The profitability of China’s cross-border e-commerce is continuously decreasing due to the competition among businesses to lower prices, hitting record lows. This news made it to the top searches on Baidu on October 9th.
According to a report by ThePaper on October 8th, ThePaper Institute has been conducting interviews with 30 small and medium-sized cross-border e-commerce practitioners and related government officials from Shanghai, Hangzhou, and Yiwu from March to October this year. One practitioner mentioned, “Since the beginning of this year, the early benefits of cross-border e-commerce have been gradually disappearing, operational difficulties have increased, and profit margins have hit new lows.” Moreover, many previously niche markets have also started to be caught up in a “price war.”
The CEO of a trading company in Ningbo stated that the cross-border e-commerce sector is caught in a vortex of low prices: “The bonuses of cross-border e-commerce have further disappeared, and new sellers entering the market face greater operational challenges and lower profit margins.”
According to Hugo Cross-border Data, in 2023, only 27% of sellers reported higher profits compared to the same period the previous year, with 14% saying profits remained stable and 59% indicating a decline. In the first quarter of 2024, 12% of sellers reported profits remaining stable compared to the previous year, while another 44% saw a decrease in profits year-on-year. At the same time, the costs for nearly 70% of sellers have increased compared to the previous year, and half of the sellers’ year-end peak season performance fell short of expectations.
Regarding the continuous decline in profits in cross-border e-commerce, ThePaper Institute believes that the primary reasons are the exponential growth in the number of cross-border e-commerce businesses and intensified competition. From January to September 2024, there were 11,857 newly established enterprises and 490 deregistered or revoked enterprises. Yu Zhonghua, the head of the e-commerce department of the Market Development Committee in Yiwu, stated that the increasing number of businesses is due to the high employment pressure in other industries, coupled with the low entry barriers and promising prospects in cross-border e-commerce. In recent years, a large number of young people have flocked to Yiwu to learn about the operation of cross-border e-commerce, where they can easily participate in training courses or work with a boss for a period to quickly get started. According to data from the Market Development Committee of Yiwu, in the first half of this year, there were 654,600 main e-commerce entities in Yiwu, with 40% engaged in cross-border e-commerce business.
Furthermore, the decline in profits is also influenced by the homogenization of goods. The main products in cross-border e-commerce come from industries such as textiles, light industry, and footwear and bags. A research report by the Chinese Ministry of Commerce on international trade and economic cooperation stated, “These industries suffer from issues like excess low-end production capacity, a single variety structure, low-level repeated construction, and insufficient innovation drive.” According to Chinese customs data, in 2023, the top export products in cross-border e-commerce were clothing, shoes, bags, jewelry and accessories, household textiles and kitchenware, various digital products and accessories, as well as home office electrical appliances and accessories.
According to the recent survey conducted by the British market information company Omnisend on 4,000 people from the United States, the United Kingdom, Canada, and Australia, it was found that the main products purchased on Chinese e-commerce platforms such as Temu and Shein were clothing, shoes, bags, household products, electronics, beauty accessories, and 82% of the respondents cited “cheap” and “discounts” as the main reasons for shopping on Chinese e-commerce platforms.
Moreover, the fierce competition among businesses to offer lower prices has led to a continuous decline in profits for e-commerce. The main export goods in cross-border e-commerce come from Guangdong, Zhejiang, Fujian, and Jiangsu, which are the main hubs of “cross-border e-commerce + industrial belts.” The sourcing of different businesses is likely from similar or the same factories. A Yiwu business owner mentioned, “Especially for general goods (goods with no special requirements for transportation, handling, or storage), there won’t be much difference in the product and shipping routes among businesses.” Moreover, “the profits for general goods are generally very low, and there will always be someone willing to accept lower profits than you to gain more natural traffic on platforms, forcing you to also lower prices.”
Lastly, the price comparison function commonly found on e-commerce platforms intensifies price competition for homogeneous products. A Yiwu business owner noted that when consumers linger on a page or during checkout, the platform system automatically recommends similar products at lower prices. Additionally, this year platforms have been launching competing “fully managed” models where after uploading products, the platform gauges the situation of similar products across the network to provide a reference price for the goods. These technologies rapidly align price information among different businesses and consumers.
Regarding the future of cross-border e-commerce, the report suggests that as the barriers to entry for cross-border e-commerce are lowered with the widespread adoption of “semi-managed/fully managed,” Chinese e-commerce platforms going global, the popularization of the “dropshipping” model, and the improvement of facilities such as “overseas warehouses,” more and more Chinese businesses will be attracted to join the market. However, in the long run, with “latecomers” selling similar products but at lower prices, the profits of general goods will continue to decrease until economic profit margins reach zero.
Fanyu, the general manager of Shanghai Yuexin Trade Co., Ltd., believes, “The key criterion for running cross-border e-commerce is to choose a less competitive niche; once Chinese people join, they quickly can’t make money.”
A netizen named “Excited Little Demon King” believes, “Aside from price wars leading to the decline in profits in cross-border e-commerce, I think there are also issues with rising supply chain costs, logistics, tariffs, are some significant factors. Do you have any suggestions on how to reduce them?”