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Alibaba Deal Signals Increasing Focus On Cross-Border eCommerce In China

cross-border eCommerce

Trade wars or not, cross-border commerce is among the hottest and most important trends in payments and retail, and that was underscored this week by China-based Alibaba’s announcement that it will buy NetEase’s cross-border retail platform Kaola for $2 billion. The deal comes amid a general push in China to promote more cross-border eCommerce.

Under the acquisition, Kaola will merge with Alibaba’s Tmall Global while still operating independently to create a massive cross-border eCommerce business. At the end of last year, Tmall Global held a 31.7 percent share of the market, while Kaola had about 24.5 percent, much larger than rivals JD Worldwide (11.5 percent) and Amazon (6 percent).

That’s actually not the only part of the deal. “Alibaba and NetEase have entered into a definitive agreement for Alibaba, together with Yunfeng, to invest approximately US$700 million in NetEase Cloud Music in its latest round of financing,” the announcement also said.

“Alibaba is confident about the future of China’s import e-commerce market, which we believe remains in its infancy with great growth potential,” said Daniel Zhang, CEO of Alibaba Group.

Market Growth

China’s cross-border eCommerce market hit $1 trillion in transactions in the first quarter of 2019, 36Kr reported. Despite Kaola’s impressive growth, NetEase, known for its gaming and music operations, has been looking to sell its eCommerce unit for most of the year. In fact, Amazon was looking at the platform earlier this year — before it decided to close its Chinese online store. While Amazon shoppers in China won’t be able to buy goods from local third-party merchants, they can still order from the U.S., Britain, Denmark and Japan through the company’s global store.

The move comes amid a greater focus on cross-border eCommerce. More specifically, China wants to going promote cross-border eCommerce in additional cities as an initiative to stabilize trade in the country, according to a report by Reuters. “We will add a new batch of cross-border eCommerce pilot cities on top of the existing 35 pilot zones,” state TV said, without elaboration.

In December, local Chinese vendors operating in Yiwu International Trade City were upbeat about the future. According to a report at the time in the Financial Times, despite U.S. tariffs placed on Chinese exports and a crackdown on eCommerce platforms like Amazon by the European Union to stop online vendors from evading taxes, local Chinese merchants expected cross-border sales to grow. The report noted cross-border eCommerce sales grew at a rate of 30 percent in 2018 in China and were expected to hit $175 billion, representing 10 percent of the online consumer retail across the globe.

China has become a leading player in cross-border online trade, with total cross-border eCommerce exports hitting $130 billion last year, noted the report, citing data from China E-Business Research.

The paper noted that in Europe 39 percent of the top-selling merchants on Amazon marketplaces are located in China.

Local Chinese merchants were also getting support from the government of China, with Yiwu and roughly 20 other cities getting exemptions from VAT for cross-border eCommerce exports.

The exports of products sold online from the city were expected to reach $4.3 billion in 2018, noted the report. Of the businesses in Yiwu, 36,000 have registered on Alibaba’s AliExpress, which is its international platform, while 35,000 are registered on eBay, 12,000 in Wish and 10,000 on Amazon.

The U.S.-China trade war still seems to have a ways to go, but it seems clear that cross-border eCommerce is becoming much more important in China.

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