China’s e-commerce market is one of its fastest-growing business sectors. Despite the effects of the COVID-19 pandemic, online sales in China are increasing and during the second shopping festival held from 1-18 June 2020, Jingdong e-commerce platform reported online sales of RMB 269.2 billion (USD$39.5 billion).
For foreign businesses and brands seeking to enter China’s e-commerce market, the challenge is to penetrate the market in a sustainable and compliant manner. Often foreign companies fail to establish the correct legal framework for clearing the way to sell products online. This often includes facing several challenges that include issued related to trademark protection, customs, taxation and more.
Below, we highlight the main points for your business to consider when entering China’s e-commerce sector.
Protecting your trademark on e-commerce platforms
Before entering the Chinese market, we encourage foreign companies to register their trademark(s) in China. China’s trademark system is based on the ‘first-to-file’ principle rather than ‘first-to-use’ principle.
Often, where a company does not fully protect their trademark and enters into the China market to do business, its trademark is exposed to trademark squatters. Trademark squatters are notorious registering foreign trademarks in China, preventing the original company whom the trademark belongs to from registering it.
Secondly, some companies only rely on the Madrid system for trademark protection. Here, a trademark can only be registered in English, French and Spanish — not Chinese. Direct registration in China allows for a trademark to be registered in Roman letters, Chinese characters and Pinyin (the Romanization of the Chinese characters based on their pronunciation), which is essential for companies targeting Chinese consumers.
By registering your trademark in China, it becomes safeguarded from other registrants by filing a using both Chinese characters and Pinyin.
Establishing a legal entity
Foreign companies selling products online are required to establish a legal business entity in China. Under the E-commerce Law of the People’s Republic of China, companies who sell online are defined as e-commerce network operators and shall operate as a legal entity in China, adhering to the relevant laws and administrative regulations required to conduct business in China.
In practice, all e-commerce operators providing goods or services shall be registered as a business, according to relevant laws, to obtain a business license — except in cases of which no registration is required under laws and administrative regulations.
In some cases, foreign companies who do not wish to establish a legal presence in China choose to establish an e-store on the international website of popular e-commerce platforms such as Taobao and Jingdong. However, it should be noted that these platforms target the international market and not the Chinese domestic market.
China’s cross border e-commerce
An alternative to establishing a legal entity in China is cross-border e-commerce (CBEC). CBEC refers to the activities of purchasing and selling products via a cross-border online shopping platform. Here, generally, the consumer purchases goods from an e-commerce platform and the goods are then imported in the following two manners.
- Bonded Warehouse Import
Goods are purchased in advance and temporarily stored in a bonded warehouse in China. After a consumer places an order, customs clearance and delivery are carried out immediately from the bonded warehouse. After this step, the products can be delivered to consumers via logistic companies.
- Direct Shipping Mode
In this scenario, consumers place an order through CBEC websites, then overseas suppliers or sellers directly deliver the products to China by post or express, mainly by air. The product will need to go through Chinese customs clearance in order to be released to the buyer.
For small and medium enterprises (SMEs), CBEC is an easier and more cost-effective route for entering the Chinese market. Next month, Horizons will launch a CBEC service package for those wishing to launch their business in China for the first time. For those interested in, you can contact one of our CBEC leads for information.
Chinese language preference
Ms Miranda Dong
hb.dong@horizons-advisory.com
English language preference
Ms Li Hua Jing
hj.li@horizons-advisory.com
Italian language preference
Dr. Lucia Myriam Netti
l.netti@gorizons-advisory.com
Horizons Corporate Advisory helps clients solve complex problems, thrive and be inherently responsible in their business activities worldwide. The countries and special administrative regions we operate in include Belarus, Brazil, Bulgaria, China, Colombia, Cyprus, Egypt, France, Germany, Hong Kong SAR, Indonesia, Italy, Kazakhstan, Macau SAR, Malta, Mexico, Mongolia, Morocco, The Netherlands, Nigeria, Portugal, The Russian Federation, Serbia, Spain, Switzerland (French and German-speaking cantons), Turkey, United Kingdom, United States of America and Zambia.
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