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11 Sep 2020

Econ Digest

“Haitao”… Cross-border e-commerce - reaches 300 million users…Opportunities for Thai brands to expand into the Chinese market

The Chinese e-commerce market is the largest in the world with a value of around USD1.5 trillion in 2019, accounting for approximately 55% of the global e-commerce market value, and larger than the value of the US e-commerce market by two times. As the economy grows and purchasing power rises, Chinese consumers, especially those living in Tier 1 cities such as Beijing, Shanghai, Guangzhou, Shenzhen, etc., desire better quality of life, making imported products more satisfying and desirable. Cross-border e-commerce (CBEC) has become a trading channel with high growth potential in China, with the average compound annual growth rate (CAGR) from 2017 to 2020 reaching as high as 35-40%, which is higher than that of the total domestic e-commerce market at 20-25% and that of total retail market value at 7-8%. On January 1, 2020, the Chinese government relaxed their conditions/regulations on cross-border e-commerce businesses. One of these changes expanded the limit for Chinese consumers to purchase goods through cross-border e-commerce platforms from RMB20,000 per person per year to no more than RMB26,000. In addition, the reduction of tariffs on imported goods to a level lower than normal trade tariffs has led to a continuous increase in the number of Chinese consumers who buy goods through cross-border e-commerce platforms, known as the “Haitao” group, the total number of which is expected to reach 300 million in 2021.

In the context of the growing trend of China's cross-border e-commerce, operators in many countries, including Thailand, hope to tap this market. KResearch believes that although China's cross-border e-commerce market has great growth potential, it is not easy for Thai operators to enter this market. Therefore, Thai operators interested in expanding into the Chinese market through this platform need to conduct market research and consider cost-effectiveness or profitability thoroughly, while main challenge factors to be considered include:

1. Operators will face fierce competition, especially from Japanese and Korean products. Among all Chinese consumers who buy goods through cross-border e-commerce platforms, more than 72% and 60% of them prefer Japanese and Korean goods, respectively, while less than 2% of them buy Thai goods, most of which are goods with low unit prices, including snacks, cosmetics, health products (such as latex pillows, herbal inhalers), etc.

2. The initial cost of conducting business on cross-border e-commerce platforms is very high, including security deposits, annual fees, and commission (2%-10%, depending on the product type), totaling anywhere between THB500,000 to THB1 million, depending on the terms and conditions of each platform. On top of this, additional marketing expenses may be required in order to increase brand awareness.

3. The economic status and purchasing power of Chinese consumers. Although China's economy has recovered well due to effective COVID-19 prevention and control measures, it is still necessary to closely monitor the global COVID-19 situation which may affect the Chinese economy and the purchasing power of Chinese consumers, who are expected to spend cautiously, especially for non-essential goods.

KResearch Center views that Thai operators can still find opportunities to enter the Chinese cross-border e-commerce market. By comparison, products from major competitors such as Japan and South Korea bought by Chinese consumers are largely the same as those sold by Thailand (such as cosmetics, skin care products, personal products, and health care products), and their prices are not very high due to restrictions on the amount (not more than RMB5,000) of each purchase allowed and the total annual purchase amount permitted (not more than RMB26,000)  through e-commerce platforms. However, the main reason why Chinese consumers buy more Japanese and Korean products than those of Thailand is that Japanese and Korean sellers pay attention to product quality and after-sales service, and their reputation is quite good. In fact, Thai products also have the advantage of high quality and are increasingly becoming recognized by Chinese consumers. Therefore, it is necessary to further increase awareness and highlight the selling points of authentic high-quality Thai products and to improve Thai competitiveness by focusing on creating product origins or stories. To make brands well-known, modern packaging designs can be used to create selling points to meet the needs of Chinese consumers in pursuit of fashion and a better quality of life. If Thai operators can make adjustments in above aspects, there will be room for growth in total quantity and amount of Thai goods sold in the cross-border e-commerce market, and the share of Thai goods bought by Chinese consumers through cross-border e-commerce platforms will also increase accordingly.

        When carrying out marketing activities in China, Thai operators must be very cautious, particularly to register trademarks before starting marketing campaigns to protect the rights of Thai brand owners, and to select marketing channels that suit their marketing budget and target groups. The target groups worthy of attention are not only in Tier 1 cities, but also those living in new Tier 1 cities, as they also desire a better quality of life and view foreign products of good quality and high safety in the same way as consumers living in Tier 1 cities do. Therefore, it is expected that the demand for imported products through cross-border e-commerce platforms in cities such as Chengdu, Hangzhou, Chongqing will increase.

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