sellers

Can offer a targeted offering to Chinese consumers.


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.


Access goods not available in

China.

For EU Sellers

Can understand easily how the platform works.

Low cost.


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



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

http://fuwu.taobao.com/serv/index.htm

http://www.alibaba.com/



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



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



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

http://club.alipay.com/read.php?tid=9976972

https://b.alipay.com/order/productDetail.htm?productId=2011060800327556



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).


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).


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.



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.



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

http://www.ems.com.cn/

http://www.sf-express.com/

http://www.sf-express.com/

http://www.zjs.com.cn/

http://www.sto.cn/

http://www.yto.net.cn/

http://www.zto.cn/

http://www.htky365.com/

http://www.yundaex.com/

http://www.yundaex.com/

http://www.ttkus.com/



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

http://www.eusmecentre.org.cn/



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


China Internet Development Statistics Report - 28th

Edition

http://www1.cnnic.cn/download/2011/cnnic28threport.pdf

Published by: CNNIC, July 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

http://www.nri.co.jp/english/opinion/papers/2011/np2011162.html

http://www.nri.co.jp/english/opinion/papers/2011/pdf/np2011163.pdf

http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue90.pdf

http://www1.cnnic.cn/download/2011/cnnic28threport.pdf

http://www.atkearney.com/images/global/pdf/Chinas_E-Commerce_Market.pdf

http://www.marketresearch.com/Access-Asia-v213/Online-Retailing-China-6142741/

http://www.miit.gov.cn/

http://www.china-iprhelpdesk.eu/



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

events and training. The Centre also acts as a platform facilitating

coordination amongst Member State and European public and private

sector service providers to SMEs.

The Centre‟s range of free services cover:

Business Development – provision of market information, business and

marketing advice

Legal – legal information, initial consultations and practical manuals

Standards – standards and conformity requirements when exporting to

China

HR and Training – industry and horizontal training programmes

Access to a service providers directory and information databases

Hot-desking – free, temporary office space in the EU SME Centre to

explore local business opportunities

Any other practical support services to EU SMEs wishing to export to

or invest in China.

Contact the Centre at:

Room 910, Sunflower Tower 37 Maizidian West Street

Chaoyang District Beijing, 100125

T: +86 10 8527 5300

F: +86 10 8527 5093

www.eusmecentre.org.cn

[email protected]

Disclaimer

This document is provided for general

information purposes only and does not

constitute legal, investment or other professional advice on any subject matter.

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

standing of any individual, firm, company or other organisation mentioned. Publication as

well as commercial and non-commercial

transmission to a third party is prohibited unless prior permission is obtained from the

EU SME Centre. The views expressed in

this publication do not necessarily reflect the views of the European Commission.

Date: January, 2012

The EU SME Centre is a project funded by the European Union.

http://www.eusmecentre.org.cn/

mailto:[email protected]

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