Selling products online to customers in other countries – cross-border e-commerce – has become a popular way for Japanese businesses to expand into new markets and promote their products overseas. China has become a major market because of the increasing number of Chinese tourists visiting Japan. Japanese businesses looking to expand through cross-border e-commerce should not overlook China as a target market due to its potential for repeat customers and high demand for Japanese products.

In this article, we explain the basics of cross-border e-commerce in China, from the size of the market to relevant tariffs and product regulations Japanese businesses should know.

What's in this article?

• How big is China's e-commerce market?　
  
• How can cross-border e-commerce businesses expand into China?
  
• Which payment methods should you use for cross-border e-commerce in China?
  
• What to know about cross-border e-commerce in China
  
• The latest trends in Chinese e-commerce
  
• The keys to successful cross-border e-commerce in China
  

How big is China's e-commerce market?　

China has great potential as a destination for cross-border e-commerce. A report from the Ministry of Economy, Trade and Industry (METI) shows that the Chinese cross-border e-commerce market is expanding year on year, estimating the market size will reach over USD$214 billion by 2025.

Why is e-commerce growing in China?

As METI notes, e-commerce makes up 48% of sales in China, more than any other nation in the world. For example, the UK is the country with the second highest rate of e-commerce sales at only 29.6%. Japan has the ninth highest percentage in the world at 13.7%. Additionally, the number of people who shop online continues to increase each year.

There are many reasons shoppers in China use cross-border e-commerce. First, customers prefer buying genuine, high-quality products. The guarantee of product quality is particularly compelling to Chinese customers, as there are many instances of counterfeit products circulating in China. In addition, products are less expensive and customers can get products not otherwise available in the country.

As discussed earlier, inbound tourism from China to Japan has been on the rise lately. This has increased cross-border e-commerce sales to China by businesses in Japan. Many Chinese tourists discover products on their trips to Japan and use cross-border e-commerce to make a repeat purchase after returning to their home country.

How does e-commerce work in China?

Here are some of the unique features and characteristics of e-commerce in China:

Live commerce

Live commerce is a sales method in which influencers stream live broadcasts to their audiences and promote products. Customers decide whether or not to buy a product based on the reviews and product quality shown in an influencer's live commerce stream. Live commerce is often used for cosmetics and clothing, where it's difficult for customers to know the effects, textures or feel without trying the products.

Mobile payments

Cashless payments have become increasingly common in China. Mobile payments are widely used regardless of the product's price. For this reason, using mobile payment methods is important for Japanese businesses entering the Chinese cross-border e-commerce market. Examples of mobile payment systems in China include Alipay and WeChat Pay. We take a closer look at them below.

The "Online Merges with Offline" (OMO) strategy

In China, the OMO marketing strategy is quite common. It aims to provide an optimal shopping experience by eliminating the divide between online shopping (i.e. e-commerce shopping centres and apps) and offline shopping (i.e. physical stores). Through this strategy, customers can blend online and offline shopping.

UNIQLO is one example of a Japanese business that employs an OMO strategy. At UNIQLO, customers can try on items at a physical store and then buy them online. Alternatively, they can make their purchases online and pick them up at the store.

By combining online and offline options, the OMO strategy offers customers a convenient way to shop. Similar initiatives are also being actively pursued in China's e-commerce market and there is a strong focus on expanding sales on e-commerce sites using these OMO strategies.

Key players in Chinese e-commerce

Here are the main e-commerce businesses in the Chinese market:

• Alibaba
  
• Pinduoduo
  
• JD.com
  
• Douyin
  

According to METI, Alibaba was projected to hold a commanding 41.6% share of the market in 2024 and the top four businesses alone would account for 88.1% of the market.

Although Alibaba held the majority of the market share in 2019, other e-commerce businesses have been steadily increasing their market share each year. This is largely due to social media and live commerce.

How can cross-border e-commerce businesses expand into China?

There are many ways to get started with cross-border e-commerce. Here, we focus more closely on specific strategies businesses in Japan can use to pursue cross-border e-commerce in the Chinese market.

Build an e-commerce site

One option to conduct cross-border e-commerce is by opening your own e-commerce site in China. In this case, the website can be personalised, allowing for originality and differentiation from competitors. However, when building and operating the website, the business must take care of all cross-border e-commerce operations and necessary functions, such as setting up payment methods, managing inventory and securing distribution channels.

In addition, to build a website in Chinese, it's important to work with employees who are fluent in the language. You can also seek advice from experts who are familiar with the Chinese e-commerce market and business startups.

Create a storefront on an e-commerce shopping centre

Opening a storefront on a well-known e-commerce platform in China can be the fastest way to start cross-border e-commerce. Popular e-commerce platforms in China are similar to Rakuten Ichiba and Yahoo! Shopping in Japan. Each e-commerce shopping centre charges different fees, terms and conditions you'll want to research in advance.

Hire an agency to help you expand

One way to enter the Chinese market is to partner with an agency that specialises in Chinese cross-border e-commerce. Agencies can help you open and operate stores and typically have staff who are familiar with Chinese culture and business practices. This means they can provide a wide range of advice on cross-border e-commerce in China, allowing you to focus on growing the business.

However, an agency will charge a fee for the work involved in opening and running the storefront. There are different fee structures – such as a fixed monthly fee or fee based on a percentage of sales – and these vary from agency to agency. Choose the structure that best suits the size and management structure of your business.

Which payment methods should you use for cross-border e-commerce in China?

Some of the main payment methods used in China are:

• Alipay
  
• WeChat Pay
  
• Credit card
  

Many in China are concerned about credit card fraud, so some people deliberately choose not to use credit cards. UnionPay is the most popular payment brand in China. It has actively expanded its international business in recent years and has an overwhelming share of the Chinese market. In addition to credit cards, cashless payment methods such as Alipay and WeChat Pay are also widely used in China.

In addition to the popular methods, there are also many other payment methods used in China. If you are interested in expanding your business to China – with its highly active cross-border e-commerce market – you should consider supporting various payment methods.

Stripe offers a wide range of functions to support efficient payment services, including cashless payments such as credit card payments, information processing and revenue management. Stripe Checkout, for example, supports more than 30 languages and more than 135 currencies. Checkout can be used to optimise and simplify the payment pages of cross-border e-commerce sites. This also makes it possible to provide customers with a smooth and pleasant payment experience, which in turn leads to an increase in the purchase completion rate.

What to know about cross-border e-commerce to China

Here are some key points to think about for cross-border e-commerce to China:

Challenges opening a store or making a profit

Japanese businesses have many barriers to opening stores on Chinese e-commerce malls. For example, businesses need to have a certain amount of sales experience to open a store on a Chinese e-commerce shopping centre, such as Alibaba's Tmall Global. Opening a store requires a significant initial investment, so you must secure sufficient funding beforehand. Because of this, the majority of store owners on Chinese e-commerce sites are major businesses, including local ones.

Even if you open a storefront, it can be difficult to generate sales. In China, businesses often focus on making a small profit on a large number of sales. This means ongoing sales performance on an e-commerce shopping centre is key. Profits are driven by gradually building up your sales over time. To attract attention, sales events – such as Singles' Day – are common on e-commerce shopping centres, where businesses can sell high-volume, low-margin products. Because of this, there are many cases where businesses don't make a profit.

The barriers to entry in China are more significant than in Japan. Therefore, it is relatively difficult to continue operating without putting pressure on profits.

Chinese tariffs and shipping methods

When importing or exporting goods across national borders, cross-border e-commerce businesses are subject to customs duties. Therefore, it is important to follow the correct procedures when exporting products from Japan. This can ensure smooth handling of customs duties upon importation.

China imposes two types of customs duties: the mail postal tax and the cross-border e-commerce consolidated tax. The applicable tax rate depends on the shipping method or logistics route used. The mail postal tax applies when sending packages for personal (i.e. customer) use. It is paid upon importation and packages valued at less than ¥50 are exempt. The tax rate varies by item, categorised according to tax item numbers.

The cross-border e-commerce consolidated tax is determined based on detailed tax categories and item classifications. When this tax applies, the import tariff itself is reduced to 0%, leaving only value-added tax (VAT) and consumption tax to be paid.

Cross-border e-commerce logistics in China can be divided into two models: the bonded zone model and the direct delivery model, each with different tariff applications.

• Bonded zone model: Products are transported and stored in a warehouse within a bonded area in China. When an order is placed, the products are shipped from the warehouse and the cross-border e-commerce consolidated tax is applied.

• Direct delivery model: Products are shipped directly from Japan when an order is placed and the postal tax is applied.

Understanding tariffs is important for Japanese businesses engaging in cross-border e-commerce, but the complexities involved require significant time and effort. To address these regulations effectively, businesses should allocate sufficient time for research and consult experts when necessary.

Additionally, Japan's consumption tax applies only to products and services consumed within Japan. This means cross-border e-commerce sales from Japan to overseas customers are not subject to Japan's consumption tax. By understanding the relevant tax regulations and following proper procedures, businesses can minimise their tax burden and operate more efficiently.

China's e-commerce law

The E-commerce Law of the People's Republic of China was established to maintain order, encourage development and protect customers in the e-commerce market. It went into effect in 2019 and is the first law in China to specifically focus on e-commerce.

Japanese businesses should be aware of the following points of the law when conducting cross-border e-commerce with China:

Obtaining a business licence and paying taxes

Under China's e-commerce law, individuals and businesses selling products to Chinese customers via e-commerce platforms or other channels must obtain a business licence. Just as Chinese tariffs vary based on the shipping method, imported products are also subject to specific tax obligations. Therefore, it is important to thoroughly review the relevant details.

Quality standards and information in Chinese

When selling products to Chinese customers, businesses must comply with Chinese quality standards. This includes providing detailed product information and labelling in Chinese, covering aspects such as ingredients, usage instructions, precautions, manufacturer details and customer service contact information. Under China's e-commerce law, clearly presenting this information is mandatory. Therefore, businesses must take care to properly localise their packaging and products to meet Chinese requirements.

Customer support

Businesses must also implement proper measures for handling returns and exchanges, ensuring they have a reliable support system in place. Failing to establish an adequate process for managing returns and exchanges can lead to a surge in customer complaints, which can result in penalties from regulatory authorities. Therefore, when engaging in cross-border e-commerce with China, it is important to provide appropriate customer support to maintain compliance and customer satisfaction.

Quality of logistics service

It's important to understand that the quality of service provided by logistics businesses in China can vary significantly. Issues that are rare in Japan – such as damage or loss of goods by logistics partners or significant delivery delays – are more common in China. Additionally, if the wrong tracking number is assigned to a shipment, it becomes impossible to track, creating further complications.

To prevent situations where goods reach China but never make it to the customer, you can research logistics services recommended by other Japanese businesses. Consulting experts familiar with cross-border e-commerce in China or businesses specialising in local logistics support can also help ensure smoother operations.

The latest trends in Chinese e-commerce

In addition to live commerce, another emerging trend in Chinese e-commerce is the immersive shopping experience. By using virtual reality (VR) and augmented reality (AR) technologies, immersive shopping engages multiple senses – such as sight, hearing and touch – allowing customers to experience products and services as if they were using them in real life.

A notable example of immersive shopping in China is the AR try-on tool used by Alibaba during its Singles' Day (11 November) promotion for live streaming. Some businesses have also incorporated virtual influencers into their live streams.

Other businesses have developed interactive features using virtual avatars. These include services that let customers shop in virtual stores within digital environments, as well as virtual fan events where customers can engage through avatars.

The keys to successful cross-border e-commerce in China

In this article, we explored China's cross-border e-commerce market, covering its size, key features and important considerations. China presents significant potential for cross-border e-commerce. This is due to the scale of its e-commerce industry and the growing base of repeat customers for Japanese brands and products. In part, this is driven by demand from inbound Chinese tourists.

To successfully reach Chinese customers through cross-border e-commerce, it is important to have a deep understanding of China's current developments in e-commerce, latest industry trends and import regulations. Adapting to different business practices and using the Chinese language effectively are also important for success.

For Japanese businesses looking to enter the Chinese market, it's important to conduct thorough research on market conditions and customer trends to assess whether their products are well-suited for Chinese buyers. More than anything, providing excellent customer support is key to ensuring Chinese customers feel satisfied with their purchases of Japanese products.