China-ASEAN cross-border e-commerce cooperation: opportunities and challenges
International Business News – In recent years, cross-border e-commerce has become a fast-growing new business form and model in the cooperation between China and the countries and regions along the “Belt and Road”. The COVID-19 epidemic has boosted the development of cross-border e-commerce, but it has also raised many challenges. The pragmatic cooperation and good performance of China and ASEAN in the field of cross-border e-commerce have provided many experience, practices and reference models for the high-quality joint construction of the “Belt and Road” in the digital era.
Cross-border e-commerce is an important part of digital trade. Compared with traditional trade exports, cross-border e-commerce reduces transaction costs to a certain extent and weakens the negative impact of geographical conditions by virtue of the function of “disintermediation”. After the rapid development in recent years, cross-border e-commerce has become a representative category of digital foreign trade. The technological content of e-commerce platforms is rapidly improving, and it is playing an increasingly important role in integrating international and domestic resources. In 2020, the COVID-19 epidemic ravaged the world, blocking economic, trade and personnel exchanges between countries, and the advantages of cross-border e-commerce, which were less affected by the epidemic and had a low degree of physical contact, were further revealed. E-commerce has not only effectively hedged against the negative impact of the epidemic on industries such as tourism and transportation, but is also reshaping the pattern of international trade and consumption in the post-epidemic era.
From the perspective of global e-commerce transaction volume, in 2021, e-commerce retail sales will reach 4.9 trillion US dollars, with a year-on-year growth rate of 17%, which is twice the growth rate of global trade, and is expected to maintain an average annual rate of 9% during 2021-2023 speed up. It is estimated that by 2022, global e-commerce sales will exceed the US$5 trillion mark for the first time, with China accounting for nearly half of the total. Global e-commerce sales are expected to reach about $7.4 trillion by 2025. In terms of the industry distribution of digital platforms, 24% of the global digital platforms worth more than US$10 billion in 2020 are focused on e-commerce. Transnational platforms with international influence have emerged in China and ASEAN, as well as small and medium-sized platforms that are in line with regional market characteristics and focus on certain market segments (such as Shopee and Lazada in Southeast Asia focusing on electronic 3C, clothing and fashion, etc).
In 2020, the size of the cross-border e-commerce market in the Asia-Pacific region will reach US$450 billion, accounting for 53.6% of the global cross-border e-commerce market, leading the world. The contributions of China and ASEAN are indispensable. Since 2017, China’s cross-border e-commerce imports and exports have increased nearly tenfold, reaching 1.69 trillion yuan and 1.92 trillion yuan in 2020 and 2021 respectively, a year-on-year increase of 31.1% and 18.6%; the proportion of total imports and exports of all goods reached or more than 5%. In 2021, there will be 10,000 new cross-border e-commerce-related enterprises, accounting for nearly one-third of the total, driving the growth and employment of small, medium and micro enterprises. In 2022, China’s cross-border e-commerce will continue to maintain a rapid growth momentum, not only the exports to developed economies will remain stable, but exports to emerging markets have also achieved rapid growth. Since the beginning of this year, China’s cross-border e-commerce exports to ASEAN have increased by 98.5%.
From the perspective of ASEAN, in 2020, the cross-border e-commerce market in Thailand, Singapore, Malaysia, Indonesia and Vietnam will also rise against the trend, reaching about 60 billion US dollars; Indonesia’s cross-border e-commerce transactions account for more than 10%. CICC research predicts that with the increase in e-commerce penetration, the Southeast Asian e-commerce market will grow from US$39 billion in 2019 to US$233 billion in 2025, corresponding to a compound annual growth rate of 35%. Singapore-based cross-border e-commerce platform Shopee’s gross merchandise volume (GMV) in 2021 reached US$62.5 billion, a year-on-year growth rate of 76.8%.
We can focus on improving the business environment for the development of cross-border e-commerce, promoting the docking of e-commerce and digital trade rules and standards, ensuring the smooth flow of cross-border logistics and encouraging the construction of overseas warehouses, and narrowing the digital divide. To enable the people of developing countries along the route to effectively benefit from the development and cooperation of cross-border e-commerce, and to jointly build the “Belt and Road” with better quality in the post-epidemic era.
In addition to ASEAN, China has also actively carried out cross-border e-commerce cooperation with countries in Africa, the Middle East, and South America. As of September 2021, the “Silk Road E-commerce” bilateral cooperation mechanism has been established with 22 countries across five continents to jointly carry out multi-level and multi-field cooperation such as policy communication, planning docking, industry promotion, local cooperation, and capacity building. As of the first quarter of 2022, China’s cross-border e-commerce exports to countries along the “Belt and Road” increased by 92.7%. The types of export products are more abundant, and the added value is also increasing. In the first quarter of 2022, cross-border e-commerce exports of high value-added categories such as semiconductors and integrated circuits increased by 95.4% and 1.8 times respectively. Although it is still difficult for these businesses to compete with traditional economic and trade exchanges in terms of total volume, their advantages are sufficient potential, diverse products, and fast transaction methods, allowing more SMEs and consumers on both sides to achieve interconnection, which not only satisfies the it has brought about employment opportunities for small and medium-sized importers and exporters and individual practitioners in the countries along the route, enhanced the economic, trade and cultural understanding between China and the countries along the route, and contributed many bright spots in the fields of economy, trade and diplomacy.
In order to better expand the “Belt and Road” cross-border e-commerce cooperation, the development experience of China-ASEAN cross-border e-commerce cooperation is worth summarizing and learning from.
First, in recent years, the economies of China and the ASEAN region have grown steadily, and the two sides are each other’s most important trading partners, which is an important background for the rapid development of bilateral cross-border e-commerce cooperation. Over the years, China’s economy has maintained a medium-to-high growth rate and a complete industrial chain has been formed, making China an important export destination for ASEAN’s primary and intermediate products. As the proportion of the service industry in China’s economy continues to increase, the consumer end of the population has shown a trend of diversification, and the demand for ASEAN’s final products and services has increased rapidly, providing continuous impetus for the cross-border e-commerce cooperation between China and ASEAN. At the same time, with the intensified construction of the ASEAN Economic Community (AEC) and the implementation of the “AEC Development Blueprint 2025”, ASEAN has become a single market with zero tariffs (or lower tariffs) in the region, with smoother resource flow and a population of 660 million. The scale dividend of China is being realized, and the attractiveness of the unified market has further increased, becoming an important export destination for China. In 2020, China accounted for 23.5% of ASEAN’s total imports, surpassing ASEAN itself (21.2%), Japan (7.8%) and the United States (7.7%).
Second, infrastructure development has improved connectivity and digital capabilities in East Asia, and is an important support for bilateral cross-border e-commerce cooperation. The completion or smooth progress of a number of major infrastructure projects such as the China-Laos Railway and the Jakarta-Bandung high-speed railway have effectively improved the level of connectivity in East Asia and promoted the cross-border circulation of production factors. Since the China-Laos Railway was put into operation in December 2021, some stations in Laos have seen a hot scene where tickets are hard to get. As of March 12, 2022, the total amount of cargo transported by the Laos section of the China-Laos Railway exceeds 250,000 tons, of which 60% are from Laos to China. The China-Laos Railway will completely change the closed environment of Laos, and Laos will “from a land-locked country to a land-linked country”, and it is even expected to become a central hub for cross-border trade between China and ASEAN.
The digital infrastructure and digital capabilities of China and ASEAN are also rapidly improving. As of December 2021, the number of Chinese netizens reached 1.032 billion, an increase of 42.96 million over the end of the previous year, and the internet penetration rate reached 73.0%. Today, China has built the world’s largest network infrastructure with advanced technology and strong guarantees. It has built 1.615 million 5G base stations, 413 million 5G mobile phone users, and 5G chips, mobile operating systems and other key core technologies. The gap between advanced levels continued to narrow. As of June 2021, internet penetration in Brunei, Singapore, Malaysia, Thailand and the Philippines has exceeded 80%.
Third, China and ASEAN countries attach great importance to and support the development of cross-border e-commerce, providing policy support for bilateral cross-border e-commerce cooperation. At the end of 2018, six ministries and commissions including the Ministry of Commerce and the General Administration of Customs jointly issued a document stating that only 9.1% of the comprehensive cross-border e-commerce tax will be levied on cross-border e-commerce retail imports, which not only reduces the tax rate but also simplifies the procedure. As of February 2022, China has established 132 cross-border e-commerce comprehensive pilot zones, which not only cover the whole country, but also form clusters of cross-border e-commerce comprehensive pilot zones in industrial cluster regions such as the Yangtze River Delta and the Pearl River Delta. In December 2021, the ASEAN “E-Commerce Agreement” will come into effect, which will promote the development of e-commerce in areas such as telecommunications infrastructure, legal and regulatory environment, electronic payment and settlement, online consumer protection, network security, and logistics. Cooperation between China and ASEAN around supporting cross-border e-commerce and other service industries is deepening. In June 2021, China and Singapore held the second round of consultations on the follow-up negotiation on the upgrade of the free trade agreement. Cross-border service trade is a key topic discussed by the two sides. The two sides agreed to conduct market access consultations on trade in services and investment on a negative list starting from the next round of negotiations. In addition, ASEAN countries, such as Thailand, have stepped up efforts to crack down on online intellectual property infringement in order to support the development of e-commerce platforms.
Fourth, China has increased investment in Southeast Asia’s manufacturing and internet industries, injecting new momentum into the construction of a full-scale bilateral cross-border e-commerce business. China is one of the top five investment sources in ASEAN. In 2020, China’s direct investment flow to ASEAN reached US$16.1 billion, a year-on-year increase of 23.3%. Manufacturing is the largest target industry, with direct investment stock reaching US$32.4 billion, accounting for 25.4%. In the field of digital economy, ASEAN is becoming a new destination for China’s internet venture capital. According to media statistics, in 2021, Chinese investment institutions participated in the investment of 24 projects in Southeast Asia, and Chinese capital led or participated in the investment of US$5.954 billion. In April 2022, Indonesia’s GoTo was listed on the Jakarta Exchange and became a star case, with the support of large Chinese internet platforms behind it. In addition to equity investment, Chinese internet platforms have also entered into joint ventures with local companies in Southeast Asia to try to operate new e-commerce platforms. As a Sino-Thai joint venture, JDCEN-TRAL integrates the strong domestic supply capacity in China and the local retail system in Thailand to provide Thai consumers with high-quality online consumption services.
Fifth, the rapid development of cross-border payment between China and the ASEAN region provides important technical support for bilateral cross-border e-commerce cooperation. There are many small and medium-sized e-commerce platforms in the cross-border e-commerce field. If the payment cost is high and the process is complicated, it will be difficult for this emerging business to grow. As of the third quarter of 2021, the RPW (RemittancePricesWorldwide) cost of international cross-border remittances in the amount of US$200 remained at 6.3%, and 6.21% in East Asia and the Pacific. Some payment institutions with international or regional influence have emerged in China and ASEAN. In addition to market-oriented payment institutions in China, platforms such as PromtPay in Thailand and PayNow in Singapore start from low rates, round-the-clock service, and improved customer experience international payment market. At the same time, officials are also studying the central bank’s digital currency for cross-border payments. The “RCEP (Regional Comprehensive Economic Partnership) Regional Digital Trade Cross-border Payment Service Index” jointly released by Zhejiang University and Ant Research Institute shows that the fund settlement channel capacity of Asia-Pacific cross-border e-commerce has been significantly improved. Emerging trade forms have both inclusive functions, enabling small, medium and micro enterprises that were difficult to directly participate in international trade due to their small size in the past to directly integrate into the global product chain and supply chain.
Where does the challenge come from
Looking forward to the future, China-ASEAN cross-border e-commerce has broad prospects, but also faces many challenges.
From the perspective of prospects, governments of China and ASEAN countries continue to introduce precise policies to promote the development of cross-border e-commerce. This year’s government work report in my country proposes to accelerate the development of new formats and models of foreign trade, give full play to the role of cross-border e-commerce, and support the construction of a number of overseas warehouses. In June, the People’s Bank of China issued the “Notice on Supporting Cross-border RMB Settlement in New Formats of Foreign Trade”, which will improve policies related to cross-border RMB business in new foreign trade formats such as cross-border e-commerce, and include “overseas warehouses” under the current account among the market transaction entities of RMB settlement service objects. ASEAN countries will also earnestly finalize the ASEAN E-Commerce Agreement, which will take effect in December 2021. Under the policy dividend, the e-commerce platforms and import and export enterprises of China and ASEAN will consolidate and extend the supply chain and service chain of products, which will provide a solid bottom support for the development and cooperation of cross-border e-commerce.
At the same time, COVID-19 epidemic has objectively spawned the “home economy” (online economy), and the cross-border e-commerce cooperation between China and ASEAN is expected to continue to enjoy the dividends of shifting consumer preferences. Six Southeast Asian countries (Vietnam, Thailand, Philippines, Malaysia, Singapore, Indonesia) added 40 million online users, and some original offline consumption naturally migrated online, including education (55%), credit (44%) and groceries food (47%) and other industries are fast-growing industries. Moreover, 94% of consumers in these six countries are expected to maintain the new online consumption habits.
More importantly, the entry into force of RCEP will open a new chapter for regional cross-border e-commerce cooperation. With the official entry into force of RCEP, the Asian cross-border e-commerce market will enjoy huge institutional dividends and opening dividends. Chapter 12 of the RCEP text focuses on e-commerce, and parties should “work together to help SMEs overcome barriers to the use of e-commerce”. Under the chapter on trade facilitation, there are provisions for paperless trade and electronic authentication and electronic signatures, and under the chapter on creating a favorable environment for e-commerce, there are provisions for online consumer protection and online personal information protection. This is in line with the general trend of global digital governance in recent years, showing that RCEP is a higher standard international trade agreement. In addition to vigorously promoting e-commerce, chapter 12 of RCEP also specifically mentions “promoting cross-border e-commerce”, which is a major benefit to the development of cross-border e-commerce in various countries. RCEP will promote cross-border e-commerce to reduce import and export costs and better integrate industrial and value chains within the region.
Of course, the development and cooperation of cross-border e-commerce between China and ASEAN also face many challenges. First of all, the delay of the COVID-19 epidemic, the conflict between Russia and Ukraine and global inflation have brought a great impact on cross-border logistics and overseas warehouse construction, affecting the development and cooperation of cross-border e-commerce. In the past two years, the cost of international small-package freight and postal delivery services that cross-border e-commerce direct delivery business relies on has risen, and the time has been delayed; overseas warehouse construction has encountered problems such as insufficient supply and inability to keep up with follow-up services, restricting cross-border the rapid development of e-commerce business. Judging from the quotations of large multinational express companies (such as DHL), the quotation for private parcels (1kg) sent from Southeast Asian countries to China is in the range of 600~1000 yuan, which takes about 12 days. The price is around 1000 yuan. In 2022, global postal tariffs will increase by more than 40% compared with 2020.
Second, there are still uncertainties in many countries’ policies on digital trade taxation of cross-border e-commerce. Although the G20 (G20) and OECD (Organisation for Economic Co-operation and Development) have pushed the world to reach a “dual-pillar” international tax treaty in 2021, there is still uncertainty as to whether some ASEAN countries will abandon digital tax or introduce other types of digital tax . The recent WTO (World Trade Organization) 12th Ministerial Conference (MC12) finally reached an agreement on extending the tariff exemption period for “cross-border e-commerce”, but developing countries represented by India, Indonesia, and South Africa proposed that long-term tariff exemption the beneficiaries are the digital economy’s leading advanced economies and large multinational digital platforms, with developing economies losing annual or billions of dollars in tariff gains.
Third, the digital divide continues to lead to the differentiation of cross-border e-commerce development. China’s digital economy is large in scale, but its development is uneven in terms of regional distribution. Cities with high digital economy competitiveness are concentrated in the eastern and southern regions. The 2020 National Ranking of China’s Digital Economy Competitiveness Index released by the “China Urban Digital Economy Development Report” shows that 12 of the top 15 cities are located in the eastern region, and 12 are southern cities. There are large differences in per capita income and the degree of economic digitization among economies within ASEAN. As of June 2021, the Internet penetration rates in Brunei, Singapore, Malaysia, Thailand, and the Philippines are already high, exceeding 80%, but the penetration rates in Laos and Myanmar are only around 52%, and countries and regions with weak digital capabilities the development space of new cross-border e-commerce formats is significantly limited by digital infrastructure and human resources.
In addition, if the digital standards in East Asia are fragmented due to geopolitical factors in the future, it will bring hidden worries to the development of digital trade between China and ASEAN, including cross-border e-commerce. The ASEAN 7 countries have joined the US-led Indo-Pacific economic framework, under which the Connected Economy policy pillar is expected to put forward higher rules and standards for digital trade; the ASEAN 4 countries are also the Trans-Pacific Partnership (CPTPP) ) of the founding members. These rules may impose different levels of requirements on the opening of digital service trade, cross-border data flow, and local data storage, setting up barriers and barriers to digital access, resulting in fragmentation of digital rules. The above requires further observation.
Through the above review and analysis of the experience, prospects and challenges of China-ASEAN cross-border e-commerce development and cooperation, we can see that the development and cooperation of cross-border e-commerce with countries and regions along the “Belt and Road” has broad prospects, and we also need to follow strive to solve many challenges. We can focus on improving the business environment for the development of cross-border e-commerce, promoting the docking of e-commerce and digital trade rules and standards, ensuring the smooth flow of cross-border logistics and encouraging the construction of overseas warehouses, and narrowing the digital divide. To enable the people of developing countries along the route to effectively benefit from the development and cooperation of cross-border e-commerce, and to jointly build the “Belt and Road” with better quality in the post-epidemic era.