Retailers shift their ad spending from TV, radio and print ads to digital ads.
They hope to import goods to sell to Chinese web shoppers.
Two online retailers are among the first group of companies to operate in Shanghai’s new free-trade zone, which opened this week with the blessing of the China State Council, the equivalent of the U.S. president’s Cabinet. Both companies hope to take advantage of the liberalized rules for importing goods to acquire merchandise that they can sell to Chinese online shoppers.
The two e-retailers are among the 25 nonfinancial companies and 11 banks that have obtained licenses to operate in the experimental open-trading area, an area of wharves and warehouses covering more than 11 square miles near Shanghai Pudong Airport, the giant city’s main international airport.
One of the e-retailers is Shanghai Kuajingtong International Co., Ltd. (Kuajingtong means “cross-border master” in Chinese), plans to sell products in more than 10 major categories, such as consumer electronics, apparel and food. The company says it aims to make it easier for Chinese consumers to buy from foreign web sites. Kuajingtong’s parent company is Easipay, a Chinese online payment company.
The other e-commerce company to obtain a license is Eastday.com, a Shanghai company that provides local Shanghai news on Eastday.com and operates e-commerce web sites, such as aiwine.com, which sells wine, and a shopping guide site, shanghai.com.cn. Eastday.com says it will also focus on cross border e-retailing, and plans to introduce products from Shanghai to overseas consumers while also selling foreign products to China. The company was founded in 2010 and reported 1.06 billion yuan ($17.32 million) in profit for 2012.
Chinese companies hope the free-trade zone will reduce their financing and logistics costs. Shanghai Automotive, a domestic automobile maker, estimates that opening a trade unit in the pilot free-trade zone will cut its trade costs by 20%.
The experiment in loosening import restrictions may also help Western e-retailers that sell to Chinese consumers via the web. Due to the high cost of obtaining licenses to sell in China, foreign companies, especially smaller ones, typically find it hard to ship large volumes of their products to resellers in China. Instead, they typically ship items in small parcels directly to consumers. The Shanghai free-trade zone may make it easier for them to get large quantities of their products in China, which can then be used to fulfill orders from Chinese web shoppers.
According to the Ministry of Commerce of China, in 2012, there were 200,000 companies engaged in cross-border e-commerce, including B2B (business-to-business) and B2C (business-to-consumer) firms. The cross-border online transaction volume totaled 2 trillion yuan ($326.8 billion) last year.
Analysts believe one of the Chinese government’s main aims in setting up the free-trade zone is to ease the flow of credit in and out of China via financial institutions. Two of the banks licensed to operate in the new free-trade area are from outside of China: U.S.-based Citigroup Inc. and Development Bank of Singapore.