China

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Payments

Domestic and Preferred Card Schemes

While credit card usage is rising exponentially in China, only 24.5% of the Chinese recently had credit cards with 330 million users in 2012. With total population of over 1.35 billion, this penetration rate is relatively small (and there is usually only one card per user in China).And while only 1 in 4 may own a credit card, Chinese users do not tend to use their credit cards frequently, thus credit cards are not the most commonly used payment method online. Instead, the top payment methods for ecommerce are Alipay, Tenpay, Union Pay, 99Bill and China PnR.1 But in reality China payments online are really a duopoly between the dominant Alipay and up-and-coming Tenpay.Alipay is by far the most trusted payment method used by more than half of the population in China due to the dominance of its parent company Alibaba, the ecommerce giant that hosts the Alipay system. Tenpay is the major online payment platform competing heavily with Alipay but has limited reach due to Alipay being the payment platform for Alibaba’s hugly popular Tmall and Taobao ecommerce marketplaces.The Chinese do not frequently use credit cards to leverage consumer spending due to their historically high personal savings rates (currently 30% compared to 5% in the UK), so such credit has historically not been needed. However, as China continues to increase personal standards of living and consumption, ecommerce is taking off, and so are card payments. Thus China is on its way to becoming a more consumer-oriented society and brand-driven economy and the accompanying credit card usage has and will continue to increase. For these reasons it is estimated that personal credit cards in China may reach as many 1.1 billion users by 2025. [1]

Alternative Payment Methods

In lieu of credit cards, two major online payment systems have emerged as China’s major facilitators for m-commerce transactions: Alipay, owned by Alibaba, and mobile messaging platform WeChat’s mobile wallet, WeChat Wallet.

“There’s a battle between Alibaba and WeChat to make the easiest, most integrated payment system in the world,” said Buchwald. “Alibaba’s advantage is being the world’s largest marketplace. It was around before WeChat, but it’s a desktop-first product. WeChat was built with a mobile-first mentality.”

To compete with Alibaba, WeChat has been stitching together a mobile marketplace for service and product-driven companies. According to Zhang, the mobile checkout process can be as simple as scanning a QR code, a prominent facilitator for transactions in WeChat. Retailers like Yoox and Zalora have fully functional mobile stores built into the app. Taxis can be booked, bills paid and products purchased with a few taps.[2]

Most Chinese purchase items from Taobao and pay using AliPay. These services strongly resemble eBay and Paypal, respectively. [3]

Alternative payment methods are dominant in China as there are about 200 million credit cards versus 2 billion debit cards. Alipay (with more than 650 million account holders), Tenpay, Union Pay and UPOP (Union Pay Online Payment) jointly make up almost half of all payments online. [4]

Other Payment Methods

Alipay 48.8% Tenpay 19.8% Union Pay 11.4% 99Bill 6.8% China PnR 5.3% YeePay 3.2% Huanxun IPS 2.7% Others 2.0%

Alipay Alipay is an online payment service that belongs to the Alibaba group, supported by Alibaba, Taobao, Tmall and an increasing number of independent online stores.

Alipay, different than PayPal, handles online payments in escrow and values buyer protection very much. A typical purchase process using Alipay goes as follows:The buyer chooses a product and makes the payment to the seller via Alipay;Alipay, instead of transferring the money to the seller’s Alipay account immediately, keeps the money as escrow and informs the seller that the buyer has made the payment. At the time the money is neither directly controlled by the buyer nor the seller;The seller sends the product to the buyer;The buyer receives the product, and makes confirmation in their Taobao or Alipay account;Alipay receives the buyer’s confirmation, and sends the money to the seller.You may be wondering what if the buyer is the evil one, and doesn’t confirm the receipt? Taobao and Alipay do have a solution. They track the No. of the express delivery to monitor the status of the product, and if the buyer takes no actions in 7 days, or 14 days in some cases, counting since the status of the product becomes “signed and received”, the product will be automatically confirmed by the system and the money will be sent to the seller’s Alipay account.

To get an Alipay account - If you don’t have a valid ID card or business certificate issued by the Chinese government, getting an Alipay account is a little harder. You need to upload a digital copy of your passport to verify your own identity, an entry permit, a Chinese bank account, and a native Chinese guarantor that needs to provide his/her own ID card number to verify his/her own identity.Moreover, Alipay has enterprise solutions for overseas companies that need to collect payments from their Chinese buyers in RMB. [5]

Digital Invoicing

China is going to extend its electronic invoice system to nationwide coverage in 2016 to better regulate taxation of online businesses. That is what the Economic Information Daily has reported. The e-invoices will serve as an equivalent to paper ones that provide proof of transactions and taxation. It’s expected to help curb tax evasion by users of C2C platforms, where individuals can easily open virtual shops. Zhang Bin, a research director at China’s Academy of Social Sciences, cited the example of Alibaba’s Taobao, which has over 11 million registered e-shop owners. The platform will generate at least 5 billion yuan in sales tax a year. The e-invoice system has been under trial operation in 22 provincial regions since 2012. Amid China’s booming innovation drive, which involves the rise of millions of Internet-based start-ups, taxing these small businesses has become a delicate issue. China’s two leading e-commerce operators Alibaba and JD.com have all voiced support for the policy. A Taobao shopkeeper says the e-invoice system won’t be a burden if it doesn’t generate extra fees.[6]

Customer Experience

Speaking on Webchat Wallet; “The payment process is seamless. It takes 30 seconds, and you don’t get out of the app at any point,” said Zhang, who pointed out the laborious steps that could rack up precious minutes spent on mobile in America — searching online, opening a mobile Web browser, entering credit card information or heading to PayPal, all the while bouncing between apps and tabs.

Technological advancements in China, however, are still barreling ahead. Zhang said that Alipay is testing payments by physical recognition — technology that enables shoppers to check out at a store, even ones as generic as the supermarket, by scanning a distinct physical feature, like a tattoo.[7]

Payments Regulation

The People’s Bank of China implemented a non-bank payment regulation to limit paying with the balances of third-party payment systems. The regulation divides the third-party payment accounts into three categories: those verifying their identity through one “external channel”, including binding bank cards and uploading identification card information, those through three identification channels, and those through five channels.

Chinese law has required real-name registration for app users. The payment limit on the first category is a non-renewable, lifelong cap of RMB 1,000 (USD 150). The limit on the second category is RMB 100,000 per year, and the limit on the third is RMB 200,000 per year. That is to say, the highest amount for users of third-party payments, including Alipay and WeChat, is RMB 200,000 per year, even if they have gone through the complex process of real-name verification.

The regulation will most likely have little impact on average users, since their online banking transactions probably will not reach RMB 200,000 a year. However, the story is totally different for businesspeople whose payments are mostly made through Alipay. According to a report by Chinese news website zol.com, if the payment amount per order is over RMB 200, or the aggregate amount per day is over RMB 5,000, users will have to pay with their bank cards.

However, a report by Sina Tech said that Alipay users can evade the limit problem if they transfer the balances of their Alipay account to their bank cards, and then pay with that same bank card. But, if a WeChat user fails to verify his indentity information, he will probably not be able to send or receive red envelops in WeChat![8]

Local entities

It is not a requirement to set up a local entity in China to sell to shoppers in the market. [9]

China remains one of the most attractive online retail markets in the world. The world's most populous country (nearly 1.4 billion people) is active online—more than one-third of those who go online at least once a week are "continuously connected," according to the Connected Consumer Study, and another 58 percent check the Internet two to four times per day. China's online buyers are sophisticated, with well-developed brand awareness for and trust in the biggest names, including domestic leaders Alibaba, Tmall, and JD.com as well as international players such as Amazon and eBay. Chinese shoppers have also embraced e-commerce as something of a cultural phenomenon, particularly on Singles Day (November 11), which has become much like the U.S.'s Cyber Monday. Alibaba reported $9.3 billion in sales on Singles Day 2014—equivalent to about 7 percent of the country's total-year sales. The market for e-commerce players is rapidly evolving as it continues to grow. Some domestic leaders, including Alibaba and Tencent, have been active in M&A to build their online capabilities and market share, a trend that should continue in coming years. Domestic business-to-consumer (B2C) sites such as Tmall and JD.com (formerly 360Buy) are growing faster than C2C players like Taobao, as more buyers seek high-quality products and services that can be better guaranteed by larger-scale retailers. Many B2C sites have embraced the Amazon-like model of selling goods to buyers, a contrast to Alibaba's role as a middleman between buyers and sellers. Online reviews heavily influence customers' purchasing decisions—for example, 40 percent of online shoppers in China want instant "buy or don't buy" advice and reviews, a much higher rate than in other countries. Online retailers, notably Taobao, have review systems for users; dianping.com has become a popular online review site for Chinese consumers. Social media may hold the key to the future of e-commerce in China. Nike, for example, has multiple accounts on Sina Weibo (a Twitter equivalent), helping to promote the company on a wide scale and driving increased growth. WeChat, a mobile text and voice messaging service, has expanded into e-commerce on its popular site. China continues to have distinct regional differences, which makes e-commerce a challenge. For example, consumers in tier 1 cities are doing far more luxury shopping—buying more big-ticket items such as cars—and are developing brand loyalty much more than shoppers in the tier 4 cities, where shoppers have less disposable income. Logistics also poses difficulties. Shipping and distribution conditions are often vastly different depending on the destination, especially when it comes to the last mile. Retailers have also been slow to meet consumers' expectations for refunds and returns, although this is improving in the fashion market, where returns are crucial for driving sales. One company succeeding with its logistics is JD.com, which operates more than 80 warehouses in 34 cities, allowing it to process orders and make deliveries faster than competitors. [10]

Mobile payments

China’s mobile payment ecological environment has become more mature; mobile payment penetration rate among China internet users reached 64.7% according to Caohan Ping, deputy general manager of the internet finance department in Bank of China, at a finance forum last week. China users in 21 to 29 age group from the first-tier and the second-tier cities are the main mobile payment users, accounting for 43%, followed by users in 30 to 39 age group (30%) according to eMarketer. The number of mobile online shoppers in China reached 448 million; and, mobile accounts for over 70% of total online shopping transactions. China proximity mobile payment users doubled in 2015 and there will be 195.3 million smartphone users using proximity mobile payment in 2016, an increase by 45.8%, according to eMarketer.[11]

Logistics

Infrastructure

Since 2012, the Chinese government has rolled out favourable policies to promote cross-border e-commerce development by setting up pilot zones in various cities for cross-border e-commerce import services, implementing favourable tax rates and policies including a streamlined application process and simplified customs clearance procedures. Cross-border e-commerce enables overseas retailers without Chinese business licenses to sell their products more easily and conveniently. Many foreign retailers have used the new business model to test the market in China before actually setting up businesses in China. [12]

There are two ways to approach the market via cross-border e-commerce:

Sell through the company’s existing foreign (non-Chinese) website It 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.

Utilize a cross-border marketplace Cross-border marketplaces such as Tmall Global and JD Worldwide offer companies access to the aggregate traffic of the marketplace without having to establish a legal entity in China, or sell through partners that list on domestic marketplaces.

There are currently two typical models of operation: 1) Direct Mail and 2) Bonded Warehouse. For the Direct Mail model, a customer places an order on a registered cross-border e-commerce platform, which will submit particulars of the order electronically for customs clearance. Meanwhile, the products will be shipped by direct mail to customers directly from overseas locations. Whereas for the Bonded Warehouse model, products are shipped in bulk and stored in a bonded warehouse in one of the ten cross-border e-commerce pilot cities (namely Shanghai, Ningbo, Hangzhou, Zhengzhou, Chongqing, Guangzhou, Shenzhen, Tianjin, Fuzhou, 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. As e-commerce evolves, changes in government policy and regulation--for example, the changes to tax rates and the Positive List implemented in April 2016--will have a large impact on the cross-border e-commerce space. Companies are advised to keep abreast of changing government policy toward e-commerce. [13]

Engaging in Cross Border eCommerce Importing to China is a new model to sell online in China. The difference between a China eCommerce solution is that products can be shipped individually or in bulk to China with fast custom product filling, custom clearance and up-to 400% lower import taxes. We advise and consult you about the most suitable Import & Distribution strategy and develop integrations for Cross Border payment gateways, custom product filling & direct custom clearance. [14]

Import Duties

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, 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 labelling and testing requirements. [15]

Personal Parcels

China has defined personal parcels in the GACC Announcement No.56, 2014 on Cross-Border E-commerce Trade Supervision, which has been in effect since August 1, 2014. There are two important criteria for personal parcels, which are:

The value of the parcel must be lower than US $154 except when from Hong Kong, Macao, or Taiwan, where the maximum value is US $123; The goods in the parcel are for personal use (meaning the quantity is reasonable).

The customs officer has the authority to determine if the parcel is for personal use or not. [16]

Import tax For personal parcels, import taxes are only levied on goods if applicable, and the goods are not required to go through the CIQ inspection and quarantine process. There are no requirements on labeling and testing; however, goods forbidden to be imported are not allowed. If taxes are levied, the tax rate will be different depending on the product category.

A personal parcel with a value exceeding US $154 is subject to full import tax without exemption. If import taxes payable are not paid at customs, personal parcels will be returned by the individuals/end customers or the 3PL/Courier. Exceptions to the above are personal parcels containing food & beverages and cosmetics. The tax exemption value for personal parcels containing F&B products is US $77, and the tax exemption value for cosmetics is US $15. [17]

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 favoured nations agreements, or other trade agreements/disputes that may affect the import duties. The table below provides an example of the import tax rate, VAT, and consumption tax for several products.[18]

Import Process

It can take several months for 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.[19]

Shipping

There are two principal methods available to foreign companies engaged in cross border e-commerce in China to ship to the end customer. To ship directly to the end-consumer via an international / domestic express company, or to ship in bulk to a 3PL who can warehouse the products in one of China’s pilot e-commerce zones, and then ship the product individually to end-consumers as orders are fulfilled.

Direct to Customer The simplest way for a company to ship to customers who purchase from them overseas (individual parcels) is to use international express companies such as UPS, FedEx, or DHL. These companies can manage the customs process and transfer the parcel to their domestic partner for final delivery.

Although simple, the downside of this method is that transportation costs are high and delivery time is lengthy.

Depending on the product and the value of the parcel, it may be subject to tariffs and other import regulations.[20]

Directly from Overseas to End Customer / Consumer Companies can engage a 3PL with warehousing facilities inside one of China’s pilot e-commerce zones or bonded areas. When Chinese consumers order products on the company’s website or cross border marketplace, the products can be delivered directly from the warehouse inside the pilot e-commerce zone as personal parcels shipped to end consumers. This cuts delivery time significantly and also bypasses some of the restrictive regulations affecting imported products. Furthermore, if a single transaction is under 2,000 RMB or within a yearly customer limit of 20,000 RMB, VAT is decreased by 30% (making applicable VAT 11.9% as opposed to 17%). There are also no tariffs applied to purchases within these limits.[21]

Marketing

Baidu is the leading search engine in China, while most web portals also provide search opportunities like Soso.com. Bing China has also entered the Chinese market. Bing.cn also operates Yahoo's China search functions. As of 2015, Google has limited to no presence in China. Before 2014, Googlers in China were linked to Google Hong Kong from its google.cn page because of an issue with hackers reportedly based in Mainland China. As of June 4, 2014, Google became officially blocked without the use of a Virtual Private Network (VPN), an effect still in place to date.

Top ten most popular search sites in China As of September 17, 2013 [% share in searches] 63.6% Baidu 18.23% 360 10.35% Sogou 3.62% Soso 2.88% Google 0.57% Bing 0.48% Yahoo 0.16% Youdao 0.09% other [22]

Shoppers

China has the world’s largest online population with more than 600 million internet users. The penetration rate however is only about 47 percent, 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 percent.

China’s emerging middle class has money to spend. Urban disposable income levels have increased since 2008 at a compound annual growth rate (CAGR) of 11 percent, from US $2,505 in 2008 to US $4,698 in 2014.

Much of the wealth is concentrated along coastal provinces and in Tier 1 cities. E-commerce is providing access to inner provinces and lower tier cities which have been underserved 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 cities) spend a higher percentage of their disposable income shopping online. The charts below illustrates this.

In gender terms, 54 percent of online shoppers are male, while 46 percent 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 RMB 1,000 to RMB 5,000 per month. The top 10 product categories online include clothing, bags, cosmetics and groceries.[23]

Social Media

Social media such as WeChat and Weibo are important to the overall marketing of a brand in China. WeChat currently has over 500 million subscribers 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. Note that a legal entity in China may be required in order to establish a corporate account on some of China’s social media platforms.[24]

Half of the digital consumers surveyed use social media to do product research or get recommendations. More recently, consumers have used social media as a significant channel not just for deciding what to buy, but also for acting on those decisions. Of the WeChat users we surveyed, 31 percent initiated purchases on the platform—double the proportion of the previous year. These purchases begin in a range of places on the social platform, from official channels (such as JD.com entrances and brands’ public accounts) to user-generated content (such as Moments and chat groups) to links to other apps.[25]

Major shopping categories

Apparel and consumer electronics are the most popular product categories sold online accounting for nearly 50 percent of all sales. The chart below illustrates the key product categories for online sales. China’s e-commerce market is extremely vibrant and can potentially provide companies with an affordable way to access China’s consumers. It is still important however, to understand the intricacies and unique dynamics of the market and the consumers shopping online.[26]

Major retail holidays

Chinese New Year The turn of the Chinese calendar, which falls in January or February, is arguably the biggest holiday of the year in China. For Westerners, the Chinese New Year is on par with Christmas in its calendar importance and the proliferation of sales and commerce. Hundreds of thousands of factories and businesses in China close for up to two weeks to give employees enough time to travel home to rural areas. With the shutdown and lack of employees comes congested shipping and delayed packages, so advanced sales are key.[27]

Singles Day Celebrated on November 11 (11/11), Singles Day was originally a tongue-in-cheek holiday invented by several college students in the ’90s as a day for young, single men to celebrate their bachelorhood. It wasn’t until Alibaba came along in 2009 and embraced it that Singles Day blew up to become an e-commerce phenomenon. In just six years, it has exploded into the largest shopping day in the world. Single, married, old, young — everyone in China shops on Singles Day.[28]

Double 12 Alibaba was also behind this brand new holiday, which exists to encourage retailers to improve the quality of products and services offered online. Singles Day has proven to be so successful that Double 12 has emerged as a follow-up. Double 12, celebrated on December 12 (12/12) is focused on small- and mid-size retailers.[29]

Children's Day Children’s Day is an international holiday celebrated by different nations on different days throughout the year. In China, it’s recognized on June 1 and is a good opportunity for selling toys and apparel.[30]

The Autumn Moon Festival In China, a full moon is believed to be a symbol of peace, prosperity and family reunion. The Autumn Moon Festival is one of the most important festivals in Chinese culture. This annual festival, usually falling in mid-September, is a thousand-year-old celebration where families gather to partake in festivities dedicated to admiration of the moon. Small gift items tend to sell well during the festivities.[31]

Legal / Regulatory

Due to local regulations and laws, an ICP license is required for your website to operate in China, and Chinese web hosting companies are forbidden to host websites without ICP licenses. [32]

ICP license (abbreviation for Internet Content Provider) is a permit issued by the Chinese Ministry of Industry and Information Technology to permit China-based websites to operate in China. The ICP license numbers for Chinese websites can often be found on the bottom of the front webpage.

History This license regime was instated by the Telecommunications Regulations of the People's Republic of China (中华人民共和国电信条例) that was promulgated in September 2000. By the letter of the law, all websites with their own domain name that operate inside China are required to obtain a license, and China-based Internet service providers are required to block the site if a license is not acquired within a grace period. Licenses are issued at the provincial level.Operating from China is also a prerequisite for acquiring a license. Foreign companies such as Google, unable to acquire an ICP license on their own, often partner with Chinese Internet companies to use the licenses of the Chinese company.

The Ministry of Industry and Information Technology issues two different types of ICP numbers, which are managed at the provincial level. ICP license for commercial websites, which cover any website offering goods or services to customers. These numbers follow the format 京ICP证12345678号 (in this example, "京" represents Beijing). ICP filing for non-commercial websites which are purely informational and are not involved in direct sales. These numbers follow the format 京ICP备12345678号 (in this example, "京" represents Beijing).Obtaining an ICP number takes an average span of 20 business days after submission of documents to a hosting provider. If the documents are deemed valid upon review by the provider, they are forwarded onto the Ministry of Industry and Information Technology for further review. If at either stage the documents are rejected, the applicant is required to submit additional documents. [33]

FX Policies

Unlike many of its international trade partners (who allow the values of their currencies to float freely against others), China has a strictly controlled currency policy where it regulates trading activity and tries to control daily movements of the yuan on the forex market.

In order to tame economic instability, China fixed its exchange rate in 1995 at slightly more than 8 yuan to the United States dollar and maintained that peg until July 2005, when it made a move toward a liberalization of its currency policy by introducing a narrow trading band. Over the past decade, the government has gradually allowed the trading band to widen, starting at +/-0.3% and finally reaching +/-2% by March 2014.[34]

In August 2015, China took a step further by allowing its currency to devalue outside of the previous trading band. In its policy move, the government said it would consider the previous day’s trading in the establishment of the currency rate, effectively considering the influence of the market.

In a statement, China’s government said that “henceforth the mid-point of an expanded 2% band within which the currency can move on any single day would be based on the previous day’s closing value.” It also said the currency rate would be determined by “demand and supply conditions in the foreign exchange markets and the movement of major currencies.” With this change, the country was seen moving its policy from a rigid band and toward a floating currency rate.[35]

Managing the Currency

China has maintained strict rules for individuals and banks holding foreign currency, and thus the currency is not yet considered to be fully convertible. Investors who exchange dollars or other foreign currency for yuan must sell them directly to China’s central bank, which incorporates them into the country’s foreign reserves. The government then prints local money for use by individuals, companies and banks.

When China began to open its economy to foreign investment in the 1980s and ’90s, the country began to accumulate large amounts of dollar reserves. It currently holds the world’s largest stockpile of reserves, having amassed an estimated US$3.2 trillion.

China has customarily used a portion of its reserves to influence the value of its currency through foreign exchange market interventions. To strengthen the yuan, the Chinese central bank sells foreign currency reserves (typically dollars) into the market. On the other hand, if the country wants to weaken its currency, it uses its local currency to buy foreign currency.

To intervene, the government can buy or sell currency through its interbank market, where the central bank, the People’s Bank of China, maintains “designated foreign exchange banks” to operate on its behalf for onshore spot market transactions.

A large part of China’s reserves are denominated in U.S. dollars and are invested in U.S. treasury bonds, which are deemed to be a safe haven for capital among major central banks around the globe. It is estimated that China is the largest single nation holder of U.S. bonds, with approximately US$1.25 trillion of these securities.

The central bank also has other instruments at its disposal, such as derivative contracts to influence the market and the value of the currency. It has used a combination of these instruments to bring more sophistication to its management of currency rates and foreign reserves. The advantage of using these instruments is that the bank doesn’t have to sell its dollar supplies immediately. This can slow the depletion of its reserves, thus maintaining market confidence in its ability to intervene in the future.

Despite alterations in currency policy, some analysts estimate that the yuan may still be overvalued by as much as 10%, causing the market to bid the currency lower. As part of its effort to shore up the yuan, China has begun selling some of its stockpile of U.S. Treasury bonds.[36]

Monetary Policy

Monetary policy is another long-term mechanism that affects China’s currency inflows and prices. Following its initial liberalization of currency policy in 2005, the Chinese central bank had maintained higher interest rates. In 2014, however, the bank began easing local interest rates to counteract a slowing economy. The rate easing had the effect of discouraging foreign currency inflows into the economy and subsequently brought pressure for the weakening of the yuan.

In addition to altering interest rates, the government can alter reserve requirements within the domestic banking system, freeing up the supply of local money available to the market.[37]

Evolving Currency Policy

As the yuan has not been made fully convertible, China has faced difficulties maintaining strict control over its currency levels while seeking to adapt to shifts in the global economy and maintain economic growth.

The country has sought to integrate itself further into the global economy by aiming to promote the yuan as an international reserve currency, similar to the dollar, the British pound, euro, and the Japanese yen. This is part of an effort to construct a stable economy for its growing population of 1.4 billion. The currency’s internationalization has involved seeking the yuan’s inclusion in a basket of currencies making up the International Monetary Fund’s “Special Drawing Rights.”

The Special Drawing Rights, or SDRs, are a virtual currency that can be lent to central banks to cover for balance of payments shortfalls. In December 2015, the IMF said that it was prepared to begin including the yuan in its basket of currencies backing the SDR as soon as October 2016. While this is a step forward for China, the inclusion doesn’t guarantee that world governments will be inclined to use the currency for their own reserves.[38]

Technology

DNSPod in China DNSPod is a Chinese intelligent DNS hosting service provider launched in in March, 2006 and acquired by Tencent in August 2011 . By July 2012, DNSPod has over 500 thousand users, supporting more than 800 thousand domains and processing around 10 billion requests per day. How DNS servers work A DNS server resolves domain names to IP addresses. When someone types your domain name in the browser and tries to access it, the request first goes to the corresponding DNS server, which maps the domain to the IP address of your server that hosts your site, then the connection starts and your server begins to respond to the request. Many domain registrars have their own DNS servers. For example, GoDaddy has DNS servers in U.S. and the DNS server records of GoDaddy are like xxx.domaincontrol.com. Why intelligent DNS hosting is necessary Fast The major advantage of using intelligent DNS hosting is that an intelligent DNS hosting service has a large network of DNS servers across the country and even globally, and (theoretically) always uses the fastest DNS server to do the mapping between the domain and the IP address based on the location of the request and the network conditions. For example, a user from Shanghai wants to visit your website hosted in North America. If you are using an intelligent DNS hosting, the request from the Shanghai user will go to a DNS server in or near Shanghai, chosen dynamically from the network of DNS servers by the service provider, instead of a U.S-based DNS server. Safe For no apparent reasons, some of the DNS servers of major domain registrars like GoDaddy are occasionally blocked in China. Using intelligent DNS can well protect your website from an unnecessary nightmare like this, in which your DNS servers are under attack, down or banned. Easy Say you have a bunch of domains from different registrars. With intelligent DNS, you can manage them all in one place. Also, most DNS hosting services have their service panels well optimized for user experience, so it’s much easier to add/remove/edit domain records there. [39]

Security

China is often perceived as a lawless country where ‘anything goes’ regarding intellectual property (IP). China has laws that offer a great deal of protection for intellectual property, a condition of its accession to the World Trade Organization in 2001; effective enforcement, however, is lacking.

China’s enforcement of its IP laws is weak, but it does exist. Companies that formally register their IP with the appropriate authorities have a chance to prevent third-party infringement. Companies that do not register their IP have no recourse when it comes to infringement.[40]

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; or to change your trademark.

Companies doing business in China should give serious consideration 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.

Chinese law protects copyrighted material in much the same way as the West. The problem is not the lack of laws, but the lack of enforcement. Although a creative work first published in another country automatically gains copyright protection in China upon its creation, it is advisable to register copyrights in China, as doing so provides better evidence of ownership and stronger enforcement options.[41]

Registering with China

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 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. Although customs officials have discretion to check every outgoing shipment for trademark, copyright, and patent infringement, in reality they only check against the customs database. Therefore, if you have not registered with customs, there will be no enforcement.[42]

Practical Protection

Foreign companies entering China should not leave common sense at the border; it is important to exercise the same due diligence, if not more, as you would in your home country.

Once you or your product enter the Chinese market, continue to monitor it closely. Pay attention to what your partners are doing and how your IP is being used. You cannot rely on your Chinese partners to provide you with accurate market information and the onus is on you to monitor what is going on with your brand. Your Chinese partners are likely to have their own agenda that may not coincide with yours, just as in any other part of the world.[43]

Mobile appetite

China’s digital consumers still overwhelmingly use mobile devices to access the Internet, as they have for years. While mobile-first marketing strategies are important, PC-based offerings should not be neglected. We found that multidevice owners (those who use two or three connected devices, such as smartphones, tablets, and computers) are more intense digital consumers. They spend 17 percent more on e-commerce than their mobile-only peers. They also shop online in 29 percent more categories and interact 14 percent more with businesses through social networks, using such interfaces as brands’ public WeChat accounts. [44]

The mobile opportunity amongst Chinese shoppers is considerable. Smartphone ownership is soaring (75%) with shopping on these devices a highly popular pursuit (46%). More are expected to follow, with 48% intending to spend online using a smartphone or tablet over the year ahead. This hunger for mobile shopping goes a long way to explaining China’s high average of 5.7 shopping apps per respondent. [45]

Mobile applications (APPs) are becoming increasingly popular in China due to the high penetration of smartphones. Many leading e-commerce marketplace platforms (e.g. Tmall, Jumei, Yhd, and JD) have launched mobile applications allowing consumers to shop conveniently on mobile phones. Additionally, JD cooperates with Wechat to sell some products on the Wechat APP.[46]

Reasons to Shop Online

Aside from the general readiness of Chinese consumers, there are a number of reasons why there is a preference to purchase goods online:

Choice – The traditional brick and mortar retail sector is significantly underdeveloped due to the country’s size and highly fragmented market. 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 to consumers. Furthermore, 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, a marketplace will usually attempt to ensure that goods sold are not counterfeit.[47]

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