Date September 16, 2015 Our ref. Allan Bjergvang Manoj Jayaruben

59 Pages·2015·1.71 MB·English

by  Manoj Jayaruben

Date September 16, 2015
Our ref. Allan Bjergvang
Manoj Jayaruben
This e-commerce report seeks to help Danish companies understand and engage in the
Chinese e-commerce market. The e-commerce market in China has experienced a dra-
matic development the last couple of years and continuously new information and data
come out. Statistics and numbers can sometimes be of varying quality in China. Conse-
quently The Trade Council of Denmark in China recommends that you check the latest
available data from authoritative sources. As the Chinese market is highly complex we
furthermore strongly recommend that Danish companies seek advice from professional
partners.

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Table of Contents
Preface .................................................................................................................................. 1
Introduction ......................................................................................................................... 4
1. Collaboration between The Trade Council and PostNord ................................... 5
1.1 The Trade Council of Denmark ...................................................................... 5
1.2 PostNord ............................................................................................................. 5
1.3 Ule.com ................................................................................................................ 6
1.4 PostNord and TC China’s Collaboration ....................................................... 6
2. Executive Summary .................................................................................................... 7
2.1 Focus on Consumption-led Economic Growth ............................................ 7
2.2 The Rise of E-commerce .................................................................................. 7
2.3 Liberalisation of Import/Export Taxes in FTZ’s ......................................... 7
2.4 Protection of IPR Remains Essential .............................................................. 8
3. China – A Big Country ............................................................................................... 9
3.1 Population and Internet .................................................................................... 9
3.2 Tier Cities and Urbanisation ........................................................................... 10
3.3 Country Infrastructure ..................................................................................... 11
3.4 Purchasing Power in China ............................................................................. 12
3.5 GDP Growth .................................................................................................... 13
3.6 The Financial Markets: How Severe Was the Stock Market Drop in
Shanghai (August 2015)? ............................................................................................. 13
4. E-commerce in China ............................................................................................... 15
4.1 The E-commerce Industry .............................................................................. 15
4.2 How E-commerce Works in China ............................................................... 20
4.3 Mobile-commerce ............................................................................................ 21
4.4 The Future of E-commerce in China ............................................................ 23
5. Logistics ...................................................................................................................... 24
5.1 From Denmark to China ................................................................................ 24
5.2 Logistics within China ..................................................................................... 25
5.3 The Importance of Warehousing and Distribution .................................... 25
5.4 E-commerce Platforms and Logistics ........................................................... 26
5.5 Third-Party Logistics – Important Issues to Consider ............................... 28
5.6 Domestic Third-Party Logistics Providers within China ........................... 28
5.7 International Third-Party Logistics Providers within China ...................... 30
6. Social Media ............................................................................................................... 31
6.1 Popularity of Social Media .............................................................................. 31
6.2 Social Commerce and the Importance of Social Media ............................. 32
6.3 Marketing through Social Media .................................................................... 33
7. Marketing .................................................................................................................... 34
7.1 Other Ways of Marketing for E-commerce ................................................. 34
7.1.1 E-commerce Platforms ............................................................................... 34
7.1.2 Offline Promotions ...................................................................................... 34
8. Consumer Rights and Return Policies in China.................................................... 35
9. Customer service ....................................................................................................... 37
9.1 Pre- and Post-Sales Services ........................................................................... 37
9.2 Who Takes Care of Customer Service? ........................................................ 37
10. Types of Payment ................................................................................................. 38
10.1 Cash on Delivery .............................................................................................. 38
10.2 Online Payment ................................................................................................ 39
10.3 Mobile Payment ................................................................................................ 39
11. Design .................................................................................................................... 42
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11.1 Homepages ........................................................................................................ 42
11.2 Mobile Websites ............................................................................................... 42
11.3 Virtual Store Design......................................................................................... 43
11.3.1 Comparison with Danish Online Stores ................................................... 43
11.3.2 The Use of Western Design ....................................................................... 43
12. Intellectual Property Rights ................................................................................ 44
12.1 Important IPR’s ................................................................................................ 44
12.2 Enforcing IPR’s ................................................................................................ 47
13. Rules and Regulations .......................................................................................... 50
13.1 Packaging and Product Declarations ............................................................. 50
13.2 E-commerce Platform Rules .......................................................................... 50
14. Fees, Taxes and Tariffs ........................................................................................ 52
14.1 Import and Export Taxes ............................................................................... 52
14.2 Free Trade Zones and Bonded Warehouses ................................................ 52
14.3 E-commerce Platform Fees ............................................................................ 53
15. Appendices ............................................................................................................ 55
Appendix A: List of Tier Cities .................................................................................. 55
Appendix B: Screenshots of Elgiganten and JD.com ............................................. 56
Appendix C: Screenshot of the “5th” Floor on JD.com’s Mall .............................. 57
Appendix D: Currency Table ..................................................................................... 58

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With an estimated population of 1.36 billion people China is the world’s most populous
country. The Danish Government is of the firm belief that Danish companies should
consider reaching out to the more than 1 billion consumers in the Chinese market. As the
Chinese consumer culture has shifted towards e-commerce, reaching out to the Chinese
consumers has become easier in many ways. Hence it is imperative for Danish companies
to understand and engage in this trend.
China has around 632 million people, who have access to the internet (June 2014) and the
number only keeps growing each year. By the end of 2015 this number is expected to
grow to over 700 million1. 500 million people already have internet on their mobiles and
the Chinese government has a goal that by 2020 1.2 billion people will be connected to
mobile internet2. In late December 2014, China Mobile had 90 million mobile users with
4G connections, just nearly a year after its initial 4G launch, making it the world’s largest
4G operator.3 As a result more people have access to faster internet on the go. In 2014
the average amount of hours per day spent on the internet from a mobile device in China
was around 2.35-3.5 hours according to A.T. Kearney and We Are Social4.
The great emphasis the Chinese government put on expanding IT infrastructure has in-
deed paid off. China’s internet users have embraced online shopping to an extent hardly
seen in any other market outside of China. Transactions related to e-commerce amounted
to 1.94 trillion U.S dollar5 in 2014 according to the Chinese government, with online re-
tailing growing 41% in 2014 alone compared to the year before6.
E-commerce therefore presents itself as a great opportunity for Danish companies to
enter the Chinese market. Although no heavy investments in psychical locations are need-
ed, other issues arise when doing e-commerce in China. For instance China has a geo-
graphical size equivalent to that of the U.S, but the logistics are far from as effective as in
the U.S., posing challenges for Danish companies. This e-commerce report aims to help
Danish companies get a better understanding of the Chinese e-commerce market.

1 www.internetlivestats.com/internet-users/china/
2 www.china-briefing.com/news/2014/06/04/trends-chinas-e-commerce-market.html
3 www.gsma.com/newsroom/press-release/4g-networks-to-cover-more-third-of-global-pop-this-year/
4 China’s E-commerce Market in 2014: The Logistics Challenges, A.T. Kearney and www.techinasia.com/china-web-
mobile-data-start-2015/
5 All numbers have been converted to USD using currency rates noted in Appendix D
6 china.org.cn/business/2015-01/31/content_34702685.htm
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1.1 The Trade Council of Denmark
The Trade Council of Denmark is the trade and export organisation within the Ministry
of Foreign Affairs of Denmark. Its main purpose is to strengthen Danish export abroad
by assisting Danish companies in global markets. The Trade Council has a vast network
of 250 export advisors in 90 embassies, consulates and trade offices in 64 countries
around the globe. The Trade Council’s global staff assists small, medium and large Danish
companies with all kinds of export-related tasks.
The Trade Council of Denmark in China (henceforth TC China) has offices in Beijing,
Shanghai, Guangzhou, Chongqing and Taipei while also covering Hong Kong. TC Chi-
na’s Danish commercial advisors and local Chinese staff have a unique insight to the op-
portunities and challenges facing Danish export companies in all areas of business in Chi-
na. TC China’s specialists assist companies with anything from initial fact finding and
market research to partner identification and domestic legal and tax issues.
Read more about TC China on kina.um.dk/en/the-trade-council/
1.2 PostNord
PostNord AB was created in 2009 through a merger of Danish company Post Danmark
A/S and Swedish company Posten AB. PostNord handles mail and communication ser-
vices in Denmark and Sweden, where they have well-developed distribution networks.
PostNord is especially focusing on areas within e-commerce, distribution and logistics.
PostNord has signed an agreement with China Post, which makes it possible for Danish
companies to gain easier access to the Chinese online market. The collaboration with
China Post enables market access through the e-commerce platform Ule.com, where
Chinese consumers make online purchases. There is a big demand for Danish goods in
China. Denmark is in the top ten countries for cross border shopping in China7, making
this a great opportunity for Danish companies.8
Read more about PostNord’s services on postnord.com/en/services/

7 jingdaily.com/chinas-global-e-commerce-boom-extends-to-over-100-countries/
8 www.postnord.com/da/presse/pressemeddelelser/postnord-danmark/2014/post-danmark-giver-dansk-e-handel-
adgang-til-kina/
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1.3 Ule.com
Ule.com is a joint venture between state-owned China Post and Hong Kong-based TOM
Group. The site offers a variety of products in categories such as shoes, home products,
personal care products, healthy food products, baby products and digital home appliances.
Unlike most of its competitors, who relies on third-party logistics companies, Ule.com
has access to China Post’s extensive distribution network including 52,000 postal outlets,
150,000 delivery workers, 80,000 vehicles, 433 train carriages and 18 cargo aircrafts.9
The agreement between PostNord and China Post gives Danish companies a direct ac-
cess to Ule.com and thus a possibility of getting their own first hand experiences with the
Chinese e-commerce market.
1.4 PostNord and TC China’s Collaboration
PostNord and TC China have collaborated on creating this e-commerce report, which is
aimed at Danish companies, who have an interest in the Chinese e-commerce market. In
creating this report we have sought to combine the local competencies and experiences
TC China has in providing market analysis of Chinese markets with PostNord’s logistical
competencies and market experience in China.
This report serves as a helping guide for Danish companies. By providing an extensive
overview of the Chinese e-commerce market as well as highlighting key areas of consider-
ations, we hope this guide will ease the process for Danish companies when entering the
Chinese e-commerce market.
Finally, a special thanks goes out to PostNord, who as a benefactor has made the creation
of this report possible.

9 www.scmp.com/business/companies/article/1436604/china-post-tom-e-commerce-venture-step-expansion-after-
new
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2.1 Focus on Consumption-led Economic Growth
In the last few years China has initiated a shift from investment- and export-led growth to
domestic consumption-led growth. Continuous growth in real wage weakens Chinese
competitiveness in terms of export, but simultaneously increases the wealth of Chinese
people. A higher real wage leads to an increase in Chinese consumers’ purchasing power.
China is now the largest economy in the world in terms of purchasing power. China al-
ready has a huge urbanised middle class of over 480 million people, who are increasingly
consuming imported goods. This provides plenty of opportunities for foreign companies,
who are interested in entering the Chinese market.
2.2 The Rise of E-commerce
In recent years online shopping in China has experienced a huge growth as more and
more Chinese people have gained access to the internet. The central government highly
emphasises further development of internet coverage and speed. Especially mobile inter-
net such as 4G has seen great improvements in the last year. As such, e-commerce on
mobile phones (also called m-commerce) has exploded in popularity. E-commerce mar-
ketplaces, such as the C2C platform Taobao and the B2C platform Tmall has seen year-
on-year increase in number of customers and volume sold. While C2C platforms (in par-
ticular Taobao) were extremely popular a few years ago, recently there has been a shift in
popularity towards B2C platforms like Tmall, as these often are considered more trust-
worthy. On B2C platforms the retailer sets up a virtual shop and sells products directly to
end customers. Imported goods account for an increasingly large share of goods sold.
2.3 Liberalisation of Import/Export Taxes in FTZ’s
While still having fairly complex tax rules for imported products, China is increasingly
experimenting with less restricted free market solutions. Free Trade Zones (FTZ) have
sprung up in Shanghai, Tianjin, Fujian and Guangdong. When importing through FTZ’s
foreign companies have several advantages over importing through other places in main-
land China. Export companies can save money on consumption tax and import duties,
while deferring VAT until the products leave the FTZ. Furthermore, when importing via
FTZ’s companies can often refrain from registering their product. In general China is
expected to further liberalise their economy in key areas and make it more market-based.
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2.4 Protection of IPR Remains Essential
Despite having very strict IP laws, implementation and enforcement of these laws are still
rather lax in China and violations are commonplace. As a consequence IPR protection
should remain a top priority for foreign companies when doing business in China. While
the international Nice Classification does technically cover China, it is additionally neces-
sary to do proper IP registration through the Chinese system. Familiarity with Chinese IP
laws and knowledge of its weak points can greatly reduce the risk of infringement of IPR.
If an infringement takes places there are several unofficial and official channels for en-
forcing IPR rights, such as through official administrative agencies or the Chinese courts.

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China has seen a massive transformation through more than three decades of investment
in infrastructure, modernisation and urbanisation, which has greatly increased the wealth
of the Chinese people. China is now more focused on developing a consumption-led
economy. To facilitate this change the Chinese government has invested heavily in ex-
panding internet coverage and speed throughout China, which helps stimulate the growth
of e-commerce – especially on mobile devices. In turn the rapid development of e-
commerce creates new opportunities for foreign firms, who now have an easier access to
Chinese consumers. In addition to the development of internet infrastructure and speed,
the success of e-commerce in China has been dependent on an increasing level of wealth
and urbanisation along with a fast development in infrastructure throughout China.
3.1 Population and Internet
China is an enormous country on multiple parameters. The total area of China is 9.6 mil-
lion square meters making it the 4th largest country in the world and roughly the same size
as the U.S. However, Figure 2.1.1
population-wise China is
far bigger than the U.S.
The population of China
is 1.36 billion making it
more than 4 times great-
er than the U.S.’s popu-
lation of 319 million.
With such a huge popu-
lation dispersed over Source: Graph reproduced from 34th Statistical Survey on Internet Development in
China, July 2014
such a large area of land,
it is no surprise that China’s population is both geographically and demographically het-
erogeneous. Even though roughly 92% of all Chinese identifies as belonging to the domi-
nant Han Chinese ethnic group there are still great differences in mentality and lifestyle
between people from the north and the south, the city and the countryside as well as the
coastal regions and the rest of China10.
According to figure 2.1.1 almost half of all Chinese people had access to the internet by
2014. In the 4-year period from June 2010 to June 2014 the number of internet users in

10 www.cia.gov/library/publications/the-world-factbook/geos/ch.html
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