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Popular payment methods in the China eCommerce market

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This article looks at the popular payment methods used in the China eCommerce market and outlines the relevant requirements for trading in this territory.


Expanding into any new territory is a complicated endeavour when it comes to organising your finances, particularly with respect to paying relevant territory taxes and tariffs and accepting payment from international consumers who deal in different currencies. China offers no respite from this financial headache; with complex tax systems, the fragmentation of the local banking system and a wide range of potential payments avenues, it can be difficult for any e-retailer to know where to start. Before our aspiring merchant launches any operations in China, prior research into this complicated area is of the utmost importance.


Whilst China’s central bank is the People’s Bank of China, there are also a variety of state-owned commercial banks in operation, who handle deposits and loans of RMB and foreign currency. These include:

  • The Bank of China (not to be confused with the People’s Bank of China)
  • The Industrial and Commercial Bank of China
  • The Agricultural Bank of China
  • China Construction Bank
  • The China Development Bank


China is also a host to a number of private banks, some of which only handle deposits and loans in RMB.


In the wake of international pressure regarding its ‘under-valued currency’, Chinese authorities sought to appreciate their currency, and successfully brought their current account surplus down from a high of 12% in 2007 to a low of 2.1% in 2012. E-retailers exporting to China will encounter a benefit from this, as their goods will be cheaper in China than previously.


Tax Year: 1st January to 31st December


Payments and payment methods


Putting mechanisms in place to facilitate payment in China is a somewhat unfamiliar process to many international retailers, due in part to a preference for cash-on-delivery payments and a historical shortage of credit cards in circulation. Indeed, as recently as five years ago, Chinese shoppers had no easy way to purchase goods over the Internet, though undoubtedly more modern systems have developed quickly with the explosion of eCommerce in the nation, leading to the raise and dominance of third-party payment platforms such as Alibaba’s Alipay. These payment platforms have gone a long way towards alleviating concerns with financial security and trust that have historically deterred Chinese consumers from making payments online and in turn have bolstered e-trader’s confidence when it comes to a buyer’s financial credibility and the risk of delayed/zero payment.


Payment Methods in China

Figure 1: Payment Methods in China


The China Internet Network Information Centre have reported that whilst 63% of Chinese online shoppers used credit or debit cards to pay online, third-party online payment platforms were just as popular, used by 62% of online shoppers for their purchases. In addition, 32% of these online consumers also chose cash-on-delivery as one of their online shopping payment methods, though the popularity of this method is decreasing, as in 2012, two-thirds of online orders in China were settled via cash-on-delivery. Though cash-on-delivery is not a popular payment method in many Western markets, it is labelled a ‘must-have’ payment option by most of China’s mainstream B2C e-retailers, as it allows Chinese consumers to feel more secure in their online purchasing as many continue not to fully trust credit or payment services. These customers pay when the goods have arrived at their home either by swiping their card in the deliverer’s point of sales machine or by paying cash. Wire transfer and postal remittance form other popular online payment methods.


We can see that it is not wise to simply go with credit or debit card options as you might in other countries when exporting to China. Whilst the number of credit/debit cards in circulation has increased dramatically in recent years and is an increasingly popular payment method in the country due to their security, (in 2004, only about 1% of Chinese citizens had credit cards), prospective e-retailers should still investigate other options to improve Chinese consumer conversion – not least because many credit card owners actually don’t use their credit cards to shop online. Numbers are growing though, and by October 2013, 82.0% of Internet users in China held at least one credit card, while 77.7% had used a credit card as a method of online payment. It is also important to note that almost all mainstream eCommerce platforms in China accept online card payments, as online transfers, UnionPay, and third-party payment service providers all make provision for credit and debit cards.

"Whilst 63% of Chinese online shoppers used credit or debit cards to pay online, third-party online payment platforms were just as popular, used by 62% of online shoppers for their purchases."

China's third-party payment platforms


Spurred on by the lack of suitable online payment mechanisms, internet giant Alibaba launched its online payment arm in 2004. Named Alipay, the purpose of this payments service was to simplify the business of Alibaba’s buyers and sellers in making and receiving payments. With well over 300 million users today, this platform dominates online payments in China and largely allays Chinese consumers’ security concerns when buying online by both embracing an escrow model and only requiring consumers to enter their financial information once with the payment provider, as opposed to with each individual online shop. The escrow model consists of a two step-process whereby Alipay, after informing the merchant that payment has been made, holds the buyer’s payment in a dedicated bank account until the customer confirms that the purchased goods have been delivered and were as advertised. At this point, funds are released to the seller’s Alipay account. Consumers pay for their goods in RMB, which Alipay deducts from the purchaser’s account. Alipay then collects the payment from shoppers in RMB to buy foreign currency and will then remit the sum to the merchant’s bank account in settlement. At present, Alipay supports the settlement of 12 foreign currencies with this realtime payment solution. In practice, the third party payments provider typically settles the payments with the sellers periodically, as opposed to with each transaction.


Please note that values per customer order also often have limits, though this can be negotiated with the service provider.


This seemingly minor adjustment to the escrow model of sale has subsequently been replicated by other providers and has led to a veritable explosion in the Chinese online payments industry. China’s third party internet payment totalled RMB 1.87 trillion (USD 302.71 billion) in Q1 2014, with a year-on-year growth rate of 84% according to iResearch.


Importantly Alipay offers protection to an e-merchant as well by tracking the delivery number of an item to monitor the status of the product. In the event that a buyer does not confirm receipt of good within seven days (14 days in some cases), running from when the product is deemed ‘signed and received’, the product will be automatically confirmed by the system and the money will be sent to the seller’s Alipay account.


In 2011, Alipay and a number of other payment service providers received online payment licenses from the People’s Bank of China, and have therefore undergone a series of initiatives aimed at further improving online transactions and the development of online finance. Alipay, for example, has now included settlements with debit/ credit cards on its platform and credit overdrafts. It also allows for traditional online banking. Alipay – and many other digital wallets – thus now supports a variety of different payment methods in addition to fast-payments with Alipay account money, which consumers can deposit into their individual Alipay accounts for use to buy goods directly by entering their password once consumers have connected their bankcards to Alipay.


With the success of Alipay, a number of competitors quickly appeared, also accumulating an impressive share of the online payment services market, often leveraging the large user bases and strong online retail businesses of their parent companies. All payments service providers provide at least card acquiring and bank transfers. The most notable of these payment service providers include:

  • Tenpay (a subsidiary of the Internet giant Tencent and Alipay’s main competitor with links to over 80 financial institutions )
  • BaiPay – (launched by Baidu, the company responsible for the most popular Chinese-language search engine)
  • 99Bill
  • ChinaPnR


Market share of China’s top 3rd party internet payment providers

Figure 2: Market share of China’s top 3rd party internet payment providers


When initiating a payment through one of these providers, the buyer is presented with a selection of card brands to choose from, and upon selection, will be relocated to the issuer’s webpage where they will be asked to submit an account number and password for security purposes. By combining the gateways of a number of banks, these payment platforms make it much easier for e-merchants targeting Chinese consumers to integrate online payment methods onto their own websites.


One of the many benefits of these third-party payment platforms is that they are typically very easy for an e-retailer to apply for and download.


With Alipay, for example, all that is required is the download of relevant applications from the Alipay website, the contents of which are then installed onto the merchant’s page. Fees owed to Alipay for their service depend on the amount transacted per annum and are based on a sliding scale; the more you transact the lower Alipay’s charge.


Many popular international payment service providers, such as Paypal, lack major usage in the Chinese market, though Paypal forms the top foreign competitor.


Online Bank Transfers and Cards of China UnionPay


In the early stages of eCommerce development it was online banking systems that dominated the e-payments market. An underdeveloped credit card system and the lack of widely accepted standards meant that banks were given virtually free reign to develop their own B2C e-banking services, enabling merchants to accept payments from customers’ bank accounts. All major banks in China now offer these online banking services.


Despite relative initial popularity, however, the process of setting up a bank’s payment system on a merchant website can be seen as relatively cumbersome, especially if there are many bank gateways from which a seller would like to receive payment. Merchants first have to install an application in order to identify themselves to the issuer and instigate communication with the issuer’s gateway, and to receive customer payments, a merchant will then be required to open a settlement account with the issuing bank. This means going to each individual bank and applying for the online payment service. With the advent of more advanced methods of payment, the popularity of this method of online banking is fast diminishing.


China UnionPay - the dominant system for processing offline transactions in China and the only domestic bank card organisation in the People’s Republic of China -, had aspirations of replicating the success of Alipay and other third-party payment platforms and recently put in place a method for simpler and more effective online transactions than traditional online banking methods would allow for. Named UnionPay Online Payments, this method allows Unionpay’s cardholders to securely and simply make online purchases, providing cardholders with several ways of making purchases online, including fast payments and online banking.


UnionPay, which forms a payments system similar to Visa and is one of the world’s leading payment card brands, is an association for China’s banking card industry operating under the approval of the People’s Bank of China and forms the only interbank network in China, simplifying and streamlining online payments via the 50 Chinese financial institutions that issue UnionPay cards. Impressively, UnionPay now has 2.9 billion cards in circulation and is accepted in 135 countries and regions, surpassing both VISA and MasterCard in terms of customer spending.


Despite these impressive figures, however, the majority of the online market has gone to the homegrown Internet players.

"Many popular international payment service providers, such as Paypal, lack major usage in the Chinese market, though Paypal forms the top foreign competitor."

Mobile Payments


With the eruption of eCommerce and the accompanying fast-paced expansion of m-commerce, over the past five years both the Chinese Government and private enterprise have concentrated on developing a mobile payment industry on a par with its Western competitors: 2009 saw the restructuring of Chinese telecom operators and the widespread setup of 3G and 4G networks and China issued its first set of licenses to third-party payment providers in 2011; by the end of 2012, over 200 of these payment licenses had been issued within Chinese borders and 3G subscribers had grown to hundreds of millions.


Whilst there has been exceptional growth in the arena of m-commerce, the future of mobile payments is a little less clear. Due to individual agendas and desire for competitive advantage, there is a lack of co-operation between banking institutions, third party mobile payment providers and mobile network operators, that - were it present - would otherwise result in much more significant progress in this area.


Overall, there has been slow mobile payment adoption, with significant growth really only being seen for digital goods.


Despite this overall incohesion, however, there have been some significant improvements and collaborations in the mobile payments sphere, signalling good things to come. Examples include the partnership between Dutch digital security company Gemalto and UnionPay to build a secure mobile NFC ecosystem and the rebranding of Alipay’s Android payment application as ‘Alipay Wallet’, which emphasises its shift from largely co-ordinating e-payments to handling online-to-offline transactions.


China UnionPay has also recently launched a smartphone application for mobile payments and financial services which allows customers to link their phones to their bank accounts so that they can swipe their phones against point-of-sales terminals and mobile quick response (QR) code payments are growing in popularity both in-store and online.


There are some significant advantages to initially arranging for traditional payment methods with mobile commerce.

  • card payments and online wallets such as Alipay have shown themselves to be very popular
  • only mobile frontend interfaces are required, as backend processes for these payments will already be in place
  • an e-retailer can then add further payment methods in line with customer requirements


The main players in the rapidly developing Chinese m-payments market are Alipay (350 million users), Tenpay (200 million users) and Unionpay (260 million users). Cards, Paypal and Alipay dominate mobile purchases of physical goods. Mobile payments, of course, require special interfaces and authentication.


Mobile payments in China

Figure 3: Mobile payments in China


Payments Guidance


Taking into account the relative merits and demerits of the various possible payment methods, best practice advice would to be to embrace a combined payments approach, even if such a strategy is unfamiliar in other e-retailing networks. A prospective e-retailer catering to Chinese consumers should incorporate both third-party payment platforms (including the Alipay wallet, as this has the largest Chinese consumer network) and online bank transfers (ideally through UnionPay), as well as facilitate cash-on-delivery payments to achieve the highest level of successful customer conversion. Payment guarantees should also be implemented whenever available. Adding several payments service providers can be rewarding, as these providers often cover different banks and consumers, though fees can vary depending on a provider’s coverage of banks.


Importantly, the payment service providers serving Chinese consumers sometimes have different registration requirements, such as the provision of overseas business licenses, so individual research should be done on each one before launching the Chinese version of your website. Please also note that Chinese payment service provider fees are significantly lower for Chinese legal entities with RMB settlement.


Taxation, tariffs and financial policy


China has rationalised its taxation system in recent years. Though in 1991 a separation income taxation structure was enacted for foreigners and foreign enterprises, in 2008 China introduced the Enterprise Income Tax Law to remove unfair competition for domestic businesses, which resulted in uniform taxation rates for both domestic and foreign organisations. Despite this, tax regulations and compliance in China are a key area of concern for international businesses, with 44% citing it as the number one barrier.


The following table depicts some relevant rates of tax in China. As exporting goods into this territory attracts many tariffs and fees, it is essential for exporting retailers to be aware of these before they begin to trade. It should be noted that, as with any territory, rates of tax are subject to change, and it is recommended that you seek advance advice on any rates or tariffs that might apply to you and your business.


Taxation and tariffs in China

Figure 4: Taxation and tariffs in China


Customs duties


Customs duty rates for the import of goods into China can vary dramatically and depend upon a number of factors.


For example, the country of origin of the goods will have significant impact, as many international treaties and other agreements are taken into account when ascertaining the rate band. ‘Most-favoured-nation’ duty(MFN) rates are the most commonly adopted import duty rates, are much lower than other adopted rates, and apply, amongst others, to goods imported to China from other WTO member states. Goods from the United Kingdom, the United States, France, Australia and many others, then, enjoy this favourable status. Other rate bands include conventional duty rates, special preferential duty rates and general duty rates.


As a general rule, because of its relatively low customs de minimis threshold of RMB 50 (or roughly USD 8), many consumer goods imported into China for personal use are subject to customs import duties.


Customs duty rates are also dictated by the category the goods fall into, though the duty for standard goods is 17%.


For the purposes of ascertaining the level of customs duty due on particular goods, the taxable value of a given imported product is its CIF price, or its cost, insurance and freight price. This includes the normal transaction price of the goods and the costs associated with packing and shipping. Chinese customs are responsible for assessing the value of these import duties, and a valuation database that lists the prices of various imports based upon international market prices, foreign market prices and domestic prices is used as a comparison point. Chinese customs will largely accept the value attributed to a product by the importer, but where the given price is drastically at odds with database values, Chinese customs will re-estimate the value of the products based on China’s customs rules and regulations.


The customs process for imported goods also attracts fees, which have been calculated to reflect product inspection, quarantine and label verification.


When it comes to importing your goods into China and the associated customs procedure, it is important to be vigilant with your research, as variations in value or tariff classification can potentially trigger customs challenges and penalties.


Consumption tax


Consumption tax in China is additionally imposed upon 14 categories of goods upon their production or import into Chinese borders. This tax is calculated according to the amount and/or value of the imported goods individually or collectively, depending upon the specific regulations that apply. Where based upon price, consumption tax will be levied at between 1% and 56% of the value of the goods imported or produced.


Products subject to consumption tax include:

  • goods which, if consumed to excess, can be harmful to health and goods which are deemed harmful to social order and the ecological environment. Examples include tobacco, alcohol, firecrackers and fireworks
  • luxury goods and other life goods deemed ‘non-essential’. Examples include precious jewellery, cosmetics, precious jade and stones, golfing equipment and high-grade watches
  • high energy-consuming luxury goods, such as cars and motorcycles and motor vehicle tires
  • non-reproduced and nonalternative resource goods, such as petrol and diesel


Consumption tax in China

Figure 5: Consumption tax in China




Value-added tax, or VAT, is levied upon the sale and import of goods into China and is collected on imported goods at their point of entry into China. According to Chinese regulation, VAT is charged after the tariff, incorporating the value of the tariff into the VAT calculation.


A standard VAT rate of 17% applies to most goods, but a reduced rate of 13% is charged on certain goods, for example food and edible vegetable oil, drinking water, animal feed, books, newspapers and magazines.


Best Practice


Ordering goods online and discovering, for example, that the delivery duty remains unpaid can be a nasty surprise for the customer. Best practice would be for an online seller to include at checkout one ‘all-inclusive’ guaranteed price for goods, shipping, tax, duty and insurance. E-retailers selling to Chinese consumers should also seek to provide duty payment processing for their buyers, as well as integrate a system of automatically calculating taxes and duties.

Download China Cross-Border eCommerce Country Guide

This article provides a payments overview of the China eCommerce market – we have produced a full country guide covering in-depth information on multiple aspects of trading into this territory including logistics, payments, legal framework and marketing.

By downloading this Country Guide, you agree to your email address being passed to this Country Guide sponsor.

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Further details on this market:

Overview of the China eCommerce market

Overview of the China eCommerce market

Overview of the China eCommerce market
Marketing strategies for the China eCommerce market

Marketing strategies for the China eCommerce market

Marketing strategies for the China eCommerce market
Legal framework & regulation in the China eCommerce market

Legal framework & regulation in the China eCommerce market

Legal framework & regulation in the China eCommerce market
Logistics in the China eCommerce market

Logistics in the China eCommerce market

Logistics in the China eCommerce market
Optimising the customer experience in the China eCommerce market

Optimising the customer experience in the China eCommerce market

Optimising the customer experience in the China eCommerce market

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