The impact of China’s opening on cross border ecommerce

China’s cross border ecommerce platforms clocked ￥1.45 trillion ($210b) sales of consumer goods in 2019. During the three years of pandemic that followed, cross border sales climbed every year, growing two-and-a-half times the rate of domestic commerce in 2022, rising 9.8% to ￥2.11 trillion ($311b).

In theory, rising nationalism in China, coupled with foreign brands unable to travel to the market, should have dampened cross border sales. Yet, four factors countered those influences and contributed to rising sales of foreign products online:

1. More products were launched giving consumers more to choose – last September, Alibaba noted that more than 6,400 overseas brands entered China just on Tmall Global over past the 12-months;
2. Luxury consumers and brands increasingly warmed to the online trade, seeing more luxury brands starting ecommerce stores in China for the first time, many of them through cross border. Online luxury sales grew 56% in 2021, giving cross border sales a nice wee nudge;
3. The inability for daigou to travel and unpredictability of international logistics, on top of new regulations, saw many daigou take a hit, with consumers opting for more reliable cross border ecommerce purchases instead; and
4. Most of the 55 million overseas trips that Chinese made in 2019 saw travellers buying foreign goods to bring home with them. With borders closing, consumers were no longer able to get their fix of foreign brands that way, so many resorted to buying over cross border ecommerce.

With China’s borders finally opening, Chinese are starting to travel again, seeing point 4 lose relevance. For the third point, there is likely to be an increase of daigou presence clawing back some of the trade. Similarly, regarding point 2, many luxury shoppers buying online are likely to return to buying some of their luxury purchases outside of China, as they seek differentiated products, a more authentic experience and brag-factor.

All in all, cross border sellers will need to work harder for sales in China. Overseas tourism and education is likely to increase interest in foreign brands, which will help cross border sales, particularly for brands which utilize these touch points.

Chinese consumers behaviour and preferences have changed since 2019, as have the cross border platforms and ecommerce as a whole. For example, short video and livestreaming now plays a much more significant role in selling everything online from truffles to travel. Last year, in the section "guess what you like" on the Taobao home screen, the share of space dedicated to short videos grew from 7 to 15%. Chinese consumers are also expecting increasingly personalized features, such as AR cosmetic trials or clothes fitting, coupled with live or AI-driven personal consultants. Although it is early days, stores in the metaverse are also stoking curiosity and gaining traction with some consumers, even if it is a reputational play for brands.

Beyond the bells and whistles, many foreign brands still haven’t nailed basic branding and positioning, or even identified who their target audience is to any level of relevance. To quote Alvin Liu, President of Alibaba’s B2C Retail Business Group, logistics, fulfillment and the backend services are now easy through cross border platforms, but "the key challenge for them [foreign brands] is to build up their brand image and story to reach their target audience in China."

Chinese consumers are as avid researchers as they have ever been, and will critically assess if a brand, product and service meets their specific needs. Like in many markets, the shock of the pandemic caused Chinese consumers to be much more reflective about what is important to them and connect with brands who understand this. This is applicable to cross border ecommerce brands as much as any other.

We recognize that selling on cross border in China isn’t cheap with setup, commissions, TP fees, advertising and other costs, so even investing a small percentage of that spend on getting the targeting, marketing and branding right will lead to much better results on the platforms. That’s what China Skinny does best. Get in touch to learn how we can assist you to improve your performance on cross border ecommerce, and other channels in China.