Under the support of preferential tax policies and subsidies from the Chinese Communist Party (CCP), the cross-border e-commerce industry in China has grown rapidly globally since 2022, sparking concerns from European and American countries about these e-commerce platforms avoiding tariffs, dumping practices, environmental issues, intellectual property rights infringement, and labor exploitation. Facing the low-price competition of Chinese e-commerce in overseas markets, many countries have begun to be vigilant and are seeking ways to counter it. Experts also indicate that Chinese cross-border e-commerce is now under scrutiny, and the future may not be smooth sailing.
According to a report from Xinhua News Agency at the end of November 2023, over the past five years, the share of cross-border e-commerce in China’s foreign trade has increased from less than 1% to around 5%. From January to September 2023, the import and export volume of cross-border e-commerce reached 1.7 trillion yuan, representing a 14.4% year-on-year growth.
The global shift in consumer habits during the COVID-19 pandemic from 2020 to 2022 has led to an increase in online shopping demand, resulting in explosive growth of B2C cross-border e-commerce. Platforms like AliExpress, Shein, and Temu began expanding. After 2022, it became a period of collective overseas expansion for Chinese cross-border e-commerce, with many domestic brands venturing abroad and small and medium-sized enterprises utilizing e-commerce platforms to reach overseas markets.
Temu, under the umbrella of Pinduoduo, replicates the model of Pinduoduo domestically, exporting the extreme cost-effectiveness brought by China’s supply chain advantages overseas. For example, an air fryer for $2.99 and 10 pairs of socks for $1.87. Data shows that prices of shoes, clothing, and daily goods on Temu are 30%-50% lower than competitors.
Since Temu’s app landed in the US market in September 2022, it became the most downloaded iPhone app in the US in 2023. Since its launch in Europe in April 2023, according to the latest study by ECC KÖLN, 32% of German consumers purchase products on Temu, compared to only 11% the previous year.
Ms. Xu from Quebec, Canada, in the foreign trade industry told the Epoch Times that Temu is different from Shein. Shein mainly imitates European and American clothing brands, having a bad reputation and frequently involved in lawsuits, hence its success in the US market is unlikely. Temu, on the other hand, allows anyone to sell products on its platform, similar to Amazon.
These Chinese cross-border e-commerce platforms attract users with astonishingly low prices and a wide variety of products, but they lack in other aspects. The German newspaper reported that Temu customers complain that despite having a free return policy, they still have to argue with sellers or face refusals for refunds. Temu is also actively deleting negative one-star reviews. Companies like Taiwan’s Amazon and Germany’s Otto gain more consumer trust.
Economic scholar Li Hengqing in the United States told the Epoch Times that the rapid expansion of these cross-border e-commerce platforms is mainly due to cheap prices. The cost from raw materials to processing to transportation is very low, and with government subsidies, they capitalize on all available advantages. Importing countries are not ready to compete with them, and another key reason is the overall decline of the Chinese economy, leading many companies to shift towards cross-border e-commerce.
Professor Xie Tian from the School of Business at the University of South Carolina Aiken told the Epoch Times that the rapid overseas growth of Temu and Shein is mainly due to two factors: aggressive advertising across social media platforms like Twitter, Facebook, and Instagram, and extremely low prices. For example, an item that may cost $20-30 in the US market will be sold for only $1, and with free shipping. Given the severe inflation in Western countries, consumers are eager to save money and find it hard to resist. This strategy attracts new customers with almost a 90% discount on their first purchase, making future purchases relatively cheaper.
Xie Tian remarked that Chinese small goods generally have a fatal flaw—they are unreliable and not durable. They are often made of low-quality materials and easily break after a few uses, giving customers the feeling of buying piles of junk. Another critical weakness is the long delivery times, with products from Temu taking two to three weeks to arrive, compared to Amazon’s quick delivery.
“In reality, US department stores also have these small items. You can buy a large bag of items at a department store for not much money. However, shipping these items in many small packages across borders is wasteful of resources,” he added.
The rapid growth of the Chinese cross-border e-commerce industry is largely attributed to policies aimed at promoting export trade. Authorities have continuously provided tax benefits, subsidies, and relaxed administrative requirements to support the development of cross-border e-commerce.
Since 2014, cross-border e-commerce has been mentioned in the annual Government Work Report for 11 consecutive years, seen as a new driver of foreign trade growth. Since 2015, the CCP has established 165 comprehensive pilot zones for cross-border e-commerce, where retailers exporting goods through e-commerce platforms are exempt from value-added tax and consumption tax, with preferential income tax rates. During the US-China trade war in 2018, the CCP reduced export taxes for domestic exporters in response to the increased tariffs imposed by the Trump administration on Chinese goods.
Moreover, local governments in regions with a concentration of cross-border e-commerce platforms like Hangzhou and Shenzhen have introduced incentive measures. In February last year, Hangzhou provided grants up to 2 million yuan for enterprises engaged in cross-border e-commerce export business and provided funding support not exceeding 25% of the promotional costs for enterprises promoting their independent brands through social media, search engines, cross-border live streaming, and more. Shenzhen provided up to 450,000 yuan in entrepreneurship subsidies for cross-border e-commerce in 2023.
Ms. Xu believes that these local governments aim to stimulate local economies or industries. Some local governments, for instance, those in Jiangxi, known for tea, and Henan, known for sweet potato flour, offer rewards for businesses engaged in trade linked to these local products. Businesses pursuing export through international trade receive incentives, and those establishing overseas warehouses may receive certain financial support or preferential loans.
“Regardless of tax exemptions, reductions, export taxes, or export rebates, all these are forms of government subsidies,” Xie Tian said. The CCP actively supports, grants tax exemptions, subsidies, and financial support to promote cross-border e-commerce entering overseas markets. By bypassing tariffs and directly entering European and American markets, it aims to boost exports through this method.
US economist Davy J. Wong told the Epoch Times that most countries worldwide offer certain export benefits and subsidies, but it is internationally recognized that subsidies and benefits should not harm other countries’ interests. Subsidizing products to undercut competitors’ costs is equivalent to killing industries in other countries, leading to unfair competition or malicious subsidies. It violates the principles of fair international competition and often faces retaliatory measures from other countries.
Wong stated that Chinese cross-border e-commerce has also received significant subsidies when exporting and exploited a loophole where international parcels under $800 to the US are not taxed. They flood foreign markets with parcels costing $3.99 or $4.99 that do not even cover postage costs, causing a destructive impact on the markets for small goods and light industrial products in Europe and America.
“During the US-China trade war in 2018 and 2019, they used various subsidies to enter the US market, bypassing tariff barriers through these subsidies,” he added.
Another objective of the CCP’s strong support for the overseas expansion of cross-border e-commerce might be to alleviate excess production capacity.
Li Hengqing noted that especially after the collapse of the Chinese real estate market, which continues to lower prices, people’s wealth is rapidly shrinking. At this point, they must find new avenues, with a key opportunity being to seize international markets and export China’s excess production capacity worldwide.
Xie Tian remarked, “This problem of oversupply in small goods is not yet severe and has not had a significant impact. However, in cases of oversupply in larger industries like cars or electric vehicles, the problem is severe because of the high initial investment and production scale.”
He stated, “You could say that it is a desperate self-rescue tactic but in reality, it’s shifting the burden onto others, focusing solely on making money and exporting unemployment to other countries.”
Platforms like Temu rely on large-scale data collection, including consumer data such as searches and clicks. While Temu claims to ensure the security of personal data and states that European customers’ data is stored in Europe, security analysis firm Joe Sandbox considers Temu an “unfriendly” application.
On May 16, a European consumer group accused Temu of using “manipulative tactics” in violation of EU online platform regulations by not providing essential information about sellers, resulting in consumers overspending or making it difficult to close accounts.
Moreover, the CCP has always viewed the data from these private enterprises as a national asset that can be utilized or restricted according to governmental needs.
Xie Tian mentioned that personal information of US consumers, ranging from names, addresses, purchase amounts, purchase preferences, to credit cards, is all stored. Having names, addresses, ZIP codes in the US, one can directly contact individuals, estimate their household income and gain a lot of information.
Li Hengqing emphasized the significant data collection by fast-fashion platforms. While information like officials’ and civil servants’ clothing preferences may be considered open and public information, banking details and addresses are concerning. US personal information is safeguarded, but the CCP often indiscriminately collects information, with no oversight.
Wong added that these e-commerce platforms have been quietly collecting user data, and domestic big data mainly involve flagrant theft, misappropriation, and selling of users’ privacy without boundaries, constraints, or legal awareness. This is an undisputed fact.
“Similarly, these e-commerce platforms are likely to be even less cautious with foreign users. It is believed that e-commerce platforms will undoubtedly disclose, misuse, and sell the concrete personal information and bank information of a large number of users from Europe and the US, posing a serious threat to the safety of residents of Europe and the US, also affecting national security.”
Temu’s most significant challenge may lie in its compliance, facing many questions such as tariff evasion, dumping practices, environmental sustainability, intellectual property rights, and labor exploitation, leading to countermeasures from countries like Europe and America.
Last summer, a US congressional report pointed out that the low prices at Chinese fast-fashion e-commerce platforms are due to forced labor and exploiting loopholes in the US postal system. A Swiss NGO Public Eye report in May highlighted that despite Shein’s commitment to improving working conditions, some of its suppliers still have workers working 75 hours a week.
Since 2021, the EU has started levying value-added tax on small import goods, and in 2023, the European Commission released the “EU Tariff Reform Proposal” planning to abolish the policy exempting goods under 150 euros from tariffs. France introduced the 2129 Act last year to combat low-cost fast fashion, aiming to impose ecological footprint surcharges on its products.
In April this year, the Korean regulatory agency launched an investigation into Temu, suspecting the platform of false advertising and unfair practices.
Xie Tian noted that it is not just vigilance; Chinese cross-border e-commerce platforms have already become targets. The next step will determine if the response will be a bullet, cannonball, or missile. The days ahead for these e-commerce platforms will certainly not be smooth.
He said, “Platforms like Temu have exploited certain loopholes in the Universal Postal Union. Now, small parcels from China to the US may cost lower than domestic postage rates, which is unacceptable. If real shipping costs are enforced, Chinese e-commerce platforms may find it challenging to survive.”
“But if the postal union abolishes this, there are technical challenges because the volume of small parcels is too high. If every item, costing a few dollars, is taxed, it is unclear whether customs can handle it, implementation may be troublesome,” he added.
Li Hengqing stated that governments play a crucial role in protecting the interests of their nationals. If these cheap goods flood the market and hollow out domestic industries, relying entirely on China or other countries, causing extensive unemployment in the home country, then the government has failed in its duty.
He pointed out that when China initially signed the WTO, it made hundreds of commitments, including reducing tariffs, ensuring competitive access, etc. The CCP vehemently advocated for protecting its own industries such as automobiles, home appliances, as they couldn’t compete, faced high tariffs, and had to subsidize export companies. Western countries eventually agreed after negotiations, but little did they know that more than 20 years after China’s entry into the WTO, it had long surpassed the initial protectionist circumstances, effectively destroying Western industries.
He emphasized, “China must understand this principle. It has already become the world’s second-largest economy, no longer a fledgling nation. Now, the CCP is turning the tables by saying our businesses have honed their skills in the free market competition and won over markets. This is quite harsh for Westerners to hear.”
Li Hengqing mentioned that now, the reason has been found to be the malicious competition from China that has stifled domestic industries. International society now acknowledges this perspective, so what is the solution? It means penalties and restrictions for the future, particularly in Europe and America. After additional charges, the products will no longer be as cheap, and they will gradually become adjusted to this new reality.