China is the world’s second largest and fastest growing economy, with an economy predicted to overtake the USA in 2016. With year-on-year retail sales growth of 10.7% in 2015, a flourishing middle class with demonstrable purchasing power, rapidly expanding second and third-tier cities and steady increases in wages and average household incomes, China is certainly a destination worthy of consideration – although the challenges of trading there are notable.
The market is attractive – foreign products benefit from a strong brand image in China, due in part to safety scandals that have occurred in the territory over the past decades.
Yet despite these vast opportunities, China has been heralded as a notoriously challenging market to break into, due to – amongst other things – its fragmentation, complicated business practices and bureaucracy and a frequently changing and regionally inconsistent regulatory regime. Overlapping responsibilities, delayed processing times and governmental red tape are all-too-often encountered issues.
Alongside these problems, significant cultural and operational challenges persist; the Chinese language is amongst the most difficult to learn and the majority of Chinese people speak little or no English. Confucian cultural aspects also still invade the business landscape, with concepts such as ‘guanxi’ (relationships) and ‘face’ (respect) still playing an important role in modern China.
Exporting into China
Exporting into China certainly involves a significant amount of time and consideration, but with these efforts come the potential for high financial return, and a great degree of control over all aspects of the transaction. However, companies research the market and allow for associated administrative requirements. This will include licences, standards compliance, certification, labelling, shipping and customs-related requirements. Companies will also have to handle relations with freight forwarders and banks, if this is not handled by a Chinese import / export company.
Choosing to export your goods to China always means engagement of a company who has a licence for import / export according to Chinese laws, referred to in this report as an importer. An importer must be registered in China and is most frequently a service provider / intermediary assisting with import and international payment.
In 2015, the total online retail transaction value in China exceeded $625bn, and boasted more than triple the growth rate of overall retail sales in China - m-commerce accounted for $334bn of this figure. China was recorded to have 668 million internet users in 2015 (roughly 49% of the population) and 1.28 billion mobile users (roughly 91% of the population) - considered by some as maximum penetration.
This explosive eCommerce growth has been underpinned by extensive technological advances, internet and mobile penetration rates, the popularity of social media channels, payment systems and the advent of third party platforms such as Alibaba’s Taobao and Tmall.
China is undeniably a territory that requires strong connections on the ground, and stringent licensing and product specification requirements promise to complicate an aspiring e-retailer’s journey.
Peak online shpping times
The Chinese New Year, referred to as ‘Golden Week’ from a retail perspective, takes place in January or February each year and is a large driver of sales activity in China. In 2015, the Chinese Ministry of Commerce reported that sales of retail and catering enterprises grew 11% to reach ¥678 billion (about USD 103 billion) during this period.
Single’s Day (November 11th) has also been an important day for online sales over the past few years and is now one of the biggest online retail sales events in the world, bringing in more sales than both Black Friday and Cyber Monday in the US. Alibaba’s Taobao and Tmall recorded sales of USD 8.14 billion on this day alone in 2015 - the highest ever online sales figure achieved in a single day across the world.
China’s Second- and Third-Tier Cities
Historically, China’s large eastern cities such as Beijing, Shanghai and Shenzhen have caught entrepreneurial interest due to the Chinese Government’s opening-up policy which facilitated foreign investments and promoted the country’s integration into world trade, leading to rapid rates of development and economic progress. Previously China’s key manufacturing locations, in line with Government economic initiatives these areas are now focusing resources on the development of a service sector.
These advanced eastern cities, however, account for less than 10% of China’s population – lower profile cities in central and western China are having an economic revolution, boasting much higher growth rates than their eastern neighbours. These municipalities, classified as second- and third-tier cities, are now receiving increased attention from Chinese authorities and are attracting large investments. More than 300 million people currently live in these second- and third-tier cities, a number set to increase due to large-scale migration from the Chinese countryside, and Chinese wealth and retail developments are spreading as a result.
Expansion and urbanisation is also taking place outside these rapidly growing second- and third-tier cities, and additional regions should not be overlooked by a prospective e-retailer into China. In 2013, 54% of the Chinese population was living in urban areas, seeking more lucrative and skilled work. These growing cities and provinces with their increasingly skilled, educated and prosperous inhabitants are anticipated to become the future stage of China’s development, and spending and volumes can only increase as a consequence of this younger generation with high expectations for careers and lifestyles.
The full country guide provides detail on the following areas: