AN INTRODUCTION TO

E-commerce in China
AN INTRODUCTION TO

E-commerce in China
As Minister of International Trade, I am pleased to present the 2017 edition of An Introduction to
E-commerce in China. It is my hope that this guide will be useful for any Canadian business wanting a
better understanding of e-commerce in China, and the opportunities that this online marketplace presents.

A comprehensive relationship with China is a priority for the Government of Canada. A deeper relationship
between our two countries will unlock the untapped potential in our commercial ties, grow the prosperity
of our middle class, and create new opportunities for Canadian businesses of all sizes.

As Canada’s “Chief Marketing Officer”, I am keen to support this effort. I recently had the pleasure of
conducting a six-day visit to China. A highlight of my trip was getting a first-hand look at the exciting
e-commerce opportunities that China offers. The digital environment is a key springboard for Canadian
small and medium-sized enterprises (SMEs) looking to enter the Chinese market. With its expert market
knowledge, local contacts and on-the-ground support throughout 15 points of service in China, the
Canadian Trade Commissioner Service is eager to help our SMEs navigate this marketplace and make
informed business decisions.

This guidebook builds on many of the Trade Commissioner Service’s e-commerce initiatives in China,
including roadshows and buyers missions to Canada, as well as launching important initiatives such as the
Canadian Pavilion on Tmall Global and the Canadian Fresh Food Pavilion on JD.com. This year’s edition
provides expanded coverage on topics such as managing online business risks and protecting intellectual
property. It also adds new chapters on using social media tools to build brand awareness and features
Alibaba business solutions tailored to Canadian SMEs.

I encourage Canadian companies of all sizes to explore export opportunities in China, and to consider
the tremendous potential that e-commerce represents in the Chinese market. I am confident that this
guidebook will provide Canadian companies with the information and resources they need to take the
plunge with confidence.

Sincerely,

The Honourable François-Philippe Champagne

Minister of International Trade
Table of Contents
The Trade Commissioner Service 7

Introduction 9

Are You Ready For Foreign Markets? 11

Approaching Foreign Markets
Necessary Internal Capabilities

Is China A Viable Market For You? 15

Market Situation
Marketplaces
Key Customers
Key Players

How Can You Enter The China Market? 28

Traditional Market Entry Channels
Domestic E-commerce Marketplaces
Cross-Border E-commerce

How Does Payment Work? 54

Getting Paid If You Have A Company In China
Getting Paid When Engaging In Cross-Border E-commerce

How Can You Protect Your IP? 56

Protecting IP In China
Trademark
Identifying Infringement

Social Media in China 63

WeChat
Weibo
Social Media E-commerce

Suggested Approaches To Entering the China Market 72

Going Online in China
Issues Faced Online
Increasing Your Brand’s Presence

Alibaba Solutions for Business 80

Conclusions 86
Main Considerations For Approaching The Market
General Tips For Doing Business In China

Appendix 90
The Canadian Trade Commissioner Service

China Network

Shenyang
Beijing «
Tianjin

Qingdao

Xi’an
Nanjing
Shanghai
Chengdu Wuhan
Hangzhou

Chongqing

Xiamen

Guangzhou
Shenzhen

Hong Kong

« Embassy of Canada in China: Beijing

Consulate Generals: Shanghai, Guangzhou, Chongqing, Hong Kong

Canadian Trade Offices: Shenyang, Qingdao, Nanjing, Wuhan, Chengdu,

Shenzhen, Xi’an, Xiamen, Hangzhou and Tianjin
How the Trade Commissioner Service Can Help
With a presence in more than 160 cities worldwide, the Canadian Trade Commissioner Service (TCS)
promotes Canadian economic interests in global markets and can help your company navigate the
complexities of international expansion. Our knowledge comes from helping thousands of companies each
year tackle concrete problems and pursue opportunities in foreign markets. We have privileged access
to foreign governments, key business leaders and decision-makers because we are part of Canada’s
embassies and consulates. Our business contacts include potential-customers, distributors, sources of
finance or investment, technology partners and other intermediaries.

Within China, our network of Trade Commissioners can provide you with expert advice - whether you are
exporting, investing, partnering in market or considering the market. We can help you:

 Assess market potential for your company

 Prepare for your entrance to international markets

 Help solve problems

 Provide qualified contacts

China Network E-commerce Team

The Trade Commissioner Service has a dedicated team in China focusing on e-commerce.
Led by our Consulate General in Shanghai, the e-commerce team is dedicated to keeping up with the latest
policies, trends and developments of China’s fast moving e-commerce landscape, to help you stay ahead
of the curve. As the project lead to develop this China e-commerce guidebook, the Consulate General of
Canada in Shanghai would like to thank Agriculture and Agri-Food Canada as well as Trade Comissioners
at the Embassy in Beijing, the Consulates in Guangzhou and Chongqing for their contributtions to both the
2016 and 2017 editions.

If you have any specific e-commerce related inquiries or need more information about e-commerce in
China, please:

• Visit the China e-commerce portal (http://tradecommissioner.gc.ca/china/e-commerce)

• Contact us at: infocentrechina@international.gc.ca

For Canadian SMEs interested in doing business in China, the TCS encourages you
to visit the Canadian SME Gateway, which provides content on:

 Interviews with market experts

 Webinars

 Online resources and articles http://tradecommissioner.gc.ca/smegateway

@CanadaChina @CanadaChine

Canadian SME Gateway to Chaîne YouTube du Portail des

China YouTube Channel PME canadiennes en Chine

Doing Business in China Compte LinkedIn Faire

LinkedIn Group des affaires en Chine

Canada’s International Trade-Global Page Facebook :Le commerce international

Affairs Canada Facebook page du Canada-Affaires mondiales Canada

7
 CanExport
Canadian companies seeking for export support are also encouraged to look
at CanExport program. Delivered by the Trade Comissioner Service (TCS)
of Global Affairs Canada, in partnership with the National Research Council
Industrial Research Assistance Program (NRC-IRAP), CanExport is one of the
building blocks of the government’s export strategy.

The CanExport program is a five-year, $50-million Government of Canada

program launched in January 2016 that provides direct financial assistance
to small and medium-sized businesses (SMEs) registered in Canada that are
seeking to develop new export opportunities and markets, especially high-
growth emerging markets.

CanExport is open, with few exceptions, to all industry sectors. Agriculture and
ag-food companies looking for export are eligible to apply through Agriculture
and Agri-Food Canada’s Agrimarketing program.

For more details on the program, please visit http://international.gc.ca/trade-

commerce/funding-financement/canexport

E-commerce in Hong Kong

For those interested in exploring cross-border e-commerce opportunities
via Hong Kong or are interested in selling products in Hong Kong through
e-commerce, please note that a separate guidebook on e-commerce in Hong
Kong is also available. For a copy of this document and for more information
about Hong Kong, please contact the Trade Commissioner Service at the
Consulate General of Canada in Hong Kong and Macao at the following address:
canadatrade.hkong@international.gc.ca

The TCS strongly recommends that readers obtain independent legal, financial and related forms of professional advice prior to acting upon
information in this report. The TCS assumes no responsibility for any company, product or service mentioned in this report, nor for any act
or omission of any business connected with such products and services.

8
Introduction
The rapid expansion of e-commerce in China
has grabbed headlines around the world and
reshaped the business landscape for both foreign
and domestic firms. Already the world’s largest,
China’s e-commerce market has grown by 50%
per year since 2011, and is expected to be worth
USD$1 trillion by 2019. Canadian companies
looking to export to China should consider the
opportunities the country’s online commerce
sector presents.
In a country where traditional channels of
commerce are fragmented and often not
consumer friendly, e-commerce provides
customers with an abundance of choice,
accessibility, easily-managed returns (not
prevalent in other channels in China), and
confidence in vendors at a clear price point.
Millions of Chinese are now purchasing foreign
products, including those in developing regions,
which were unavailable even just a few years ago.
Canada’s high quality goods and services are in
demand. Despite domestic economic challenges,
Chinese consumers particularly the emerging
middle class are spending more than ever
before in online marketplaces. Cross-border
e-commerce can help Canadian exporters meet
the aspirations of millions of Chinese seeking
premium foreign products. Issues surrounding
the safety of domestic products have pushed
consumers to look abroad for brands with
a strong reputation and a focus on quality.
Demand is strongest in areas such as high quality
foods, natural alternatives to artificial products,
cosmetics, and healthcare products.
For Canadian exporters, selling online in China
can be as simple as shipping directly from
Canada to the consumer, or via engaging one
of several 3rd party service providers who can
facilitate the entire logistics process, including
customs, branding, marketing and payment. In
what traditionally has been a difficult market
for smaller Canadian companies to access,
e-commerce provides a relatively straight-
forward path to gaining a foothold in China.
While the attraction is clear, the decision to
engage in e-commerce in China is not without
its own challenges and risks. Government
policies regulating the marketplace are dense,
complicated and prone to change without notice.
Concerns over the protection of intellectual
property are valid and must be managed
appropriately. Canadian companies must
recognize that the Chinese e-commerce market
is extremely competitive, and merely getting
listed on a Chinese marketplace is not enough to
succeed. Successful market entry requires a well
thought-out business model and the ongoing
commitment of resources, both financial and
managerial, to ensure products are branded and
marketed effectively for a Chinese audience, and
sold at a profit.
This guidebook is designed to walk you through
the various decision points required for entering
China via e-commerce channels, and provide
you with some of the tools to begin making an
informed decision.
The Canadian Trade Commissioner Service
(‘TCS’ www.tradecommissioner.gc.ca) with
its network of resources in China, including a
dedicated team focusing on e-commerce, is
available to Canadian companies interested in
learning more about the topics presented in this
guidebook. For specific questions, the TCS in
China can be contacted at InfocentreChina@
international.gc.ca.
9
 90%
The volume of
e-commerce
transactions on
marketplaces

731m
Current number
of internet users in
China,

USD$ 1
TRILLION
The expected size
of China’s e-commerce

Market
market by 2019

Highlights
10
Are you ready for
foreign markets?
Approaching Foreign Markets

Necessary Internal Capabilities

11
 Approaching Foreign Markets
Approaching foreign markets can be both a costly and risky venture for Canadian companies.
The competitive, business and cultural landscapes can be starkly different from a company’s
home market and it may take years to see returns on investment.

Before expanding overseas into new markets, especially to an emerging market like China,
management should consider the strategic importance and the company’s ability to exploit
market opportunities (e.g. capabilities, resources, experience, etc.). The decision for
expansions will fall into one of the four quadrants of the below Market Entry Decision Model.
HIGH

PHASED-IN ENTRY RAPID ENTRY

Entering only specific
Multiple channel entry, selling
geographical markets (including
Strategic Importance

to existing customer base,

e-commerce) to assess and
expanding to new geographies
exploit market opportunities;
and utilizing new channels
later expanding to other areas

NO ENTRY
OPPORTUNISTIC
ENTRY
Entering locations in which a
customer base already exists

Source: Sovereign Analysis

LOW HIGH
Ability to Exploit Market

There are multiple ways to approach a foreign market. Depending on your current resources
and the market there can be multiple approaches.

12
For example, if the company is well resourced and the market is important, the company may
decide to invest in a legal entity in market. If a company does not have resources available,
but the market is important, they may consider a Phased-In Entry, where the company takes
incremental steps in their market approach. This may at first be through e-commerce or
a distribution partner, and if the market yields a positive result, investing further at a later
time. Alternatively, if the market is not necessarily strategically important, but the company’s
ability to exploit the market is relatively high either through internal capabilities or through
partners, they may take an Opportunistic Entry and target any “low-hanging fruit”. Of course,
companies need to also realistically analyses their ability to exploit a market and its strategic
importance. If both are low, the company should consider not approaching that market.

All approaches have varying degrees of risk and returns. Even entering via e-commerce,
through a Phased-In Approach, requires investment of both time and money, and has a
certain level of risk as there is still a chance of failure. Regardless of the approach you take,
you should address, at minimum, the following five questions:

Are your products or services suitable? If they are not, do you need to
modify them? This could be as simple as modifying the packaging size.

What is the regulatory environment like? Are there any regulations,

current or future, that could cause substantial hurdles? Even if approaching
via e-commerce, you should be aware of any potential regulations that could
impact your business.

What is the competitive situation? Being aware of competitors in the

market and what they are doing can give you a competitive edge and help you
avoid surprises.

Are partners needed? In new markets, going at it alone is not always the best
course of action and partners may be necessary. Understanding what potential
partners are needed, and utilizing their strengths and weaknesses.

Is a legal entity needed? You will need to know if and when a structure is
necessary. This will largely be determined by the company’s business model
and the market.

Canadian companies considering approaching new markets, even via e-commerce, need to
have a certain level of commitment, both in terms of financial resources and management
capabilities. Approaching and expanding into a new market is risky, and if the company is
not prepared for the possibility of failure, management should reconsider the decision.

13
 Necessary Internal
Capabilities
Internal capabilities are critical to the success of companies
looking to approach new markets. There are generally
four areas a company needs to look at internally before
expanding into new markets:

Operational – Does the company have the ability

to replicate its operations overseas, manage IP
exposure and meet potential demand requirements?

Financial – Does the company have the available

funds for expansion with a threshold for risk? Even
entering a market via distributors or e-commerce
channels requires financial investment.

Managerial – Do key individuals in the organization

have experience in international expansion? If not, is
the company willing to invest in acquiring managers
with the necessary skills?

Emerging Market Experience – Do the key

individuals have experience in emerging markets?
Some markets are more difficult than others to
enter, and targeting a more difficult market before
gaining experience is risky.

Before expanding into new markets the company should first

look at its internal capabilities. Does it have the experience
and know-how to properly expand? Is senior management
committed to the venture, not just in terms of finances but in
terms of time? Is the company willing to invest in obtaining
capabilities, if it is lacking any, either through hiring or training?

14
Is China a viable
market for you?
Market Situation

Marketplaces

Key Customers

Key Players

15
 Market Situation
China’s traditional retail channels are still predominantly regional and highly
fragmented. It is extremely difficult for retail companies to scale up and
develop national coverage in such a large and diverse developing country,
creating the perfect environment for e-commerce to thrive.

Seemingly overnight, China has become the world’s largest e-commerce market
with online retail sales growing from USD$ 20 billion in 2008 to over USD$ 646
billion in 2015; the market is expected to reach USD$ 1 trillion by 2019. The
chart below provides an illustration of this explosive growth.

China’s Online Retail Sales

Online retail sales
growing at a CAGR of
64% from 2008-2015
Source: Sovereign analysis on multiple
sources; CAGR − Compound Annual
Growth Rate

E-commerce has given Chinese consumers access to products that a few

years ago were impossible to obtain, especially in lower tier cities where the
brick and mortar retail sector is still highly underdeveloped. Furthermore,
the development of the e-commerce market has provided both foreign and
domestic retailers access to Chinese consumers nationally at a relatively low
costs.

Growth has been driven by a number of factors, including:

1) Demand readiness – China’s middle class now exceeds 400 million

with a national average income of USD$ 12,000 per year, resulting in over
460 million online shoppers;

2) Technology infrastructure – There are more than 632 million internet

users, with a penetration rate of nearly 47%. The government has also
continued to invest in expanding 3G and 4G services, and the smart
phone penetration rate is about 66%;

3) Support infrastructure – Logistics and delivery services have expanded

rapidly to keep up with growing e-commerce deliveries. Service standards
often include same day delivery at minimal cost. Online payment platforms
such as Alipay and WeChat Pay have made online payments easier as it
has the expanded use of credit cards.

16
Marketplaces
China’s e-commerce market is dominated by marketplaces rather than stand-
alone websites. An e-commerce marketplace is a platform where products and
services are typically provided by multiple third parties, whereas transactions
are processed by the marketplace operator.

Taobao is the largest consumer-to-consumer (C2C) marketplace and Tmall is

the largest business-to-consumer (B2C) marketplace in China. Both operate
under Alibaba Group and dominate the overall e-commerce market, accounting
for about 80% of total transactions.

Within the B2C segment, Tmall accounts for almost 60% of the market.
Amazon is an example of an equivalent style of marketplace in North America

Market Share of B2C Market Platforms (2016)

Tmall and JD are the
two dominant B2C
marketplaces
Source: RedFern Associates analysis
based on multiple sources; Note: fig-
ures have been rounded

The above chart illustrates the leading B2C players in China’s

e-commerce industry with their approximate market share.

Ecommerce Category Sales

Apparel is the dominant
Cons umer Electronics,
20% Cos metics, 5% product category
Infa nt a nd Mother Ca re , Source: Sovereign analysis on multiple
Appa rel, 27% 5% sources including A.T. Kearney
Publ ications, 3%

F&B, 2%

Other, 38%

17
 Key Customers
China has the world’s largest online population with more than 600
million internet users. The penetration rate however is only about 47%,
leaving significant room for growth. The number of online shoppers has
grown rapidly from 74 million in 2008, to more than 460 million in 2015,
a compound annual growth rate (CAGR) of nearly 30%.

Chart: Number of online shoppers growing steadily

“The number of online
shoppers has grown
rapidly from 74 million in
2008, to more than 460
million in 2015...”
Source: RedFern Associates analysis on multiple
sources

Urban disposable income levels have increased since 2008 at a compound

annual growth rate of 11%, from USD$ 2,505 in 2008 to USD$ 4,872 in
2016.

Chart: Disposable income, especially urban, is

growing steadily

Source: RedFern Associates analysis on multiple sources

18
Much of the wealth is concentrated along coastal provinces and in Tier 1 cities, such as
Shanghai and Beijing. E-commerce is a channel that allows companies to sell to inner
provinces and lower tier cities which have been under-served by traditional brick and mortar
retail channels. Online shoppers in Tier 1 cities spend the most money on e-commerce,
however, online shoppers in lower Tier cities (i.e. Tier 3 and Tier 4 cities1) spend a higher
percentage of their disposable income shopping online. The chart below illustrates this:

Chart: Percentage of disposable income spent by tier

Consumers in lower
tier cities spend a
higher percentage
of their disposable
income online
shopping

Source: McKinsey Global Institute,

Sovereign analysis

54% of online shoppers are male, while 46% are female. Male shoppers usually purchase
electronic products such as laptops, cameras and mobile phones. Female shoppers tend to
purchase apparel, cosmetics, home décor, maternity and baby products.

The majority of online shoppers are between the ages of 20 and 39 years old with incomes
between RMB1,000 to RMB5,000 per month2. The charts below provide an age and income
snapshot of China’s online shoppers:

Age of China’s Online Shoppers Monthly Income of China’s

Online Shoppers (RMB)

Source: Sovereign Analysis on multiple sources, including China Internet Network Information Center
Note: the above graphs indicate reported income of online shoppers. It does not include any subsidies shoppers
get from their families or non-reported income.

1 | China’s cities are divided into different tiers based on economic and infrastructural development .

2 | Note that this figure is the actual estimated income of the shopper. Many individuals are subsidized by their parents in various
ways and are able to spend most, if not more than, their income.

19
 The top 10 product categories online include clothing, bags, cosmetics and groceries, as illustrated in the
table below.

Category Frequency Category Frequency

1. Clothing & Accessories 75.6% 6. Cosmetics 30.6%

2. Computers / Digital Products 45.3% 7. Books & Audiovisual 25.7%
3. Household Items 45.1% 8. Appliances 22.7%
4. Virtual Products / Travel 34.9% 9. F&B Products 22.4%
5. Bags & Suitcases 32.7% 10. Stylistic Supplies 18%

Note: Frequency represents how often a purchase is made in each category; frequencies of products purchased are not related to one another
and only represent how often a purchaser browsing for that item will make a purchase.

There are a number of reasons why consumers prefer to purchase goods online, some of these include:

Choice – The traditional brick-and-mortar retail sector is significantly underdeveloped in lower

tier cities. E-commerce provides consumers with significantly greater choice in terms of available
products.

Convenience – Delivery services have evolved differently from more developed countries. In
most cases, online purchases are delivered within one to two days for a relatively inexpensive fee.

Price – Competition online tends to be greater and the real price tends to be more transparent
as online retailers are not likely to be paying full duties and VAT. This usually results in consumers
getting a better price than they would at traditional brick and mortar stores.

Trust – When purchased on a marketplace, retailers are required to accept returns and exchanges,
no questions asked, which is uncommon for small brick-and-mortar retails stores. Furthermore,
marketplaces are increasingly trying to ensure that goods sold through their platform are not
counterfeit.

20
Key Players
China’s e-commerce landscape consists of many stakeholders and it differs quite significantly from the ecosystem
in North America. Particularly in product search, delivery, and operational aspects. A high-level ecosystem map
is illustrated in the graphic below:

Examples
Ecosystem Segment Description
N. America China

• Brand Website (SEO) Online marketing channels such as

Product • APP / Mobile markets search engine optimization, social media,
Google Tmall
Search • Marketplace Platforms and traffic optimization within domestic
JD
and cross-border marketplace platforms

Payment Third party service providers that

Paypal Alipay
facilitate payments through credit card
Payment or bank account

Warehousing / 3PL Companies providing third party logistics

USA Cainiao
services (3PL) including physical storage
Fulfillment
of goods
Fulfillment

Domestic and Express companies providing delivery

UPS SF Express
International delivery service to end customer
FedEx SinoTrans
Delivery

Software & Infrastructure Software tools such as ERP, CRM as

Oracle Magento
well as the physical IT infrastructure to
China
support online sales
Netcloud

Operations/
Support Integrated Partners and Partners to whom brands can outsource
Digital River Kung Fu
Tmall Partner complete or partial management and
Commerce
execution of their e-commerce operations
Baozun

Source: Kung Fu Data

21
 Product Search
Brand Website

In China, company websites are primarily used to build the brand’s image and
engage with their existing consumer base. A brand’s website in China is not
typically seen as a direct sales platform and sales transactions generally take
place on marketplaces.

Canadian companies targeting Chinese consumers should make their site available
in Chinese characters, as English and French literacy is uncommon in general.
It is also helpful to have an easily accessible currency converter into Renminbi
(RMB), even if the settlement currency is Canadian dollars or another currency.

Search Engines and Search Engine Optimization

The Chinese government’s Great Firewall of China blocks access to search engines,
such as Google, Twitter and Facebook. Blocked websites are accessible in China
via a Virtual Private Network (VPN), however the use of these must now be approved
by the government, essentially making these services illegal in China. Companies
should channel Search Engine Optimization (SEO) investment towards Chinese
search engines like Baidu. If a company is on a marketplace, optimizing the in-
platform SEO will be more beneficial.

Social Media

Social media such as WeChat and Weibo are important to the overall marketing
of a brand in China. In 2016, WeChat had over 700 million active users in China
and is extremely popular among the younger and affluent demographic. Social
media is used by consumers to rate and discuss products, and can also be used
by brands for marketing. The social media segment of this report addresses this
section in greater detail.

APP/Mobile Markets

Mobile applications (APPs) are becoming increasingly popular in China due to

the high penetration of smart phones. Many leading e-commerce marketplaces
(e.g. Tmall, Jumei, Yhd, and JD) have launched mobile applications allowing
consumers to shop conveniently on mobile phones.

22
23
 Marketplaces

The marketplace model dominates China’s e-commerce landscape, accounting

for more than 90% of online retail transactions and is one of the most
important aspects of the e-commerce ecosystem. There are several types of
marketplaces in China, including Business-to-Business-to-Consumer (B2B2C),
Business-to-Consumer (B2C), such as Tmall, and Consumer-to-Consumer
(C2C), such as Taobao. Business-to-Business (B2B) sites such as Alibaba also
exist in the market. In addition to large domestic marketplaces, there are also
cross-border marketplaces such as Tmall Global, as well as smaller specialized
marketplaces that focus on a handful of product categories such as Jumei.com.

Payment
Third-party payment platforms

Third-party payment platforms are an extremely popular method for purchasing

goods online, with total third-party payment transaction reaching USD$17.4 trillion
in 2016, up from USD$18 trillion in 2013. The majority of payments are made
through China’s two dominant platforms; Tencent’s WeChat payment and Alibaba’s
Alipay. Apple Pay was launched in China in late February 2016, however so far it
has been poorly received by Chinese consumers.

Credit Cards

The use of credit cards has been expanding in recent years with penetration rates
exceeding 45%, making online transactions much easier to complete. Credit
cards, such as Visa and MasterCard, are accepted by domestic and cross-border
marketplaces and should work on websites hosted overseas;.

Fulfillment
3rd Party Logistics Providers (3PLs)

In some cases, fulfillment can be managed by the marketplace platform but

not all offer this service and some companies may want to use an independent
Third Party Logistics (3PL) company. These 3PLs can manage a retailer’s supply
chain and usually offer warehousing services. Depending on how a Canadian
company approaches the market – i.e., cross-border or China based entry – a
3PL with warehousing facilities in one of China’s bonded Free Trade Zones may be

24
beneficial. This is advantageous as the products can be stored in mainland China,
but not within the country’s customs borders, significantly cutting the time it takes to
fulfill an order.

Delivery
Consumers in North America typically do not expect one or two day delivery on
products purchased online, although this is an option if the consumer is willing to
pay a premium. Chinese consumers, especially those in Tier 1 cities, expect same or
next day delivery.

International Delivery

Products will typically be shipped via an international express company such as UPS,
DHL, or FedEx. The package will usually take anywhere from a few days to a few weeks
to reach China.

Shipping fees and timing will pose a major hurdle to companies if the products are
shipped from overseas, as Chinese consumers expect to receive online orders within
just a few days from domestic sources. Product returns will also further exacerbate
any challenges from shipping products from overseas into China.

Domestic Delivery

If products are shipped from within China, delivery times can range from the same day
to a few days. Many international delivery firms operate through partners for delivery
within mainland China, but domestic delivery companies such as Shunfeng, EMS, and
Sto Express are very popular and have vast, efficient delivery networks.

Shunfeng Express
Shunfeng Express is the largest private express company in China with nearly
8,000 domestic locations and over 9,000 locations globally. SF Express is a
premium service provider and focuses on providing fast and reliable services.

China Post’s EMS
EMS has more than 45,000 locations and has the largest network in China;
however, speed and reliability are issues.

Cainiao
Alibaba partnered with several Chinese express companies, specifically Shunfeng,
Yuantong, Shengtong, Zhongtong, and Yunda in 2013 to establish its logistics
platform called Cainiao. The goal of Cainiao is to develop a national logistics
network that can deliver anywhere in China within 24 hours.

25
 Operations and Support

Third Party Management Company / Tmall Partners (TPs)

Third party management companies, also known as TPs or Tmall Partners, are
one of the most important partners for a foreign company to consider for entry
into China’s e-commerce market. TPs are third-party providers that manage the
store page of a retailer in a marketplace platform such as Tmall. TPs also have
relationships with the platform and can assist in driving traffic to a brand’s page.
In some cases, they can act as turn-key solution providers and also manage
logistics, in-platform media buys and promotional events. TPs can also utilize
back end data analysis to optimize marketing efforts.

The graphic below better illustrates some of the services a TP can provide.

Acts on brand’s
behalf managing
$¥
marketplace sales

TP Marketplace
Brand / Operates Optimize events,
Retailer marketplace traffic, media,
Consumers
sales impressions
Digital optimization,
media and traffic

3PL &
Acts on brand’s
behalf optimizing
Delivery
marketplace sales

26
E-commerce Management Software Providers

E-commerce management software providers and content management systems,

such as Magento, allow companies to actively manage their e-commerce activities,
through sales analysis and other tools to optimize activities. These support
systems can be used by the retailer themselves or by a third party management
company such as a TP.

IT Infrastructure

China’s IT infrastructure is still developing and can pose problems with regards
to Internet speeds. The challenges involved in accessing overseas websites from
China is exacerbated by “The Great Firewall”, which can effectively throttle Internet
traffic, and by the newly launched “Great Cannon”, a far more aggressive tool used
by the Chinese government to use Internet traffic offensively.

Foreign companies that have servers located outside of China can do little to
address these challenges. Companies may choose to establish servers inside
China or in one of China’s Free Trade Zones, which would require the assistance
of partners who can provide this kind of infrastructural support.

Government
The Chinese government influences the e-commerce ecosystem through policy
and trade measures such as import regulations, tariffs and product testing
requirements. Some of the important government bodies that can influence this are
the GACC (General Administration of China Customs), SAIC (State Administration
for Industry and Commerce), General Administration of Quality Supervision,
Inspection and Quarantine (AQSIQ), State Administration of Foreign Exchange
(SAFE) and the Tax Bureau.

The Chinese government has introduced a number of policies to support and

regulate e-commerce. Policies have been evolving rapidly in recent years and are
expected to continue to do so.

3 | VAT of most products in China is 17%; however, VAT of some products (e.g. seafood) is 13%

27
 How can you enter
the China market?
Traditional Market Entry Channels

Domestic E-commerce Marketplaces

Cross-Border E-commerce

28
29
 Traditional Market Entry Channels
There are several traditional channels for businesses to enter China. These
include sourcing a distributor or establishing a legal entity such as a Wholly
Foreign Owned Entities (WFOE) or a Joint Venture (JV).

Establishing a legal entity in China is a resource intense process that can be

arduous. Typically, the registration process can take anywhere from three to nine
months to complete, plus extensive due diligence on any potential partners.
The industries that a company can establish operations in, and in what method,
are dictated by the Foreign Investment Catalogue. Typically industries that are
considered sensitive or culturally important will have some barriers. JVs also
carry the additional risk of the other investing party having divergent interests
to the foreign party so due diligence is even more crucial in these situations.

After establishing a legal entity in China, Canadian companies are able to

conduct commercial activities as permitted by the legal entities business scope
which is determined during establishment. This entity may also host local
websites and establish flagship stores on domestic e-commerce marketplaces.
These entities can be established in cities throughout China however some
thought should be given to this given differences in local government policies.

Alternatively, companies can find partners to import and distribute their products
in mainland China both online or offline. However, there are some risks when using
distributors in China as there is potential to lose control of your brand.

Setting up in a Free Trade Zone

There are several Free Trade Zones (FTZ) throughout China where a Canadian
company can establish a legal entity. The most well known free trade zone is the
Shanghai Pilot Free Trade Zone, established in 2013. These FTZs are technically
outside China’s customs border and therefore products transiting from these FTZs
into the customs border of China are considered to be cross-border trade.

FTZs have different regulatory requirements and operate under separate rules
to companies that have set up within China’s customs borders. For example, in
January 2015, the Shanghai Free Trade Zone began allowing WFOEs to invest in
online data processing and transaction processing e-commerce operations, which
is normally prohibited outside of this area.

30
The map below highlights the location of
several well known free trade zones.

Tianjin

Zhengzhou

Shanghai
Chongqing Hangzhou Ningbo

Xiamen

Guangzhou
Shenzhen

There are a number of advantages that might

encourage a company to establish in an FTZ.
Companies can have their inventory forward
deployed, which means they establish a For additional information on establishing a foreign
warehousing facility outside the customs entity in China, please visit
border of China, ship products in bulk to this www.tradecommissioner.gc.ca/china
facility, and then ship to the final customer via
parcel post. This can also be done by using
a 3PL with a warehousing facility located in
the FTZ, which is easier than establishing a
company owned entity. If a company wants
to host its own platform and act as the
intermediary between sellers and buyers, or if
the company needs to obtain an ICP License,
establishing an entity in the Shanghai FTZ will
simplify the process. Note that each FTZ may
have different requirements and regulations
regarding the types of business activities
allowed.

31
 Domestic E-commerce
Marketplaces
Overview

China’s e-commerce market can be divided into two basic categories: marketplaces
(such as Tmall and Taobao) and independent merchants. E-commerce in China is
dominated by the marketplace model, which accounts for more than 90 percent of
total transaction volume. Websites established by independent merchants, even
large retailers, account for little in the way of transaction volume and are primarily
used as marketing tools. Independent online retailers typically have approximately
a 4 percent EBITDA4 loss while marketplaces stores have roughly a 9 percent
positive EBITDA. 5

The marketplace model is so popular in China because the offline retail industry is
relatively underdeveloped, and secondly, it is difficult to set up as an independent
retail site. Marketplaces are especially advantageous to merchants lacking the
volume of sales to justify such a large investment in the market.

For individual and small scale sellers, the biggest advantage of selling through
marketplaces is tapping into the huge aggregate traffic that these sites have
developed. Furthermore, marketplaces assist businesses in quickly launching
store fronts with minimal upfront costs, providing many of the tools the merchant
needs.

Marketplaces offer consumers a convenient shopping experience and often have

some consumer protection mechanisms. These may include return policies and
assurances that the products are genuine, which is especially important as
counterfeit products are common in China.

There are a number of different marketplaces operating under various models,

such as a hypermarket or online mall. Canadian companies should make
informed decisions on which marketplace is most suitable for their products
and their business models. More information on these marketplaces can be
found in this section.

4 | EBITDA – Earnings before interest, taxes, depreciation and amortization

5 | Source: Multiple sources including McKinsey Global Institute

32
 Model Example

Business-to-Business- The platforms/marketplaces act as

to-Consumer (B2B2C) hypermarkets, buying products from producers/
(Hypermarket) distributors and fulfilling orders to customers.

These platforms/marketplaces allow business to

Business-to-Consumer B2C
sell to consumers via store-fronts.

These platforms/marketplaces allow individuals to

Consumer-to-Consumer C2C
sell products to other consumers.

Note: Various B2B models exist as well, however, these are not included in the above table as this report focuses the consumer aspect of e-commerce.

It is possible for marketplaces to incorporate multiple models. For example, JD.com operates both a B2B2C
(hypermarket) and B2C (online mall) model on their marketplace.

33
34
Online Malls

Online malls differ in a number of ways to online

hypermarkets and flash sale sites. Tmall, one of the most
popular online malls, allows brands to set-up shopfronts A flagship store is not
and sell their products while the marketplace deals with the necessarily the best way to
transactions. Brands typically employ a TP to manage their launch a brand in China. It is
store. JD is a hybrid marketplace as it is both an online mall usually best to wait until the
and hypermarket. In addition there are a number of store brand has established itself
types that are available on online malls, these include: and revenue is high enough to
justify the costs.
Flagship Store – Only the brand or the brand’s master
license holder with full rights to the IP can open a flagship
store. For domestic e-commerce platforms, a legal entity in A single brand can have
China must exist. A flagship store has the highest priority multiple exclusive shops, set
for some traffic on the platform and has all media channels up by authorized resellers. This
available to it. If run properly, the flagship store can be more approach has a relatively low
than a sales point and can also manage resellers (exclusive risk profile, and is similar to
shops), act as a brand control tool and set brand standards.
entering the market through
distribution partners.
Exclusive Shop – An exclusive shop is a single brand store
front on a marketplace that is typically run by an authorized
reseller of the brand. The reseller has rights to use some of
the brand’s IP, for example the brand logo.

Boutique Store – A boutique store is a multi-brand store

front. The store front may not have any relationship with the
brand as it is essentially a re-seller and may stock multiple
brands.

Tmall (www.tmall.com) JingDong (www.jd.com)

Launched by Alibaba Group in
2008, Tmall is China’s largest
online mall for domestic and
foreign brands and their partners.
JD.com was established in 1998
and is one of the most successful
hypermarket-online mall hybrid style
e-commerce sites in China with over
25% of China’s B2C market.

35
 Sells general products but known for being
stronger than Tmall in electronics. JD is
The primary B2C marketplace of the
Description the largest online direct sales company
Alibaba Group
and has a hybrid online mall - hypermarket
business model

Estimated User Base 400 million 188 Million

Geographic Reach Nationwide Worldwide

Number of Store Fronts Numerous Over 100,000

Annual Fee US $6,000 - $12,000,

(Depends on category), Deposit - USD$0 - 15,000
Costs Deposit - US $3,000 - $33,000 Commission - 1-10%
(Depends on category and store type), Membership fee - USD$1,000 per year
Commission - 0.3-5%

Local Entity Required? Required Yes (Apart from JD Worldwide)

Canada Based
Only for the Tmall global site By individual shops
Procurement

Does the Platform Have No, but have partnered with Cainiao which
Yes
In-House Logistics can provide this

Able to Import Directly Unable Yes

Cross-border
Yes Yes
E-commerce

Tencent Pay
Alipay
Payment Methods JD Pay
Credit Card
Debit and Credit Cards

36
Hypermarket Model

A hypermarket is a model in which the Canadian company

sells their product directly to an online platform. This is
similar in many ways to selling to a distributor. In this case,
the online platform manages all aspects of sales, distribution
and marketing, making it a relatively simple transaction for the
Canadian company. With this model, the Canadian company is
not directly involved in e-commerce in China, but rather selling
Parker Pen
to an e-commerce platform, making it a more straightforward
transaction.
Parker Pen has a multi-
Listed below is a description of some of the more well known channel model for their
platforms in this category: e-commerce stores. Parker
Pen has a flagship store on
Yihaodian Tmall (www.parker.tmall.com)
Yihaodian is another hybrid online and also has 8 authorized
platform with a grocery focus. They resellers with exclusive shops.
offer over 180,000 products and
The flagship store regulates all
have logistics centers across the
country.
the shops while each store has
control over pricing.
DangDang
DangDang is an e-commerce
platform that established
itself as the online book sales
platform in China but has since
branched out from this.

Womai
Womai is a health food retailer
that is vertically integrated.
The platform is owned by the
State Owned Enterprise COFCO
(China National Cereals, Oils and
Foodstuffs Corporation).

The table overleaf describes in more detail these platforms

and their respective costs.

37
 This is a B2C market- China’s largest online Womai is an online
place that was previ- retailer of books. grocery company. Yiguo is a national
Description ously 100% owned by They also retail a It is a wholly owned seller of imported and
Walmart but was sold number of other subsidiary of the domestic food
to JD in 2016 general merchandise COFCO Group

Estimated User
90 million 30 Million 20 Million 1 million +
Base

Mainly books and

Product Focus General merchandise Groceries Fresh food
video products

Geographic
Nationwide Worldwide Mainland China Mainland China
Reach

Number of Store
Numerous Over 5,000 1 1
Fronts

Annual Fee -
USD$1500, Deposit - RMB10,000 -
Deposit - USD$1500 - 100,000
Costs None None
20,000 (depending on Platform Usage Fee-
product), RMB6,000 -10,000
Commission 1-10%

Local Entity
Required Yes Yes Yes
Required?

Canada Based
Yes No No Yes
Procurement

Does the
Platform Have
Yes Yes Yes Yes
In-House
Logistics

Able to Import
Yes Yes Yes Yes
Directly

Cross-border
Yes Yes No Yes
E-commerce

Alipay
Alipay Debit & Credit cards
Debit & Credit card
Cash on delivery Bank transfer
Payment WeChat pPay, JD Pay, International cards
Debit & Credit card Cash on delivery
Methods Union Pay and Yi Pay Cash on delivery
International cards Alipay
Tencent pay
Womai card Yiguo card
and others

38
Flash Sales Model VIP.com is the world’s largest
discount retailer and the third
A flash sale is a discount or promotion offered by largest e-commerce platform
an e-commerce store for a short period of time. The in China. They purchase
quantity is limited, which often means higher discounts goods on consignment.
or more significant promotions. The time limit and
limited availability entice consumers to buy on the
Jumei is a vertically
spot.
integrated flash sales
website that is specialized in
Flash sales can be an extremely effective method for
beauty products. They have
quickly unloading surplus inventory in days.
a small but dedicated user
base.

VIPSHOP is a flash sales site for genuine brands, Jumei is the top online retailers of beauty
Description
and offers large discounts products in China, with a market share of 20%

Estimated User
300 Million 13.3 Million (2013)
Base

Products for women (with current expansion on Cosmetics (with current expansion on mom and
Product Focus
baby and men products) baby products globally)

Geographic Reach Worldwide Worldwide

Number of Store
1 1
Fronts

Deposit - 0
Deposit - RMB10,000 - 100,000
Costs Commission - 20-35% if on consignment or 0% if
Platform Usage Fee - RMB6,000 -10,000
VIP purchase the products

Local Entity
No Yes
Required?

Canada Based
No No
Procurement

Does the Platform

Have In-House Yes Yes
Logistics

Able to Import
Yes Yes
Directly

Cross-border
Yes (By individual shopfronts) Yes
E-commerce

Alipay/tenpay; VIP pay, credit/debit card, WeChat

Payment Methods Alipay, debit/credit card, cash on delivery.
pay, cash on delivery.

39
C2C Model

C2C, known as customer-to-customer, is a business model

that facilitates the transaction of products or services between
customers. It is estimated that 50% of China’s online sales occur
on the most popular C2C platform - Taobao. This platform is
Taobao is one of the most famous
used by individuals who wish to sell products through their own
online platforms in China with some
shop. Establishing a storefront on these platforms is almost cost
estimates stating that it holds over
free and as a result is dominated by a number small traders.
65% of the C2C market.
It is important to note that C2C platforms commonly have a large
gray channel such as parallel imports. This means that these
platforms are useful for brands to help measure demand for their
goods prior to entry.

China’s largest C2C marketplace for general

Description
products China is expected to make up
half of the global e-commerce
Estimated User
Base
350 Million market by 2018 and is growing
three times faster than
Product Focus General merchandise traditional retail.
Canada Products
Already On this Many
Platform

Geographic Reach Worldwide

Number of Store
Over 10 Million
Fronts

Costs None

Local Entity
No
Required?

Canada Based No (Individual stores engaged in parallel imports

Procurement are an exception to this)

Does the Platform

Have In-House No
Logistics
Able to Import
No
Directly

Cross-border
Yes (Taobao International)
E-commerce

Alipay
Payment Methods
Credit & Debit card

40
 Xiaohongshu is a new kind of
Cross-border E-commerce Model e-commerce platform that merges
a social media review system with
Cross-border e-commerce sites refer to special platforms e-commerce sales.
that can engage in cross-border e-commerce methods (ie
direct mail, bonded warehouse and direct mail methods). Kaola is Netease’s cross-border
The term cross-border e-commerce is defined as the buyer e-commerce platform which
and seller are not located in the same country and are was launched in January 2015.
often not ruled by the same jurisdiction, use different import Since then they have formed
methods, currencies, and languages. Listed below are some partnerships with a number of
of these platforms. brands.

Xiaohongshu began an application

Kaola Overseas Shopping is a novel
that allowed people to review This is the cross-border arm of
Cross-Border E-commerce platform
merchandise purchased overseas. Tmall and is technically not a
Description affiliated to NetEase. Their business
Their business model is to partner separate site but has different
model is to invite brands that they
with brands or large-scale trading functions to Tmall.
want on their marketplace
companies

Estimated User
30 Million 24 Million 400 million
Base

Product Focus Overseas purchase Overseas purchase Overseas purchase

Geographic
Worldwide Worldwide Worldwide
Reach

Number of
Multiple stores 1 Multiple stores
Store Fronts

Commission 3-6% ,
Commission 2-10%, One off consumer protection fee
Costs Membership fee - USD$1,000 per N/A USD$25,000,
year Maintenance fee - USD$5,000
-10,000 per year

Local Entity
No No No
Requirement

Canada Based
Yes Yes No
Procurement

In-House
Yes No No
Logistics
Able to
Import Yes Yes Yes
Directly
Wangyibao, Alipay, debit/credit
Payment
card, international card payment Alipay, WeChat Pay Alipay, debit/credit card
Methods
(e.g. Visa), cash on delivery

41
 “Double 11” - Single’s Day
November 11 is “Singles Day” (11.11) in China, which is a promotional sales day launched in
2009 by Alibaba Group, the operator of Tmall and Taobao. Singles Day, essentially a much
larger online version of Black Friday, caught on rapidly and sales grew from RMB1.9 billion (US
$ 300 Million) in 2010 to RMB120.7 billion (US $ 17.7 billion) in 2016. The success of Single’s
Day has prompted other platforms to also run their own Single’s Day style promotions. Double
11 is now an entrenched sales event for all major e-commerce players and has become a major
bonanza with huge turnover.

The numbers represent a blitz in buying for a 24 hour period, which results in the weeks after
Double 11 being relatively slow periods. There is build up of sales before the event however as
consumers will prepurchase goods. Furthermore, the official figures do not account for returned
merchandise which means that the relevant actual sales data can be significantly lower over
time.

Participating retailers are required to provide deep discounts, virtually eliminating any margins.
Retailers often counter this by hiking prices prior to the sales event. However, sales generated
during Double 11 affect the retailer’s overall traffic in the future.

Shown below is an example of how price is affected during Double 11 for the hair care category
(Please note there are presales leading up to the event so the previous two weeks need to be
accounted for). It is consistently seen across categories that the general price per unit increases
on Double 11. There is a consumer tendency to trade-up to higher priced items and multi-packs,
which may be a result of a preference for higher discounted items irrelevant of total spending.
This indicates brands should focus promotional activity on Double 11 towards premium SKUs
while consideration should be taken with regards to the multi-packing of items.
65
Price Per Unit

60
55 Hair Coloring
50
45 Hair Styling
40 Hair Treatment
35 Shampoo
30
25
20
Oct Oct Oct Oct Nov Nov Nov 16 Nov Nov
05 12 19 26 02 09 23 30
Date Source: Early Data

42
In addition to the marketplaces previously mentioned, there are numerous specialized marketplaces in China.
In recent years the number of new marketplaces has grown rapidly. Please see table below for a list of these
marketplaces.

Name
Name Website Key Products

Amazon www.amazon.cn General merchandise

Tmall Grocery www.chaoshi.tmall.com F&B

SF Best www.sfbest.com F&B

Fields www.fieldschina.com F&B

Epermarket www.epermarket.com F&B

51shuichan www.51shuichan.com Seafood

Fruit Day www.fruitday.com Fruit

Maijiuwang www.maijiuwang.com Alcohol

Yes My Wine www.yesmywine.com Wine

Winekee www.winekee.com Wine

Mei www.mei.com Fashion / Luxury

Vancl www.vancl.com Apparel

Gome www.gome.com.cn Electronics / Appliances

Suning www.suning.com Electronics / Appliances

LAMALL www.LAMALL.com Baby products

Muyingzhijia www.muyingzhijia.com Maternity and baby products

Yiduo shopping center www.ydsc.cc Health products

43
 Marketplace Restrictions and Requirements
If a Canadian company intends to sell products on a domestic marketplace
such as Tmall or JD’s online mall, a legal entity such as a JV or a WFOE is
required in China. Furthermore, the specific marketplace may have other
requirements, including trademarks, registered capital requirements and years
in operation. Product registration of certain goods will also be required which
can add significant costs to new market entrants. For example, Tmall has a list
of permitted SKUs, and goods outside of this list cannot be sold through Tmall.

Alternatively, Canadian companies can work with platforms that act as a

hypermarket, or a local partner that can import and distribute goods. Your local
partner may be able to setup an e-commerce store front or use their existing
store front on various marketplaces.

The New E-commerce Law

In the beginning of 2017 China released the draft version of its first e-commerce
law. The current version of the draft describes a number of measures that may
be implemented to improve e-commerce platforms, the vendors operating on
these platforms, protection of consumer interests, online IP protection and
electronic contracts. The implications of this law for companies selling online
are still unclear (as the law is still in draft at this stage and may change) but are
primarily focused on regulating marketplaces, their operations and the need for
marketplaces to supervise sellers on their platforms.

“Double 12”
12/12 or “Double 12” is a smaller version of Double 11 that occurs on the 12th of December each year. The
event was originally launched by Alibaba but has now been adopted by the other online retailers such as JD,
Yihaodian and Amazon. Double 12 is different in that it extends more into the offline and is more focused
around Alipay, allowing shoppers to use it in participating shops in order to receive discounts. Another
difference is that brands participating in Double 12 generally are smaller and more niche and unable to
effectively participate in Double 11.

The only requirement is that the price on Double 12 is lower than that over the last 30 days. Double 12 still
has still a long way to go before meeting the same success as Double 11’s sales but is on track to becoming
another large online sales event in China and is growing at a much faster pace than Double 11. More than
110 Million consumers participated in the event last year.

44
Cross-Border E-commerce
Selling products in China through cross-border e-commerce channels is a
lower risk approach to the market as it requires relatively less investment
from the company. Cross-border e-commerce has grown significantly over
recent years and the growth is expected to continue in the near future.

A recent Nielson study in

Since 2012, the Chinese government has rolled out favorable policies to promote
cross-border e-commerce development by setting up pilot zones in various cities
2015 found that 38% of
to cater for cross-border e-commerce import services, implementing favorable shoppers in tier 1 cities
tax rates and policies including a streamlined application process and simplified and 27% of shoppers in
customs clearance procedures. Cross-border e-commerce experienced a set tier 2 cities make cross-
back in 2016 due to regulatory changes that decreased the range of products border purchases online.
allowed through the channel and increasing the tax for most purchases. In Cross-border e-commerce
March 2017, The Ministry of Finance and Commerce released a notice regarding
transactions are expected
Cross-border e-commerce which stated that cross-border goods will now face
less strict inspections and be treated as personal use goods. It also extended
to continue growing.
the transition period to the end of 2017 and expanded the number of cities However, it is important
allowed to have cross-border e-commerce zones to 15. to note that cross-border
transactions are still
Cross-border e-commerce enables overseas retailers without Chinese business only a fraction of overall
licenses to sell their products easier and more conveniently. Many foreign e-commerce transactions.
retailers have used cross-border marketplaces to test the market in China
before actually setting up business. There are two ways to approach the
cross-border e-commerce market:

Sell through the company’s existing website hosted outside

of China

This is the easiest way to approach the market however unlikely to

yield results as Chinese consumers typically shop on marketplaces. The
company’s website can be used as a marketing and brand tool rather than
a sales platform, but realistically this has little success as it is difficult to
build engagement and consumer trust. Issues with lack of ability to return
goods and comment payment systems also hinder these sites.

Utilize a cross-border marketplace

Cross-border marketplaces such as Tmall Global, Kaola and JD Worldwide

allow Canadian companies to engage with consumers on the marketplaces
without having to establish a legal entity in China or sell through a domestic
partner. Currently those seeing most success selling cross-border into China
through online channels have used cross-border marketplaces to do so.

45
 Cross-Border Marketplaces

There are currently two main models of operation
for cross-border marketplaces: Jihuo and Beihuo
(Bonded Warehouse). For the Jihuo model,
a customer places an order on a registered
cross-border e-commerce platform, which will
electronically submit particulars of the order for
customs clearance. Meanwhile, the products will be
shipped by direct mail to customers directly from
overseas locations.
For the bonded warehouse model, products are
shipped in bulk and stored in a bonded warehouse
in one of the 15 cross-border e-commerce
pilot cities which includes but is not limited
to Shanghai, Ningbo, Hangzhou, Zhengzhou,
Chongqing, Guangzhou, Shenzhen, Tianjin, Fuzhou
and Pingtan. When a customer places an order,
the platform will make a real-time declaration
to customs and the products will be shipped
to customers from the bonded warehouse. For
information on how to establish a cross-border
store please see the appendix.
As e-commerce evolves, changes in government
policy and regulation will have a large impact on
the cross-border e-commerce space, for example,
the changes to tax rates and the Positive List
implemented in April 2016 . Companies are advised
to keep up to date with changing government policy
around e-commerce.

Jihuo (Direct Mail) Beihuo (Bonded Warehouse)

Product range allowed
According to the Positive List According to the Positive List
through this method

Delivery time frame 7-30 days from order Approximately 5 days from order

International providers who can transport

International providers who can arrange for
the goods to the Chinese warehouse and
Logistical requirements delivery from home country to the Chinese
then domestic providers who can deliver
consumer
the good to the Chinese consumer

Electronic label on the cross-border Electronic label on the cross-border

marketplace site or physical label on
Good labeling
product (unless the product is regarded as
requirements
a sensitive or is required as per the Positive
List)
marketplace site or physical label on
product (unless the product is regarded as
a sensitive or is required as per the Positive
List)

Yes (either a local entity owned by the Yes (either a local entity owned by the
China entity requirement
brand owner or an authorized agent) brand owner or an authorized agent)

Goods are sent from the overseas

Goods are sent from the overseas
producer to the China warehouse where
Flow of goods producer direct to consumer in China in
they are stored in bulk and sent to Chinese
individual packages.
consumers when ordered

46
To sell goods through these platforms foreign brands do not require a local entity (the exact requirements
vary from platform to platform. For more information contact the specific platform directly). Additionally all
goods sold through these platforms must have a record filing completed for them to leave the cross-border
zone.

Canadian companies that list products on a cross-border marketplace may want to consider working with a TP to
optimize their presence on the marketplace. Furthermore, some TPs can work with a third party logistics company
(3PL) to improve the logistical efficiency.

Are cross-border marketplaces useful for you?

Prior to the release of the Positive List and changes to the taxation of cross-border goods in 2016 this would
have most likely been a resounding yes. The channel had few restrictions that traditional trade faced such as
the need to formally register products with the authorities, the range of goods that could be sold through the
channel and had significant tax advantages in some product categories.

This has now changed and the decision to sell goods via cross-border is much more nuanced. Please see
below questions that brands must consider when entering cross-border ecommerce.

Jihuo (Direct Mail)

The Jihuo method is better suited to products that have shorter lifespans and are not expected to warrant
stocking a warehouse. The following shows a simplified flow of goods with the Jihuo method:

Consumer places The cross-border market- The supplier dispatches

order on cross-border place receives the order the goods from their
marketplace. and passes this on to the overseas warehouse.
supplier

Record filing for the

Goods are delivered to Goods are shipped from
good is completed and
consumer. overseas.
taxes are paid at the
bonded warehouse.

47
 1) Are your products allowed through Cross-
border Marketplaces?

Only products that are on the Positive List may be sold

through Cross-border E-commerce platforms now.
The total list contains over 1,200 entries and products
on this list are separated by HS code. Please note that
the Positive List also states that some products such as
seafood must be imported via the Beihuo method.

The product categories included in the positive list broadly

include:

Food and beverage products

A diverse range of food and beverages are allowed. Among

others this includes:

• A number of fresh and dried fruits

•
•
Nuts
Some spices
Insert picture on
•
•
Some grains
Dairy products
this side of the page
• Wine (in containers less than 2L)
• Pasta and noodles
• Number of seafood products (please note that
most seafood products on the positive list may
only be imported through Beihuo)
• Rice
• Flour

Health foods

This category is severely limited in the range of products

that can be imported. Some goods that can be imported
are:

• Vitamin B1, B3, B5, B12, C, E and their derivatives

• Other pro-vitamins and vitamins
• Fish liver oils
• Pure royal jelly
• Pure royal jelly powder
• Bee pollen

48
 Fashion
Almost all clothing, handbags, wallets and other
apparel can be imported through this channel.
For more information on specific products and
details, please refer to the Positive List.
2) Do your products need registration
with Chinese authorities?
Following the release of the Positive list some goods
now require formal registration with the authorities
as is required with traditional trade. This can add
significant time and cost to selling through this
channel. Some goods that require registration include
cosmetics, that are being imported for the first time
and infant formula.
The primary determinant of the tax rates is the
consumer. If the consumer is purchasing less
than RMB2,000 worth of products in this purchase
and has purchased less than RMB20,000 of goods
through cross-border in the last year then the tax
is as follows:
TAX = Value of good x 70% applicable VAT x No
Customs Duty x 70% consumption tax
If the sale meets the criteria then this can mean
a reduction of all customs duties and potentially
reducing the VAT to 11.9% from 17%.
However if the consumer is purchasing more than
RMB2,000 in this purchase or has spent more
than RMB20,000 in the year on cross-border the
tax increases and uses the following formula.

TAX = Value of good x applicable VAT x Customs

Cross-Border Taxation Duty x consumption tax

The taxes that are applicable are VAT, customs duties
and consumption tax, however depending on the
consumers purchase and their purchase history, the
product rates may be reduced or waived.
Consumption tax is levied on 13 categories of
goods such as tobacco, liquor and alcohol,
jewelry and motor cars. The tax rate can vary and
is often expressed as a percentage of sales value
and/or a fixed amount per quantity of product.

Beihuo (Bonded Warehouse)

The Beihuo method works particularly well for products with high demand and can be warehoused easily.
This is also particularly relevant for goods that can only be sold through this method. The following shows a
simplified version of the process:

The supplier sends The warehouse then The consumer places an

goods to bonded houses the products until order on the cross-border
warehouse in China. the order is placed. platform.

Goods are delivered to As goods leave the Goods are sent from the
consumer. bonded warehouse they bonded warehouse to the 49
pay taxes as required. consumer.
 Import Tariffs
Products entering China are categorized as either
personal parcels or commercial cargo. Both require
declaration at customs by filing ‘Article Lists’ or
‘Cargo Lists’ for customs clearance before entering
China’s customs border. For product distribution and
logistics from overseas to mainland China, Canadian
companies will need to hire a licensed international
3PL or freight company. China’s regulations on
importing personal parcels and commercial cargo
are substantially different regarding import taxes,
documentation, CIQ inspection and quarantine
requirements, and labeling and testing requirements.
Commercial Cargo - Goods for commercial
use and/or not categorized as personal parcels
are usually categorized as commercial cargo and
must go through customs and CIQ inspection and
quarantine procedures.
Import Tax – Commercial cargo is subject to
various types of import duties and taxes, such as
an import tariff, VAT, and consumption tax. The
rate and type of applicable duties depends on
the products’ HS Code classification (Harmonized
Commodity Description and Coding System) as well
as any free trade agreements, most favored nations
agreements, or other trade agreements/disputes
Table: Import Tax Rates on Different Products as Personal Parcels
Import Tariff
Product Categories
(MFN)
Baby care products
10%
and baby formula
Seafood products 10%
Alcohol and wine 50%
Dietary supplements 10%
Source: Sovereign analysis based on multiple sources including GACC
Note: MFN = Most Favored Nation
50
that may affect the import duties. The table
below provides an example of the import tax rate,
VAT, and consumption tax for several products.
Import Process – It can take several months
for Canadian exporters and Chinese importers
to prepare all of the necessary documents
required for the pre-import process. For example,
frozen seafood products will require Sanitary
Administrative Approval, original labels and the
Chinese translation, as well as registration and
filing with the local CIQ office in China. During
the import process, the inspection declaration,
CIQ inspection and quarantine, and customs
inspection might take another 1-2 weeks. If
any issues occur - for example, wrong labels or
missing documents - the goods may take longer
to clear customs.
A large number of importers regularly experience
challenges with the importation process and
it is important to be aware of the specific
requirements for your product categories.
For more specific information on import taxes,
please contact the TCS.
Consumption
VAT
Tax
0 0
0 0
0 10-20%
0 0
 Canadian Pavillion on Tmall
Global
On September 3rd, 2016, Prime Minister and
Jack Ma, Executive Chairman of Alibaba Group
jointly launched a Canadian Pavilion on Tmall
Global to better brand and promote Canadian
products and services.
sell directly to Chinese consumers, enabling
foreign products to enter the China market
easily and conveniently. Many foreign retailers
have used it to test the market before actually
setting up businesses in China.

The Canadian Pavilion can be found in two Since its launch in February 2014, Tmall
main ways: Global has attracted a large number of brands
from over 50 countries, 80% of which were
1) From Webpage Link https://canada.tmall. entering China for the first time. Maternity
com and baby products, healthcare, food, personal
2) From the Tmall Mobile App: care, apparel and small electronic appliances
• Open “天猫” (Tmall App) are among the most popular categories.
• Click “天猫国际”(Tmall Global) The platform’s “country pavilions” allow
• Click “国家地区馆” (Country & Regional Chinese consumers to browse one-stop
Pavilion) at the bottom tab of the page shops for popular products from a selection
• Choose “加拿大馆” (Canada) from “直 of foreign countries, now including Canada.
达国家地区”(the list of countries) Other countries with pavilions include the US,
UK, Australia, New Zealand, as well as Hong
What is Tmall Global and what is Kong and Taiwan. With some exceptions,
the Canadian Pavillion? highlighted brands/products are those sold
via flagship stores Tmall Global (as opposed
Tmall Global (www.tmall.hk) is Alibaba’s cross- to the “regular” Tmall domestic platform).
border e-commerce platform for foreign brands This site also features travel and cultural
without a local (Chinese) business entity to information.

*It is important to note that the Canadian Pavilion is 100% owned and operated by Alibaba. The TCS does not have management
control over the pavilion, nor does it have the discretion to add/subtract Canadian products, services or company flagship stores
from the site. The TCS communicates closely with Alibaba and makes best efforts to represent Canadian interests in how Canadian
products and services are made available to Chinese consumers across Alibaba platforms.

51
 The pavilion model is a marketing/branding tool
to push traffic toward stores offering on-demand
foreign products. Although no system is perfect, Ma highlighted that
the pavilion model helps alleviate consumers’ Canada offered
concerns over IP issues and the authenticity top-quality and healthy
of products. Alibaba carefully vets companies agricultural products and
wanting to join a country pavilion to ensure their commodities as well as
products are genuine and being sold through high tech, environmental
legitimate channels. The Canadian Pavilion tech, music, art and cul-
provides a venue to build a stronger Canada brand ture. He went on to say
among Chinese consumers, and enables Canadian that, “These are exactly
partners to benefit from increased store traffic. the types of products
Chinese people want and
need.”

52
Frequently Asked
Questions
Are all Canadian products sold on Alibaba
e-commerce platforms found on the Canadian
Pavilion?
No. This Canadian Pavilion is on Tmall Global,
Alibaba’s B2C (Business to Consumer) platform
geared toward foreign companies that haven’t
entered China. Canadian companies have to either
register a brand flagship store or have products
sold on Tmall Global through accredited and
capable partners/distributors in order to join the
pavilion. Alibaba will take into consideration a
foreign company’s brand recognition in China, as
well as the volume of goods sold when deciding
whether to include a store on the Canadian
Pavilion. Note that Tmall Global is distinct from
Alibaba’s other e-commerce platforms including
Taobao (the predominant Consumer to Consumer
platform), Tmall (China’s biggest Business to
Consumer online platform open to domestic
and international companies that already have
a business entity in China), and 1688.com (a
Business to Business platform for Chinese to
access products from around the world) etc. These
are operated as separate business units.
My company has a flagship store and/or
my products are already sold by a partner/
distributor on Tmall Global. How do I join the
Canadian Pavilion?
Alibaba plans to make modifications to the
pavilion—including the inclusion of additional
stores/products—around future marketing
campaigns (e.g., 11/11 also known as singles day).
They do not plan to add stores to the site on a
rolling basis. A company that wants its flagship
store included should instruct their local team/
partner operating the store to be in contact with
Tmall Global’s operations team (运营团队) to
express their interest in joining the pavilion. Tmall
Global will send out invitations for each individual
activity based on their marketing strategy, and,
ultimately, it is up to Tmall Global which stores will
be included. Understandably, Tmall Global wants
to feature the items it believes will sell best, while
providing a balance between product categories.
What is the difference between Tmall and
Tmall Global?
Tmall is for companies with a legal presence
in China. The platform requires companies to
have Chinese business licenses and to store
their products in mainland China after customs
clearance. Tmall Global is more suitable for foreign
brands that have not yet officially entered the
Chinese market. A legal presence is not required,
and goods can be shipped from overseas directly
to Chinese consumers, or stored in a Chinese
bonded warehouse. It is important to bear in
mind that significant investments in brand building
and marketing are essential to success on either
platform.
Whom to contact if Canadian companies
have questions about entering China and the
Canadian Pavilion?
If a company is not yet in the Chinese market, they
first need to consider fundamental market entry
strategies and what role e-commerce should play
in their business development before considering
how they can join the Canadian pavilion. These
companies should contact the relevant sector
Trade Commissioners to receive appropriate
guidance on these questions. Canadian
companies that are established in China and
have e-commerce-specific questions can contact
e-commerce specialists in Beijing and Shanghai for
additional support.
53
 How does
payment work?
Getting Paid If You Have A Company In China

Getting Paid When Engaging In Cross-Border E-commerce

54
Getting Paid If You Have A
Company in China
With a legal entity in China, a number of payment options are available, including online
payment platforms such as Alipay, WeChat Pay, JD Pay, and the most recent entrant Apple
Pay. Credit cards and other forms of payment are also available.

Alipay - Alibaba
Launched by Alibaba Group in 2004 as an affiliate company, Alipay has the largest
market share (nearly 50 percent) of China’s online payment platforms, with over
300 million users as of 2014. Alipay works with Visa and MasterCard and supports
transactions in dozens of major foreign currencies. In 2015, Alipay’s parent
company was re-branded into Ant Small and Micro Financial Services Group.

WeChat Pay - Tencent

WeChat is the most popular instant messaging App in China. WeChat Pay, which
has been integrated into the WeChat platform, is one of the principal Mobile
Payment systems in China. WeChat pay offers QR Code payment, In-App Web-based
payments, and In-App payment when vendors integrate WeChat Pay into their Apps.

Apple Pay - Apple

Partnering with China Union Pay, Apply Pay began rolling out in China in early 2016.
Although a relatively new entrant, Apple’s partner, Union Pay, controls all card
payments in the country providing Apple Pay with some leverage; however, Alipay
and Wechat Pay have a nearly 100 percent penetration rate, and it will be difficult
for Apple Pay to carve out market share.

Getting Engaged in Cross-Border

E-commerce
For overseas registered companies, payment platforms such as Alipay and WeChat Pay
facilitate cross-border e-payment services which allow buyers to pay in RMB and sellers
to settle in major foreign currencies. For sellers, there is also no need to open a bank
account in China, as once the payment is converted it will be remitted into the seller’s
international bank account. There are a number of payment intermediaries in Canada
which will enable the merchant to receive payment in Canadian dollars. Typically most
cross-border marketplaces already have an integrated payment system.

55
 How can you
protect your IP?
Protecting IP in China

Trademark

Identifying Infringement

Online Protection

56
Protecting IP in China
Despite the government’s efforts to implement strong IP laws in China, there is an uphill battle of enforcement
against the amount of infringement occurring across industries. It is crucial that companies understand the
importance of formally registering their IP with the appropriate authorities. This will help protect them and
act as a strong foundation against future cases of third-party infringement. Companies that do not register
their IP have no recourse when dealing with encroachment.

Trademarks

China employs a “first-to-file” system for trademark registration and affords no protection to unregistered
trademarks. This is different to the Anglo-American system, by which a company gains common law rights
by virtue of using a brand in commerce.

In China, it is possible for a third party to both register “your” trademark and prevent you from using it without
selling a single product themselves. Such trademark squatting is common and when it occurs the options
are to pay a licensing fee to the trademark squatter; buy the trademark outright; prove that the squatter has
registered in bad faith, prove that they have not used the trademark recently or to change your trademark.
China has made steps to improve the situation but there is still far to go.

Serious consideration should be given to trademarking any distinctive phrase or logo used on their products
or packaging. Additionally, it is important to register both the English-language trademarks as well as
Chinese-language trademarks, including potential future trademarks.

Case Study: New Balance

In April 2015, the Guangzhou Intermediate People’s Court issued the controversial decision that the Chinese
subsidiary of US footwear maker New Balance had infringed the trademark rights of Guangdong based shoe
manufacturer Zhou Yuelun. With this decision New Balance joined the ranks of a number of other wealthy
multinational companies who failed to properly register their trademarks in China and paid the price.

This can happen due to the linguistic complexities of the Chinese trademark system and the first to file
trademark system that China uses with trademarks. In 2006, when New Balance formally entered the market
they only registered the English version of “New Balance”, while neglecting to register the Chinese Xinbailun
“新百伦”. This was promptly registered in 2008 by Mr Zhou Lelun who already owned the Bailun trademark
as of 1996.

New Balance tried to appeal the decision, however, the court dismissed the appeal but did decide to reduce
the amount of compensation to be paid to just over USD$ 700,000. Zhou acknowledges that a further appeal
to the Supreme Court is an option, and that the company will keep fighting back. Felix Guo from New Balance
Trading (China) claimed “We will continue to use the ‘New Balance’ trademark for online and offline marketing
in China”.
57
 Other types of IP, such as copyright and patents, may and patent infringement, but in reality they only
be relevant to your product. For more information check against the customs database. Therefore, if
on these types of IP, please visit the Canadian SME you have not registered with customs, there will be
Gateway to China at www.tradecommissioner.gc.ca/ no enforcement.
china/smegateway.
Where are counterfeit products
Registering with China Customs online?
Registering your IP alone will not limit the spread of
counterfeit goods. Registration merely gives you the
legal capacity to enforce your rights to that IP, and
should properly be seen as one of the pieces in an
overall market entry strategy.

For any company concerned about counterfeit
goods, the next step after registering IP should be
registering that IP with China customs. This is not
a legal requirement but a practical one to limit the
spread of counterfeit goods in and out of China (this
has no impact on the domestic distribution however).
Although customs officials have discretion to check
every outgoing shipment for trademark, copyright,
Although not limited to these two sites, they are
predominantly where you will find the vast majority
of infringement given both the lack of enforcement
and low barriers to opening a store. Tmall, JD,
Yihaodian and other B2C stores have much less
infringement although they should not be entirely
ruled out.

INSERT A REPLACEMENT PHOTO TO

REPLACE THE HOCKEY PHOTO ONCE
CONTENT SETTLED

58
Identifying Infringement Online
In order to first measure the extent of your IP problem,
a simple brand search in both English and Chinese on
Taobao and Alibaba B2B will provide a good indication.
The extent of infringement will then determine how
much action needs to be taken.
In the above search for the term ‘Herschel’ there are a
number of listings that already raise suspicion based on
price. The listing in the box is a example of a suspicious
product due to its low price. Counterfeit products are
not always named identically to the brand name so it
is important to check for variations in both Chinese
and English. Make sure to also search from a category
perspective so that other forms of infringement such as
patent design can be identified.
Online infringement is often assumed to be the selling
of counterfeit goods but this is not always the case.
Many brand owners do not realize the extent to
which other brands are selling similar products and
referencing it as their brand in the description. Other
types of infringement include:
• Improper use of search key words
• Using brand name in listing description
• Using brand logo in listing description
59
 How to Identify Counterfeit Products Online

Shown below is a snapshot of a possible infringring product.

Suspicious products on e-commerce platforms in China can be primarily identified through the
following three things:

Price Some common keywords include “poor quality”,

Price is one of the clearest indications that a
particular product is counterfeit. If a product is
below the lowest global retail price then it can
be said to some degree of certainty that it is
counterfeit. Pricing between the lowest global
retail price and China retail price is often the
result of parallel importing and anything above
can usually be deemed genuine. Due to global
differentials in price, particularly in China,
parallel imports are common online. Assessing
the sales volume of a listing can help you
determine whether the product is counterfeit or
being sold second hand.
“fake”, “not genuine” among others. Comments can
also be useful in distinguishing whether the product
is lower in price as a result of parallel imports, re-
selling or because it is counterfeit. In this situation
the consumer will often have the best perspective
and their reviews may help with clarification.
Image
Image is much harder to use for counterfeit
identification given that the vendor may often use
genuine images even if the products they are selling
are counterfeit.

Keywords

A good indication other than price is particular

keywords from the comments that suggest the
product is counterfeit or is of poor quality.

60
The Take-Down Systems
Alibaba and Taobao have different systems for take-
down and it is necessary to sign up for both.
AliProtect
With regards to Alibaba, IP holders can use the
AliProtect system in order to react to IP infringement
and report listings. The English AliProtect system can
be found at http://legal.alibaba.com and is free of
charge.
The necessary documents for take-downs through
AliProtect include:
• Identification – Passport
• Evidence of IP Ownership – Patent, Copyright
and/or Trademark Registration Certificate.
• The hyperlink to the infringing listings, type of
infringement and details of what needs to be
removed.
Agents acting on your behalf should provide any
necessary authorization letters. All of the documents
above should be in an electronic form and can be
sent through the AliProtect system. Following the
submission of the above documents and hyperlinks,
AliProtect will notify the infringer of the complaint. At
this point the infringer will either accept or challenge
the complaint.
In the case the infringer challenges the complaint,
the complainant then needs to submit the case for
dispute with AliProtect. They will then decide on the
outcome whether it be a warning, fine or removal
of the infringer. In most cases the infringer will be
blocked if they do not comply, and after a period of
time of non-compliance, the listing will be removed.
TaoProtect
With regards to Taobao, IP holders can use the
TaoProtect system in order to react to IP infringement
and report listings. The TaoProtect system can be
found at http://ipp.alibabagroup.com/submission.
htm and is free of charge. The website also has an
English language option. .
The necessary documents for take-down through
TaoProtect include:
• Identification – Passport
• Evidence of IP Ownership – Patent, Copyright
and/or Trademark Registration Certificate.
• The hyperlink to the infringing listings, type of
infringement and details of what needs to be
removed.
All of the documents above should be in an electronic
form and can be sent through the TaoProtect system.
The Taobao system has gone a step further than
AliProtect in that false accusations against listings
that in fact do not sell counterfeit products may have
repercussions for the complainant. Once a complainant
falls below the take-down accuracy of 90% then this
may start to impact the rate and speed of their take-
down success. For this reason, it is crucial that brands
carefully examine the degree of certainty they have
that if a particular listing is infringing on their brand.
61
 Online to Offline Protection

When trying to identify infringements it is important that the brand realizes the interconnection of both
online and offline action and that neither can be addressed in isolation. Dealing with infringement can
sometimes be an ongoing process and also requires multi-channel monitoring.

The e-commerce platforms are also useful in that they often provide two the following:

• Details of the product manufacturer (especially on Alibaba B2B).

• The point of distribution allowing the brand owner to gain a better geographical grasp on where the
counterfeits are potentially being produced.
• Port of export which can be useful when seizing counterfeit products leaving China.

This information found online can then be used to support offline monitoring in that it narrows both the
geographical scope and helps direct the brand owner in the right direction of the source of infringement.

62
Social Media in
China

WeChat

Weibo

Social Media E-commerce

63
 Overview
Social media has been thriving worldwide and
China has been leading the way. Rapid adoption of
smart devices, a rise in local social media channels
and advanced internet infrastructure are altering
the way people communicate and how companies
interact with customers.
The blocking of Western social media platforms
such as Facebook, Twitter, YouTube and Instagram
has led to the development of local equivalents that
have evolved with their own unique characteristics.
These local platforms play a crucial role in
China’s social media ecosystem and cannot be
ignored. Chinese consumers are becoming more
sophisticated as is their purchasing behavior. In
spite of the huge numbers of social media platforms
across China’s social media space, WeChat and
Weibo have emerged as the dominant players.
Canadian companies looking to expand their
presence into the China market must embrace
platforms such as WeChat (微信), and Weibo (新
浪微博) into their digital marketing strategies in
order to bring Chinese consumers closer to the
brand.
Top Application/
website by 1 2 3 4
country
Canada
China
USA
Japan
As shown in the figure above the digital space in China is vastly different to
all other major countries according to IBM Research. For China the rankings
are 1 - WeChat, 2 - QQ, 3- Taobao, 4 - Baidu, 5 - Tmall.
64
Why WeChat & Weibo?
Each social media platform and network has its own
characteristics, in terms of audience and user profile,
so content and interactions need to be designated
accordingly. Micro-blog network SinaWeibo, for
example, provides a stage for brands to present
themselves and run campaigns. WeChat on the other
hand has evolved from a WhatsApp clone into a multi-
service social network. It offers companies an efficient
and low-cost channel to develop relationships, push
content and encourage engagement.
WeChat (微信)
Since 2011, the growth of Tencent’s WeChat (also
known as Weixin) application across China’s Social
Media landscape has been astounding. Initially
starting off with very similar functions to ‘Whatsapp’ ,
it has now transformed into what is becoming known
as a lifestyle application. In 2016 WeChat represented
over 35% of the time users spend on their mobiles,
more than Baidu and Alibaba combined. There were
750 million monthly active users at the end of 2016
according to Tencent. A guide to setting up an Official
WeChat account can be found in the Appendix.
5
WeChat alone
represents over
35% of the time
users spend on their
mobiles, more than
Baidu and Alibaba
combined. There were
750 million monthly
active users at the end
of 2016.
WeChat Account Types (Subscription or Service)

The WeChat ecosystem offers numerous functions for business use and brands frequently create campaigns
specifically for it in order to engage with current and potential followers. The two WeChat account types
are the service account and the subscription account and the advantages and disadvantages of the two
account types are shown below:

Subscription Account

Subscription accounts are allowed to push at least one message per day, however do
not have the functionality or customization options of a service account. Subscription
accounts are grouped together in WeChat users’ subscription folder, increasing the
challenge of reaching your audience. Users have to actively choose to click into this tab
and check whether any accounts have posted a new message. A subscription account is
recommended for media outlets as opposed to businesses.

Service Account

A service account is recommended for foreign companies in the China market (apart
from media outlets). Service accounts have the flexibility of creating custom menus with
advanced functionalities such as interactive menus and mobile payments and can serve
as a mobile version of your company’s website. Service accounts are displayed next to
user’s personal contacts, and the emphasis is on users to proactively engage with the
brand. A downside to the service account is the content limit of one post per week.

Please see table below that compares the functions of an official subscription and service
account.

Subscription Account Service Account

Main Purpose Marketing and content send out Can offer users services

Message Pushout Frequency 1 per day 4 per month

On the landing menu with contacts

Messages Visibility In the ‘Subscription Account’s’ folder
messages

Account can only be customized for verified

Account interface design All service accounts can be customized
subscription accounts
Collect Follower Data No Yes
E-commerce No Yes

Automated Messages Yes Yes

65
 International WeChat Accounts vs. Mainland China Accounts

A WeChat account set-up outside of mainland China is called an International WeChat account.
International WeChat accounts are not viewable to mainland China users, who are defined as anyone
who registered their account using a China mobile number.

To apply for a mainland China account the Canadian company must either have a legal Chinese entity
or work with a trusted partner with a Chinese entity.

Influence of Social Media on Consumers

An online consumer survey by Bain & Company highlighted a three stage trend of the online consumer
journey in China.
Consumers go online to research
and discover products

Review and share

shopping experience Purchase
online, on platforms such decision and
as WeChat & Weibo transaction

As the product becomes more popular and receives
more reviews, this in return increases its popularity
and helps continue the cycle. Driving trust and
exposure through social media is a must, as it
generates communication around your brand with
significant impact on your conversion rates. For
small to medium sized business who want to sell in
China’s massive online market, social media plays a
key role in a successful China strategy. Companies
and brands need to invest money and time into
localizing marketing content and strategies, as well
as tailoring them to the social media platforms they
are going to use.
Between WeChat and Weibo, user demographics
and behaviors differ significantly. With regards to
age, Weibo attracts a younger demographic with
nearly 70% of its users below the age of 30. When
it comes to instant messaging services such as
WeChat, just over 60% of users are under 30.
Foreign companies need to look beyond increasing
the number of account followers, and focus on
what value-added services they can offer through
their social media accounts, combined with a
global omnichannel approach ensuring that both
offline and online channels are aligned.

66
Case Study: Canada
Wood China
Established in 2003, Canada Wood Group (CWG) is a non-
profit government and industry funded trade association
that represents nine wood product associations located
across Canada. CWG has a China office that helps Canadian
wood product manufacturers diversify and expand in the
China market. The graphic to the right shows their WeChat
subscription account.

Canada Wood China uses their WeChat account to post

timber industry updates, construction projects and training
seminars. This is a good example of an account with the
correct verification.

WeChat Pay and Cross-Border
Transactions
WeChat Pay is an in-application payment system
that allows WeChat users to pay transactions
anytime and anywhere on their smart phones.
WeChat pay provides a seamless and secure
experience to users while also offering a fully
optimized online 2 offline (O2O) business
model. It is the best option for receiving mobile
payments as a foreign company.
The goal of O2O commerce on WeChat is
to create product awareness through WeChat,
which then directs online customers to shop
offline in real world stores. Customers can be
driven offline based on information such as
e-coupons and store locators and driven online
through call for actions such as scanning a QR
code in a store or making a mobile payment.
WeChat payments have become a part of daily
life for Chinese people and can be used for
most everyday tasks such as ordering a taxi,
grocery shopping and paying electricity bills.
Cross-border WeChat pay allows customers to pay in
RMB with transactions settled in a number of foreign
currencies including USD and CAD. For Canadian
enterprises that are looking at China market entry
or selling online, a WeChat e-commerce platform
that is fully supported by WeChat pay can provide
distinct opportunities by bringing your brand directly
in front of Chinese shoppers, even if your business
is located outside of China.
Why Set Up a WeChat Store?
WeChat shops provide users mobile access to
products with a convenient way to handle payments
while customer service features offer merchants
an effective communication channel to millions of
Chinese consumers.
By having customers purchase via a WeChat shop
that is connected to a WeChat public account,
merchants can offer an integrated and intuitive way
for consumers to connect with their brand.

67
 3rd Party E-commerce Platforms

There are numerous 3rd party e-commerce platforms that brands can use to setup a WeChat store,
among which the most popular are Weidian and Youzan. Both Weidian and Youzan use 3rd party
SaaS (software as a service) models and are accessed via the WeChat browser. Buyers can search
for and purchase goods within the application and make payments with WeChat Pay.

Weidian - It is a streamlined registration and administration process which

makes it simple for anyone to sell goods or services. It offers B2C & C2C
models.

Youzan - Youzan is one of the most recognized SaaS WeChat e-commerce

models and has both B2B & C2C models.

Model B2C/C2C B2C/C2C

Service Fee RMB4,800/year Free

Voluntarily provided (starts at

Deposit RMB1,000
RMB1,000)

Commission N/A N/A

WeChat Pay
WeChat Pay
Alipay
Payment Options Alipay
Debit & Credit Card
Debit & Credit Card
Cash upon arrival

Cross-border Capabilities Yes No

Chinese mobile phone number,

Chinese ID, Chinese Business
Chinese mobile phone number, License, Chinese bank account,
Requirements Chinese ID, Chinese Business Organization Code Certificate,
License Proof of bank account, Hand-
written declaration with company
stamp

Number of Merchants 2 Million 50 Million

68
WeChat Account Set-Up and
Verification Process
Getting set up with an official account on
WeChat if you do not have a China entity
can be a challenging and lengthy process.
Companies must provide a China Residence ID
and a China mobile phone number, therefore it
is recommended that foreign companies work
with a partner with a China entity.
In order to register an official account through
WeChat as a Chinese organization, you will need
to submit a number of documents to Tencent.
For more information on these documents
please refer to the Appendix.
Once you have registered your WeChat Official
Account, you will have the option to verify it to
access all of the advanced platform features,
including user’s location, surveys, third-party
applications, WeChat Pay and more. Verifying
the account allows followers to trust that they
are dealing with a genuine account.
There are two forms of verification that Tencent
places on official accounts:
• Verification - Once an account is verified
a gold tick will appear in the account
description
• Trademark Verification – Once an account
has logged their brand trademark with
Tencent, a green shield logo will appear in
the account description.
The process to verify a WeChat account is
entirely in Chinese and can be found in the
Appendix also.
Weibo (微博)
Sina Weibo is one of the largest social media
platforms in China, and is described as Chinese-
Twitter.
Launched in 2009, Weibo provides Chinese people
with freedom of speech and is a leading platform for
news release and information publication. Users can
post up to 140 character long messages as well as
attach multimedia files. There are two types of Weibo
accounts:
• Personal account
• Corporate account
Corporate Weibo is only accessible for companies
government departments and various organizations,
while personal accounts are for individuals.
The Corporate account provide more functions than
personal accounts, including personalized page
display, follower analytics and CRM tools.
Weibo facilitates word of mouth marketing, allowing
your brand to spread from friend to friend through
social networks. This aspect of the platform is
invaluable to foreign companies in creating brand
awareness.
Weibo Payment
In 2013 Sina Weibo partnered with Alibaba to launch
a payment platform called Weibo Payment, making
users of Sina Weibo’s iOS app able to access Weibo
Payment. The partnership between Sina and Alibaba
was the stepping stone in the strategic partnership of
China’s top internet companies.
Weibo E-commerce
In 2013 e-commerce giant Alibaba purchased 18%
of Sina Weibo, with both companies teaming up
to launch “Weibo-Taobao” to make it easier for
customers on Weibo to shop on e-commerce site
Taobao. Users are now able to log on to the Taobao
Market using their Weibo accounts.
In 2016 more than one million Weibo users frequently
used the “Show Window” feature, an e-commerce
function that allows individuals and companies to
promote and sell products directly through their
Weibo account. Show Window allows sellers to
accept payment via Weibo Payment, which 48 million
shoppers use.
69
 Key Opinion Leaders (KOL’s)
The success of WeChat and Weibo has given rise
to a number of influential bloggers and social
commentators who are the 21st century’s new
celebrities in China. Leading KOL’s with millions of
followers can have more social media influence over
consumers than an expensive traditional advertising
campaign.
Small to medium companies can find considerable
value in micro-influencers who offer a far more
realistic option for many brands rather than trying to
tag onto high cost KOL’s.
By doing a bit of research, rather than throwing
money at the first English speaking, seemingly
popular blogger they find, brands can find emerging
Key Opinion Leader Case Study:
Follow Me to BC
In 2015 Destination British Columbia initiated a
campaign called “Follow Me to BC”. The aim of the
concept was to engage travel agents and create a
competition for them to submit their most creative
Canadian itinerary submissions. The campaign
was recognized as a highly successful marketing
initiative in China’s travel industry and due to
its popularity “Season 2” was launched in spring
2016.
Participants could gain insights on Destination
British Columbia’s campaign website www.
WildWithin.cn, and from there design and submit
their own itineraries. The top 10 winners were chosen
through Chinese netizen’s votes and the reward to
British Columbia was hosted between June 14 –
20, with the itinerary including Vancouver Island,
70
On Weib, as of Q3 2016,
monthly average users
grew by 34% year on year.
bloggers and stars who haven’t yet hit the top
level and who are more inclined to enter into a
relationship with a Western brand.
The challenge is finding the right KOL’s that fit your
brand, nowadays there are agencies that will help
you find the right one. KOL’s come in different
packages and presentations, some being music
artists or actors, with others being video bloggers.
Whistler and Vancouver. The winners included 8
travel guests and 2 key opinion leaders, who were
highly active on social media throughout the trip.
A single 3-minute video of Whistler’s zip line tour
posted by one the KOL’s received over 200,000
views in one week.
Key Facts:
• 276 travel agents registered
• 140 unique itineraries designed
• 466,000 page views www.WildWithin.cn
• 8,700 new social media followers during
the 5-week campaign
• Tour dates: June 14-20, 2016
• Social Sharing from tour is ongoing
Chinese consumers are heavily influenced by internet word of
mouth (IWOM) marketing,. The key to engaging key opinion “On social media in
leaders is to focus on building a relationship that is mutually China, if you have over
valuable. Foreign companies will need to understand what 1,000 followers, you are a
a particular KOL is offering their own fans, and then adapt
billboard; if the number
their brand and message to meet this need. If the company
of your followers exceed
approaches the KOL with a proposition that has significant
benefit to them, the company is far more likely to gain their 10,000, you are a magazine.
support for their social media marketing in China. If there are 100,000 people
following you, you could
influence like a metropolis
newspaper does. With
1,000,000 followers, you are
basically a tv channel”.

71
Suggested
Aproaches

Going Online in China

Issues Faced Online

Increasing Your Brand’s Presence

72
 Going Online in China
The common international perception of the online
platforms is that they are:
• Cheap
• Far-reaching
• Efficient Marketing Channels
• Experiencing solid growth
• Quality guarantee through the B2C channels
• The simplest form of entry and lowest risk
A number of these perspectives are often correct and
many companies have entered the online platforms
to great success. The platforms also represent a
more visible and reliable form of business for brand
entrants. Another benefit is that online platforms are
much less fragmented than offline retail, according
to China Skinny, in China the top 100 brick & mortar
stores account for 8% of total retail revenue which
is a stark contrast to 57% in the US. When put into
perspective, Alibaba’s platforms account for 80% of
total online E-commerce meaning that its share is
greater than the top 100 physical retailers alone.
Hence brands can tap into a large segment of the
market purely through online sales.
In China the top 100 brick
and mortar stores account
for 8% of total retail
revenue which is a stark
contrast to 57% in the US
73
 Issues Faced by a New Entrant
It is important to keep in mind that not all
brands that decide to sell product on the online
marketplaces succeed with a great number of them
eventually having to take down their shop after
making successive losses.
Throughout China there are a number of agencies
and partners of Alibaba (TP’s) that state the
necessity of Tmall, which is the biggest platform
with over 50% market share of the B2C platforms. If
you have the budget for the China market then it is
a must, but there are many brands that are smaller
or less prepared for the market that struggle to
achieve any traction on Tmall. Some of the reasons
for this may be:
Associated Costs
There are a number of costs on some of the larger
online marketplaces that can accumulate when a
brand isn’t selling enough product to break-even.
74
Some of the costs include:
• Set-up costs (technology fee, deposit)
• Commission fees
• Advertising and display costs
• Third-party costs
Competitive Pricing
On top of the costs that can be incurred it is important
that competitive pricing is taken into account.
When assessing this aspect, it is vital that a brand
understands which categories are undergoing steep
price reductions and/or under intense competition.
Lack of Brand Awareness
If you don’t have brand recognition in China and
don’t appear on the first few of pages from a category
search then your product will most likely not even
be considered. It is important to look at different
methods of overcoming this such as diverting traffic
and building brand awareness through less expensive
forms of social media.
 Category

It is important that brands understand their This has serious implications for product
categories online performance. Different strategy. This is apparent in the below
categories can yield different price premiums and diagram.
basket sizes irrelevant of how many people are
interested in that particular type of product.
Consumer electronics have much larger
basket sizes on average.

50%
Many consumers purchase their F&B and
E-commerce as a % of total retail

Consumer
household goods online but the total
Electronics
40% value of these purchases is low.

Appliances
30%

Personal Care Apparel

20% Healthcare
and Medicine Household
Products
10%
Home Decor
Food and Beverage

10% 20% 30% 40% 50% 60%

% of consumers who purchase this good online Source: Early Data

As you can see it is important to understand
how your category is performing online, not only
by popularity but also what percentage of retail
spending it accounts for. A number of brands are
successfully packaging their products and selling
them as multi-packs with the same or different
SKUs in order to increase basket size.
When gaining insight into your category it is crucial
to look for certain trends. For example, in 2015
sales of Infant Milk Formula online were staggering
but within months the market changed as a number
of new entrants went to market and towards the
end of 2016 sales dropped significantly.

INFANT MILK POWDER IMAGE

75
 Solutions
What Is My Current Brand Presence?

Before entering the Chinese e-commerce market it
is important to analyze your current brand activity
and exposure by examining the brand’s offline
presence and current Asian distributor presence in
market. Another way of understanding presence is
to look on C2C sites, such as Taobao, for parallel
imports.
If there is a sufficient amount of listings or if the
product has a strong online presence such as the
example below then it is an indication that the
Chinese consumer already has interest in your
brand. In this case, online presence on some of
the larger sites, such as Tmall, and finding a good
partner to help manage your online activity is
advisable.
However, if this is not the case, which it is for
a number of small-medium sized brands, then
investment in brand presence across a number of
marketplaces is recommended.

REDO

Source: RedFern Analysis

76
Increasing Brand Presence
The most effective methods for increasing
brand presence in the China market are through
establishing accounts on WeChat and Sina Weibo.
Once you have gained enough traction and brand
awareness, this will increase your ability to do two
things:
1. Increase in Brand Exposure: There
will be more brand searches on the online
marketplaces, increasing the chance of being
purchased.
2. Traffic Diversion: Followers on social media
can be diverted to the online marketplaces
your brand is selling through. Some of the
marketplaces can also be embedded into your
Social Media platform.
However, when dealing with social media it is
important to keep in mind the following factors:
Follower Retention: WeChat is a form of social
media that retains followers rather than attracts
It is important that social media is used in order
to raise brand awareness and to also direct
consumers to the listing, avoiding the issues of
visibility that result from the category search. In
order to overcome the fact that the main three
contenders in the online space (Tencent, Alibaba
them unlike other forms of social media platforms.
The use of KOLs and advertising can overcome this
problem but at a relatively high expense.
Investment: In order to build and maintain social
media presence, there needs to be a lot of time and
resources invested in ensuring that the content is
interesting, engaging and relevant.
Connectivity: Some of the major platforms block
each other. The fact that the below platforms block
each other has some repercussions for your brand
online meaning that you need to have investments
in more than one channel. Interestingly Alibaba
sites have blocked Baidu indexing as a way of
ensuring that the consumer must search inside
Alibaba sites. If you have a Tmall shop for example
then you cannot open it through WeChat, and if
your brand is searched on Baidu then your Tmall
shops won’t appear in the search results.
and Baidu) block each other, there needs to be
a different approach from diverting traffic from
social media.
77

The above diagram demonstrates how traffic can
be diverted from WeChat and Weibo to JD and
Tmall respectively. Brands can use Weibo and
WeChat to direct traffic directly to the E-commerce
platform. If your brand appears on the third or
fourth page of a category then it is likely that your
competitors whom are more visible and appear on
the first page will be purchased.
78
JD
Source: RedFern Analysis
It has to be reiterated that as a result of Tencent
and Alibaba blocking each other it is better that
social media from Sina Weibo is diverted to
Tmall/Taobao and traffic from WeChat is diverted
to JD (WeChat also allows for integrated JD shops
in Service accounts).
Phased Entry Approach

An omnichannel, staged approach across a

number of platforms is advised when entering
China e-commerce. A lot of brands tend to
focus too much on some of the bigger platforms
without looking at some of the more niche or
cross-border sites.

Chinese consumers often compare products

on different platforms or will shop on particular
platforms for certain categories, for example,
cross-border health foods and nutraceuticals
often sell well on sites such as Kaola while
consumers interested in reviews or new products
in the market might turn to more social sites
such as XiaoHongShu (小红书).

Vertical platforms such as Jumei or Yiguo, cater

more to specific categories such as cosmetics
and fresh food respectively. It would make
sense from a brand’s perspective, if they fit
into either of these categories, that they should
have a presence on these sites.

79
Alibaba Solutions
for Business
Contributed by Alibaba Group
Alibaba Solutions for Businesses
Alibaba is well known for its e-commerce platforms,
Question 2: What can I do on Alibaba.com?
and the GMV (Gross Merchandise Volume) on retail
marketplaces reached nearly 500 billion USD in FY
Answer: There are two types of users on Alibaba.
2016, making it the largest retail marketplace in the
com, which includes supplier and buyer. Alibaba.
world. Alibaba provides more than just e-commerce,
com offers both free and paid memberships. As
and our customers are also able to gain access
a Free Member, you do not need to pay any fee
to a variety of services and businesses in Alibaba
to buy or sell on Alibaba.com. Besides, there
ecosystem, which includes payment, logistics,
are a number of advantages to becoming a paid
tourism, etc. Different solutions and options are now
member, also known as a ‘Gold Supplier’. A Gold
available to open your gateway of business to the
Supplier Membership allows a merchant to get 3rd
Chinese market.
party verification, professional web design, post its
products and receive buying requests from all over
Scenario I: If you want to do the world, which helps expand its business globally.
wholesale business globally As a buyer, one can join free to search products or
post quality sourcing requests for quotation (RFQ)
at AliSource Pro (a paid service) to find a supplier
Question 1: What can I do if I want to do
globally.
wholesale business globally?

In addition, Alibaba.com offers Trade Assurance,

Answer: Alibaba.com (www.alibaba.com) is the
a free service that’s designed to help create trust
first business of Alibaba Group, established in
between buyers and suppliers. Trade Assurance
1999. It is a world leading multi-language wholesale
covers you in the event of shipping or quality-
marketplace for global trade. Users on Alibaba.
related disputes. Buyers will be covered if your
com, who are located in more than 200 countries
products are not shipped on time as per the
and regions all over the world, are typically trade
contract with your supplier or your products do not
agents, wholesalers, retailers, manufacturers and
meet the quality standards as per the contract with
SMEs engaged in the import and export business.
your supplier.
We provide one-stop sourcing solution by giving
suppliers the tools necessary to reach a global
audience for their products, and by helping buyers
find products and suppliers quickly and efficiently.
A Canadian merchant can visit www.alibaba.com
to join as a member and start its global wholesale
business.
Scenario II: If you want to sell
retail to China on your own
Question 1: Can I sell directly to China?
Answer: Yes. Tmall (www.tmall.com) and Tmall
Global (www.tmall.hk) are two good options.
Tmall is an open (business-to-consumer) B2C
platform dedicated to providing a premium shopping
experience for the increasingly sophisticated
Chinese consumers in search of top-quality branded
merchandise.
Tmall Global was launched in 2014, and is now the
largest online cross-border B2C retail marketplace
within China, enabling international brands and
retailers without physical operations in China to sell
directly to Chinese consumers. On 3rd September
2016, the Canadian Country Pavilion was officially
inaugurated on Tmall Global.
Question 2: What are the main differences
between Tmall and Tmall Global?
Answer: The following chart explains the main
differences between these two platforms:
Question 3: How do I apply to open a storefront?
and what are the procedures?
Answer: It is advised to follow the steps below for
opening a storefront on Tmall or Tmall Global:
As for the specific details (in either Chinese or
English), please refer to:
pages.tmall.com/wow/seller/act/zhaoshang (for
Tmall)
rule.tmall.hk/gseller/rule/index.htm (for Tmall
Global)
Question 4: How can I operate my store when I
lack e-commerce operation experience?
Answer: Our recommendation is to partner
with a TP (Tmall Partner). A TP is a party that
provides Tmall Global merchants with high quality,
transparent and one-stop cross-border e-commerce
operation services.
A dedicated team set up in Canada or in China can
monitor and run your online store. It is important
to have people to be available for day-to-day
operation. Somebody with good knowledge about
China linguistically and commercially will be a
good choice, and an abundance of e-commerce
experience is a plus.
Scenario III: If you want Alibaba Scenario IV: If you want
to sell for you purchase on Alibaba
Question 1: What can I do if I want the platform Question 1: What if I want to buy products from
to sell to me? Alibaba as an overseas consumer?

Answer: Certain categories of products are
available through the one-stop solution offered by
Tmall and Tmall Global. There are 3 different ways
for direct purchasing from the platform:
Tmall Choice: It provides merchants with an
easy way to reach Chinese consumers if they want
to test the market, including categories of mom &
baby products, home supplies, cosmetics, personal
care products, food and beverage, health and care
products, light luxuries, as well as wines.
Answer: Launched in 2010, AliExpress (www.
aliexpress.com) is a global business-to-consumer
(B2C) retail marketplace targeted at consumers
worldwide, many of them located in Russia, the
United States, Spain, Brazil, France, and the United
Kingdom. The platform enables consumers from
around the world to buy directly from manufacturers
and distributors in China and have access to a wide
variety of products at competitive prices.
Shopping on AliExpress is much easier than you
think, as is shown below:

Tmall Supermarket: Tmall Supermarket is an

online supermarket operated by Tmall. Consumers
purchase their daily necessities from Tmall
Supermarket and receive products in uniformed
packages

Mr Fresh: Mr. Fresh is an online flagship store

for foreign fresh products on Tmall. Mr. Fresh
offers a complete suite of customer solutions:
marketing, sales, logistics and customer services,
offering foreign suppliers a low-cost entry to the
Chinese market. As you may notice, fresh food and
beverage tend to be major product categories that
are entitled to such direct purchasing services.

Question 2: How do I approach such channels to

let the platform purchase my products directly?

Answer: Currently, such purchases are proposed,

negotiated and finalized by Alibaba staff with the
merchants directly. It is advisable to study the Tmall
platform and if you believe direct purchasing can
be a good option, one possibility is to contact the
relevant commercial representatives in the Canadian
missions locally and seek whether it is possible to
refer your products to Alibaba.
Scenario V: If you want to
complete payment on Alibaba’s
platforms
Question 1: How does Alibaba facilitate payment
solutions?

Answer: Launched in 2004, Alipay is a third-party

payment platform under Ant Financial, and now is
the world’s leading third-party payment platform. As
of June 2016, Alipay has over 450 million registered
users and over 200 financial institution partners,
For more details, please refer to:
offering payment services for around 10 million
small and micro merchants. Dedicated to creating https://global.alipay.com/
an open ecosystem, Alipay has evolved from a
digital wallet to a lifestyle enabler. Ant Financial
runs Alipay, Ant Fortune, Ant Financial Cloud and
Scenario VI: If you want to
other financial services. enjoy enhanced logistics
solutions
Our ongoing efforts to engage global partnership
and innovative cross-border payment products
Question 1: What What can I do if I want to ship
(shown as below) will facilitate payment for
products to China?
consumers home and abroad.

Answer: Cainiao Network is an affiliate company

of Alibaba powered by big data technology. It
operates a logistics data platform that enables its
logistics partners to find the most efficient routes to
ship packages for the customers and merchants.

For an overseas merchant hoping to ship their

products to China, especially in the case of Tmall
Global, Cainiao currently offers two major logistics
solutions: a bonded warehouse or a Global
Fulfillment Center (GFC).

A bonded warehouse is located in China, where

products will be shipped in first and then clear
Question 2: How do I connect my business with customs after receiving orders from customers.
Alipay?
A GFC is located overseas, and orders are sent
directly to the GFC where the products will be
Answer: The services provided by Ant prepared and packaged for shipment to China.
Financial and its affiliates cover payment, wealth
management, credit reporting, private bank and
cloud computing.

We offer different payment solutions for businesses

on how merchants can connect with Alipay.
Scenario VII: If you want to
accommodate a growing
number of outbound Chinese
tourists

Question 1: How can I leverage Alibaba’s

platforms to engage with Chinese tourists?

Answer: Fliggy (previously known as “Alitrip”) is

Alibaba’s online travel platform, and it has become
one of the premier choices for Chinese tourists,
especially when traveling abroad. In 2016, about
28 million Chinese tourists traveled overseas via
Fliggy. Currently, more than 500 IATA members and
250,000 hotels are available on Fliggy. Similarly,
about 2 million different kinds of travel products are
being offered, and the platform has covered more
than 8,000 scenic spots worldwide.

Question 2: What should I do if I want to enroll on

Fliggy?

Answer: Enrollment on Fliggy International

Platform (Fliggy.hk) is based on invitation. Currently,
the interface for the self-help application has not
yet opened. Merchants who enroll on the Fliggy
International Platform (Fliggy.hk) will need to provide
the required materials of proof in order to be
approved after document review.

Merchants who enroll on Fliggy International

Platform (Fliggy.hk) should meet at least the
following criteria:
1. Own a legally registered corporate entity
overseas
2. Meet qualification requirements of their country
of registration for the supply of the relevant services
3. Have the capacity to provide services to Chinese
tourists

For more detailed information, please refer to:

https://www.alitrip.hk/enrollment
 Conclusions

Main Considerations For Approaching The Market

General Tips For Doing Business In China

86
Main Considerations for Approaching
The Market
Approaching any new market, especially a developing one like China, is a challenge that requires
careful planning as well as commitment from all levels of management. E-commerce in China is
no different to approaching the market by more traditional means.

The e-commerce marketplace model in China addresses many of the common challenges
Canadian companies normally face when exporting to China. There is a cost to selling on
marketplaces, such as transaction fees and not having creative freedom to manage your
marketplace page, but the benefits are quite obvious. There are partners to manage logistics
and the marketplace already works with the main domestic payment processing companies.
The marketplace itself is also familiar to Chinese consumers with a substantial amount of
aggregate traffic, especially during special events.

Specific considerations are:

Facing – Develop a web page and/or storefront on a marketplace with the

appropriate “look, touch, and feel” that is in line with your overall brand.

Pricing Strategy – Develop a pricing strategy that is aligned across all channels.
Competing on price is not always the appropriate solution. Invest in finding the right
price point for your products.

Service – Offer during and after sales service, either directly or utilizing a 3rd party
partner.

Marketing/Traffic Generation – It is important for Canadian companies to

invest in activities that generate traffic to their page or marketplace shop. If internal
capabilities are lacking, consider outsourcing this to a 3rd party service provider.

Fulfillment and Supply Chain – Chinese consumers are used to receiving

goods within days or hours of purchasing them. Fast and efficient fulfillment is critical
to success in the market. Companies also need to be able to manage returns in an
efficient manner. If you are unable to develop your own supply chain, then consider
working with an integrated 3rd party logistics provider (3PL).

Choosing the Correct Model – Understanding which model you should be using
to exploit the market is critical to success. It is important to spend time assessing the
different options available. Use a third party consulting firm if necessary.

87
 General Tips For Doing Business in
China
It is important to remember that China, although a large and attractive market, is a developing economy and
is a difficult market for foreign companies to navigate. There are significant challenges and being prepared for
them is important.

You may wish to consider the ten suggestions below for approaching the China market, regardless of
industry, size and method:

Be flexible with deadlines – China does not China is a “Rule-by-Law” country –

perceive efficiencies the same way as Canada.
Senior management must be committed
– You need to invest more than just money, if not,
do not expect positive results.
Don’t check your brains in at the border
– If something doesn’t make business sense, then
why are you doing it?
Be mindful of corporate rigidities – Past
success in other markets does not mean you
will succeed in China. Adapt to specific market
conditions.
Guanxi6 retires or goes to jail – You will
never likely have real “guanxi” in the first place.
Rely on sound business models and government
procedures.
Authority will sometimes trump regulations,
be aware of this.
The Chinese are unique personalities
beware of cultural bias – It takes many
different types of people to fill a country of a
billion plus. Be careful of assumptions.
Know what you don’t know – Don’t be
afraid to admit it. You can rely on trusted
partners to fill in gaps in knowledge.
There is no such thing as a China
expert – Even amongst locals. The country
is too large and diverse for a person to be an
expert on everything within the country. You
should rely on specific area experts.

China is a low trust business environment

– Do not rely on the other side’s sense of fairness.

6 | “Guanxi” is a Chinese word that refers to relationships

88
Disclaimer
This report has been prepared by a team of market research professionals working in cooperation with the
Consulate General of Canada in Shanghai.

This report is intended to provide a general overview of e-commerce in China and act as a guide for Canadian companies
with interest in the China market. It is not intended to provide exhaustive coverage of the topic and readers should be aware
that policies, regulations and general market conditions related to e-commerce in China evolve rapidly.

The information herein is made available on the understanding that the Canadian Trade Commissioner Service (TCS) is not
providing legal, financial, or any other form of professional advice. Therefore, while all care has been taken to ensure the
accuracy of the information in this report, the TCS does not accept responsibility for any losses incurred through errors or
omissions in this report. Any person relying on this report does so entirely at their own discretion and at their own risk. The
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in this report, nor for any act or omission of any business connected with such products and services.

About RedFern Associates

RedFern Associates is an established advisory firm with decades of accumulated
knowledge and business acumen specializing in China. We employ a combination of
technical expertise and commercial experience for China market solutions.

RedFern Associates provides commercially relevant, practically useful advice, which RedFern Associates (China) Limited
adds value to companies at all stages of the China business cycle. Our clients range Ryan@redfern.com.cn
from SMEs, fortune 500 companies, governments to industry associations. www.redfern.com.cn

About Sovereign China

With offices in Beijing and Shanghai, Sovereign China provides a suite of services
designed to lead foreign investors through the China market entry process and to
support them to develop long-term success. We are with our clients from planning to
execution - from assisting with understanding the market and developing a market SOVREIGN (CHINA) LIMITED
entry strategy, through to establishing operations and providing bkack office and Mray@Sovreigngroup.com
compliance support services. www.SovreignGroup.com/China

About Kung Fu Data

Kung Fu Data is a leading analytics and optimiation partner for Tmall and JD, and
offers complete transparency and accountability with fully dedidacted resources:
70+ employees, 3 bi-lingual offices in Beijing, Shanghai and San Francisco.

©Government of Canada 2017 | Publication date: March 2017

 Appendix
Key Definitions

List Of Potential E-commerce Partners

Overview Of Key Categories

90
Appendix - Key Definitions
3PLs
Third-party logistics, refer to companies that provide services to
its customers of outwwwwsourced logistics services for part, or all
of their supply chain management functions, usually specialized in
warehousing and transportation services that can be scaled and
customized to customers’ needs based on market conditions.
B2B
Business-to-business, refers to commerce transactions between
businesses, such as between a manufacturer and a distributor, or
between a distributor and a retailer. For example, Alibaba is the
largest B2B e-commerce platform in China.
B2B2C
Refers to Business-to-business-to-consumer platform, a business
pattern adopted by some e-commerce platforms such as JD and
Jumei which have self-operated businesses, i.e. sourcing products
from suppliers and then selling to consumers on their own online
platforms.
B2C
Business-to-consumer refers to transactions between businesses
and consumers, such as between a retailer and consumers, or
between a distributor and consumers, or an e-commerce platform
and consumers. For example, Tmall is the largest B2C e-commerce
platform in China.
C2C
Consumer-to-consumer refers to electronically facilitated
transactions between consumers via third-party platforms such as
Taobao and Ebay.
CAGR
Compound annual growth rate is a measure of growth over multiple
time periods.
FICE
A foreign invested commercial enterprise. This can be a JV or
WFOE and has the right to import, export, and distribute goods
within China.-
WFOE
Wholly foreign owned enterprise is the typical legal entity that
foreigners establish to operate in China. It has a number of forms
such as manufacturing or service WFOEs. Each WFOE is given a
business scope at creation which determines the scope of activities
it can engage in.
RO
Representative office.
Flagship store
A flagship store is where companies can sell their own brands (R or
TM trademark). It can be different types of products, but needs to
be under the same brand name.
ICP license
Refers to internet content provider license, required for commercial
websites (which offer goods or services to customers) with their
own domain name that operate inside China, in line with the
Telecommunication Regulations of the P.R.C.
ICP filing
Refers to internet content provider filing, required for non-
commercial websites (which are purely informational and not
involved in direct sales) with their own domain name that
operate inside China, in line with the Telecommunication
Regulations of the People’s Republic of China.
Franchise store
A franchise store can sell several types of products under
different categories.
SEO
Search Engine Optimization is the process of affecting the visibility of
a website or web page in a search engines’ unpaid results.
Specialty store
Specialty stores sell products under the same category.
TP
TPs are third party management companies and are one of the
most important partners in China’s e-commerce ecosystem. They
manage the store page of a retailer in a marketplace platform such
as Tmall. They also have relationships with the platform and can
assist in driving traffic to a brand’s page.
VAT
Value-added tax is a type of tax imposed on the value added to
a product, material, or service during manufacture or distribution.
VPN
Virtual private network is a network that uses a public telecom The Foreign Investment Catalogue is one of the key mechanisms for

infrastructure such as the Internet to provide users with secure regulating foreign direct investment in China. It categorizes foreign

access to an organization’s network domestically or abroad. invested projects as “encouraged”, “restricted” and “prohibited”

It ensures privacy through security procedures and tunneling industrial sectors.

protocols such as the Layer Two Tunneling Protocol (L2TP). Data is

encrypted at the sending end and decrypted at the receiving end. COFCO
China National Cereals, Oils and Foodstuffs Corporation, is one of

GACC China’s state-owned food processing holding companies. COFCO

General Administration of China Customs is responsible for the Group is China’s largest food processing, manufacturer and trader

collection of value added tax (VAT), customs duties, excise duties,

and other indirect taxes. It is also responsible for managing the MFN

import and export of goods and services into China Most favoured nation.

SAIC O2O

The State Administration for Industry and Commerce is responsible Online-to-offline commerce is a business strategy that draws

for advancing legislation concerning the administration of industry potential customers from online channels to physical stores.

and commerce in China.

KOL

Positive List Key opinion leaders refer to influential public figures, whom people

The Positive List involves a total of 1142 commodity categories. Only perceive as experts in certain fields. They are very popular in China,

the listed categories can be imported to China through cross-border they are a powerful marketing tool for brands.

e-commerce, commodities out of the positive list are forbidden to

import through this trade mode.

SME
Small and medium-sized enterprises (SMEs) are non-subsidiary,
independent firms which employ fewer than a given number of
employees

IP
Intellectual property rights include: trade marks to distinguish your
goods and services. patents for new inventions. registered designs
for the design of your products.

FTZ
Free trade zones in China are a specific class or economic zones;
an area where goods may be landed, handled, manufactured and
re-exported without intervention of the customs authority.

APP
Mobile application

FIC
Appendix - Establishing a Cross-Border E-commerce Store
The following outlines the general procedure for a
company to export via cross-border to China:
1) Registration of good with Authorities
Depending on which good is imported via cross-
border the product may require some registration
as per regular trade as per the Positive List. For
example infant formula requires registration as per
traditional trade and cosmetics which also require
registration and prior importation as per normal for
them to be allowed into the channel.
2) Sourcing of local partner or establishment of
a local entity
Depending on the platform that the shop is being
established on the brand may need to source a 3rd
party in China that has been approved to represent
a foreign company or establish a local entity. Please
check with the specific platform to understand the
exact requirements.
3) China entity filing with Administration of
Quality Supervision, Inspection and Quarantine
(AQSIQ) and Customs
through this channel. Once completed this filing is
effective nationwide for all cross-border activities.
This filing is normally handled via the cross-border
site, with the local CIQ and Customs and typically
covers the following details for each product:
• Product name
• HS Code
• Brand
• Model of the product
• Specifications
• Country of origin
• Manufacturer
• Overseas exporter
• Main constituent of product
• Information of any applied standards
Please note that there will be differences to the
above list dependent on location and the product. If
the filing is for products that are deemed to be high
risk products, such as infant formula, there may be
additional requirements. Typically this filing process
can take up to 4 months from start to finish.

If the marketplace requires that the brand has a

local entity in market this entity must conduct
a record filing with AQSIQ and Customs. Once
completed this filing is effective nationwide for all
cross-border activities. This filing will require the
following information:

• Proof of trademark registration in the home

country
• Proof of registration of the home country’s
company
• Proof of the company’s bank account

4) Product filing with AQSIQ and Customs

This filing is required for the product and is

completed with the marketplace irrespective of the
site and covers the goods that will be exported
Appendix - WeChat Setup Process and Verification
WeChat Account Set Up Process
Getting set up with an official account on WeChat
if you do not have a China entity can be a
challenging and lengthy process. Companies must
provide a China Residence ID and a China mobile
phone number, therefore it is recommended that
foreign companies work with a partner with a China
entity.
In order to register an official account through
WeChat as a Chinese organization, you will need to
submit the following documents to Tencent:
• Chinese ID (身份证)
• Chinese mobile phone number
• Chinese Business License (营业执照)
• Chinese Organization Code (组织机构代码证)
Step 1. Account Creation
Create an Account at www.mp.weixin.qq.com
Step 2. Verify Email Address
WeChat will send an email to the address you
provide. Click on the link within forty-eight hours to
activate your account
Step 3. Select Official Account Type
• Service Account (服务号)
• Subscription Account (订阅号)
• Enterprise Account (企业号)
Step 4. Account Details
It is recommended to prepare the following
documents before completing the account details
form as the web page can time out:
• Chinese Business License (Color scan with Account Admin Platform.
company chop from most up to date audit)
• Photo holding Chinese ID (Card information Step 2 – Verification Application
must be visible)
• Completed WeChat Application form before
completing the form as the webpage times out.
Once the form has been completed, you are
required to upload a scanned image of the
completed, signed and chopped WeChat
Application Form.
Step 5. Account Appearance
The final step is entering desired account name
(cannot be changed) and a brief introduction to the
company (can be edited once per month).
It may take up to seven business days for the
account to be processed. WeChat will send
an email to you once account registration is
complete.
How to verify an official service
account
As with the account registration process, the
verification process is entirely in Chinese. To
verify an official WeChat account if your company
has a China entity, you will need the following
documentation (for those companies that do not
yet have a China entity you may use a third party
provider to set up the account, such as RedFern
Associates:
• Account administrator’s Chinese ID (身份证)
• Chinese Business License (营业执照)
• Chinese Organization Code (组织机构代)
• Verification Application Letter (申请公函)
• A WeChat Payment account with at least
¥300 in credit
Step 1 – WeChat Official Account Admin Platform
Log into the account via the WeChat Official
At this stage you will be notified of a RMB300
auditor fee, and then must agree to the Terms of
Service.
Step 3 – Complete application form
Step 4 - Account Name
WeChat encourages the use of your official
company name as your Verified WeChat Official
Account Name.
Step 5 - Payment & Receipt
Please note, Sina uses a third party translation
company to translate foreign documents,
additionally they will charge a fee for the
translation if it’s required.
The verification process can take up to 20 business
days to complete.

Enter contact information if you would like to

receive a receipt for the RMB300 audit fee.
Payment can be made with your company’s
registered China bank account, or alternatively with
WeChat payment.

Step 6 – Processing

It may take up to five business days to process

the application, and verification service will likely
contact you to confirm application details.
Upon completion of registration, you will receive a
notification

Weibo Account Verification

Verification is to certify the genuine identity of the
account user and has separate procedures for
individuals and companies.

How to Set up a Verified Corporate

Weibo Account:

The documents that are required to establish a

corporate Weibo account include:

• Company certificates (the function should

be the same as a Chinese business license)
• Corporate Weibo Username
• Company’s full name
• An Authorization Letter if your company
is using a third party such as RedFern
Associates to manage and set up the Weibo
account. The document should be with
Company’s seal or legal person’s signature.
• Contact (can be company or contact of
third party)
Appendix - List of Potential E-commerce Partners

Company Name /
Categories Description
Website

Bysoft
A comprehensive web development company in China
(www.bysoftchina.com)

Taobao/
Tmall Bluecom (Shanghai)
Reliable and creative partner of professional e-commerce solutions
(www.bluecomgroup.com)
Partners
Baozun Inc
(www.baozun.com) A leading, digital and e-commerce service partner in China

Shanghai Shine-Link International Offers high-quality logistics services. Has a national service network covering
Logistics Co., Ltd. (SLC) the key areas and main cities in China such as Eastern China, Northern China,
(http://www.chinaslc.com) Southern China and Midwest.

Cainiao
Alibaba’s logistics affiliate, and a nationwide delivery service provider.
(http://www.alibabagroup.com)

Third Party Kerry Logistics Asia’s leading logistics service provider with solid presence in countries and a
Logistics (https://www.kerrylogistics.com) global network covering over locations across six continents.

Express deliveries worldwide; freight forwarding with planes, trucks, ships

DHL and trains; warehousing services that go beyond just storage, but include
(http://www.cn.dhl.com/zh.html) everything from packaging to repairs; international mail deliveries; customized
and specialized shipping

UPS Supply Chain Solutions

The largest express carrier and package delivery company in the world. A leading
(http://www.ups.com/content/cn/
provider of specialized transportation, logistics, capital, and e-commerce services.
en/index.jsx)

China Merchants Logistics

The country’s leading full supply chain logistics service providers. Has established
Holding Co., Ltd.
efficient logistics network in over 700 cities in China.
(http://www.cml-1872.com)
Freight/Delivery
(International)

FedEx Express provides fast and reliable delivery to every U.S. address and to
Federal Express more than 220 countries and territories around the world. FedEx uses a global
(www.fedex.com/cn_english) air-and-ground network to speed delivery of time-sensitive shipments, usually
in one to two business days with the delivery time guaranteed.

Table to be continued...
…Table continued

Company Name /
Categories Description
Website

Sinotrans Limited A leading global integrated logistics service provider which integrates ocean
(www.sinotrans.com) freight, air freight, road and rail transport, international express, etc.
Freight/Delivery
(Domestic)
SF express
Provides logistics distribution and express delivery services.
(www.sf-express.com/cn/en)

Shanghai Shine-Link International Offers high-quality logistics services. Has a national service network covering
Logistics Co., Ltd. (SLC) the key areas and main cities in China such as Eastern China, Northern
(http://www.chinaslc.com) China, Southern China and Midwest.

Cainiao
Alibaba’s logistics affiliate, and a nationwide delivery service provider.
(http://www.alibabagroup.com)
Digital
Optimization
Kerry Logistics Asia’s leading logistics service provider with solid presence in countries and
(https://www.kerrylogistics.com) a global network covering over locations across six continents.

DHL
Express deliveries worldwide; freight forwarding with planes, trucks, ships
(http://www.cn.dhl.com/zh.html)

OMD China
(www.omd.com/china/global- A leading global advertising and marketing communications services company.
media-agency)
Brand Marketing
WPP companies exist to help their clients compete successfully: in marketing
WPP
strategy, advertising, every form of marketing communication and in monitoring
(www.wppchina.cn)
progress.

Payment Alipay Global

Provides payment services for international online businesses.
Processing (http://global.alipay.com)

Infrastructure ChinaNetCloud The world's largest Internet Managed Services company. It helps firms build,
support (www.chinanetcloud.com) optimize, and manage their Internet infrastructure.

Marketplace Kung Fu Data Kung Fu Data provides e-commerce intelligence using live platform data at a
Analytics (www.chinanetcloud.com) fraction of the cost of hiring consultants.

Table to be continued...
…Table continued

Company Name /
Categories Description
Website

Tmall A Chinese-language website for business-to-consumer online retail,

(www.tmall.com) operated in the People's Republic of China by Alibaba Group.

Face to overseas companies, It is a platform for international businesses to

Tmall Global
sell brand name goods to consumers in mainland China, Hong Kong, Macau
(http://tmall.hk)
and Taiwan.
Third party
marketplace
platforms

Jing Dong (JD) A Chinese electronic commerce company headquartered in Beijing. It is

(http://en.jd.com) one of the largest B2C online retailers in China by transaction volume.

Sovereign is a leading full service corporate services provider and

Sovereign China consulting firm that specializes in China market entry – from strategy
www.sovereigngroup.com to execution – and assists clients with their long term success in the
market.

Reach24H Consulting provides global chemical compliance solutions

Market Reach24H Consulting
and have experience in assisting clients in the food, agrochem, and
Intelligence www.reach24h.com
cosmetics industries.
and entry

Excellent Trading provides consulting, importing, and management

Excellent Trading services to overseas clients, and provide one stop ‘Turn Key’ distribution
www.extrading.com services for clients who wants to enter the Chinese market in the easiest
and fastest way.
Overview of Key Categories
The following are high level overviews of the following four key categories:

1. Baby care products & baby formula;

2. Seafood;
3. Alcohol and wine; and
4. Nutraceutical.

These overviews, while containing useful market information, should not be considered a substitute for comprehensive
market research work.

1) Baby Care Products and Baby Formula

China boasts one of the largest markets for baby care products and baby formula in the world. Demand in China for
baby care products and baby formula has been growing rapidly in the past decade and is expected to maintain at least
6% annual growth through 2024. Some of this growth is attributed to the changes made to the controversial one-child
policy, as Chinese couples are more freely able to have a second child, as well as increasing disposable incomes, which
Chinese couples are willing to spend a relatively large proportion of on their children.
The market is rife with health and safety scandals. The 2008 melamine scandal, where milk powder contained
dangerously high levels of melamine to increase protein readings, is still fresh on parents’ minds. The scandal affected
300,000 victims, including 6 infant deaths. This
and other safety concerns are driving parents to
Transaction Volume - Baby Products
purchase overseas products for their babies.

E-commerce has provided overseas companies with

direct access to Chinese consumers looking to
purchase baby care and baby formula products
for their children. Monthly transaction volumes for
both baby products and baby formula sales online
are growing rapidly.

On Tmall, China’s largest e-commerce marketplace

platform, within the baby products category, the total
transaction volume increased by 35 percent from
2014 to 2015, exceeding 220 million transactions
Source: Kung Fu Data | Note: there is a drop in transactions in Jan / Feb (except alcohol), this
2015. In the baby formula category, the total
corresponds with the Chinese New Year holiday.
annual transaction volume increased by 17 percent,
Transaction Volume - Baby Formula reaching nearly 14 million total transactions in 2015.
Monthly transaction volumes for baby products and
baby formula are illustrated in the charts on the left.

In the baby formula category, Dutch and German

products ranked second and third accounting
for 22 percent and 13 percent respectively of the
monthly transaction volume in January 2016. China
dominated with 31 percent of transaction volume
in January 2016.

Source: Kung Fu Data

2) Seafood Products

Consumption of seafood products in China has been increasing steadily since 2005 at a compound annual growth
rate of about 4 percent. The overall production of seafood products exceeds 40 million tons and the industry value
is expected to reach USD$ 112 billion by 2017.
Consumption is expected to reach 42.5 kilograms per capita by 2022. As per the chart below, over one third of
consumption is freshwater fish while marine fish accounts for less than twenty percent of consumption.

The amount of seafood products being sold

China Seafood Consumption Per Capita
online is rapidly growing. On Tmall, China’s
largest e-commerce marketplace platform,
within the seafood product category, the
total transaction volume increased by 76
percent from 2014 to 2015, growing from
11.5 million transactions in 2014 to over
20 million in 2015. In January 2016, the
monthly transaction volume reached nearly
3.5 million as illustrated in the chart below.

Chinese products dominate seafood

transactions, accounting for 50 percent
of the nearly 3.5 million transactions in
January 2016. Norwegian seafood was the
second highest and accounted for 3 percent
of total transaction volume in January with
nearly 90,000 transactions. Canadian
Source: Sovereign Analysis seafood ranked third and accounted for 2
percent with nearly 60,000 transactions.

Due to CIQ inspection requirements,

seafood is not able to be purchased via
cross-border e-commerce channels.

3) Alcohol and Wine

Transaction Volume - Seafood
China’s is one of the world’s largest markets
for alcoholic beverages, with a per capita
consumption of nearly seven liters per year.
Spirits and beer are the most commonly
consumed alcoholic beverages; however,
wine is the fastest growing segment and
is becoming more especially popular with
young, affluent consumers. In terms of
spirits, baijiu, brandy, whiskey, and vodka
have the highest sales volumes. Baiju
is a traditional Chinese spirit consumed
regularly at festivals and celebrations. It is
by far the preferred spirit among Chinese
consumers.

Source: Kung Fu Data

 Transaction Volume - Spirits

Source: Kung Fu Data

Considering only grape wine, the transaction volume increased by 55 percent from 2014 to 2015, reaching nearly 5.9
million transactions. Within wine, French wine accounts for the most number of transactions, accounting for nearly 25
percent of the 1 million transactions in January 2016. Chinese wine and Spanish wine are ranked second and third,
accounting for 15 percent and 8 percent of the transaction volume in January 2016. Canadian wine ranked tenth in
terms of transaction volume, with 3,220 transactions in January. Approximately 70% of the wine sold on marketplaces
is priced at about RMB200 per bottle. There are relatively few Canadian wine products being listed, although Ice Wine
is easily found on a number of different marketplaces. The below chart illustrates the monthly transaction volume for
grape wine from January 2014 to January 2016:

Approximately 70% of the wine sold on marketplaces is priced at about RMB200 per bottle. There are relatively few
Canadian wine products being listed, although Ice Wine is easily found on a number of different marketplaces.
In addition to Tmall and JD, the top two marketplaces in China, specialized marketplaces also sell wines and spirits,
such as Pinshang and Jiuxian. A more detailed discussion on the different types of marketplaces and approach models
is found later in this booklet.

Transaction Volume - Grape Wine

Source: Kung Fu Data

4) Dietary Supplements

China’s dietary supplement market is estimated to be anywhere between USD$ 12 -20 billion and is estimated to be
growing at approximately six percent per year. The exact market size is difficult to precisely estimate due to many
products not being registered, products being brought in through gray channels and lack of official government
statistics.

It is estimated the dietary supplement market will increase at 10 percent on average annually in the coming 10 years.
In 2015, overseas dietary supplement products account for 10% of all imported sales on e-commerce platforms,
reaching over RMB7 billion.

The penetration rate of dietary supplement in China is only 20 percent, which is much lower than developed
countries. For example, the U.S. has a penetration rate of 85 percent and Japan has a penetration rate of 70 percent.
However, the market has been significantly challenging for overseas companies to penetrate due to the regulatory
environment, including companies being required to go through a stringent and cumbersome registration process
(blue hat registration), fierce local competition and distribution channels that are difficult to penetrate.

On Tmall, China’s largest e-commerce marketplace platform, within the nutrition supplements product category,
the total transaction volume increased by 20 percent from 2014 to 2015, reaching nearly 40 million transactions
for 2015. Monthly transaction volumes for January 2014 through January 2016 are illustrated in the chart below:
Chinese products dominate in terms of the number of transactions, accounting for 28 percent of the nearly 3.4
million transactions in January 2016. American products were the second highest and accounted for 15 percent of

Transaction Volume - Nutrition Supplements

Source: Kung Fu Data

total transaction volume followed by Australian products, which accounted for 9 percent of the transaction volume
in January 2016. Canadian nutritional supplements ranked tenth, with a transaction volume of nearly 20 thousand in
January 2016.

The Chinese government is currently in the process of changing policies for nutraceutical products market access. What
was previously defined as functional food or food supplement will probably be classified as a nutraceutical product and
therefore require “Blue Hat” certification. Nutraceutical products may also be categorized into two groups, which have
different certification procedures.