Selling Into ChinaAre you ready to reach new customers in China and increase your revenues?

Read on… and happy selling!

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The rise of China’s middle class is one of the most important economic stories of our time: according to Pew Research,

middle income earners jumped from 3% to 18% from 2001 to 2011 , and with this growth has emerged an

unprecedented, multi-faceted consumer class with discretionary income to spend. As China transitions from decades

of rapid economic growth (10% growth rate over the last 30+ years) to a more sustained pace of development

(currently at 7%, it’s still more than twice the global average) , it’s never been a better time for businesses around the

world to consider China as a key investment opportunity for increasing global sales.

Projections from ANZ Research show that by 2030, China’s middle class population will reach 854 million in urban areas,

and that per capita disposable income in urban areas will be in excess of $30,000 in purchasing power parity terms, up

from less than $10,000 currently . In fact, consumption in China now contributes as much as 60% to economic growth,

almost 10% higher 2014 .

What’s more, ecommerce spending in China is also rapidly increasing: recent research from Forrester shows that online

retail spending in China, which hit $307 billion in 2013, is growing at a compound annual rate of nearly 20% and is

expected to top $1 trillion by 2019 .

This growth, coupled with the technological trends that are lowering the barrier to entry and enabling new corridors of

online trade with consumers shopping directly on overseas websites, is great news for small businesses around the

world: once considered the domain of only large global enterprises, China is officially open for business – and

companies no longer have to sit on the sidelines.

Merchants that can effectively understand the Chinese marketplace – the demographic composition and purchasing

habits of its diverse consumer class, as well as navigating business operation processes such as international logistics –

will be well positioned to reap the rewards.

Aimed at online companies around the world who are looking to open their doors to business in China, this guide will

address key resources, tips and insights including:

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Source: Pew Research (July 2015)Source: BloombergSource: ANZ Research, via Business Insider Source: BloombergSource: Forrester (February 2015)

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Are you ready to reach new customers in China and increase your revenues? Read on…and happy selling!

Top product categories dominating cross-border commerce in China now, and where the most growth

opportunity is for the future

A merchant-readiness checklist of important considerations for selling into China

Demographic profiles of China’s haitao shoppers (those who buy online overseas)

An overview of the often-complex world of international shipping and logistics – including tips for navigating China’s customs and duties regulations

A guide of important agencies, organizations and other resources to consult for information on expanding international sales

Success stories from fellow companies who’ve found success selling into China

How to sell to China

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China is open for business, but are you ready to sell into the opportunity?We’ve gathered insights to compile a checklist of essential items businesses should consider before entering the

Chinese market. This guide will address the regulations and legal requirements for selling into China, physical location

and distribution channels, the role of market research and the importance of understanding the local currency.

Determine whether you are eligible to physically

open up shop independently or if you must partner

with a locally-based manufacturer and distributor

based on the 2015 Catalogue. If you have the

option, consider the cost and time it takes to

approve the application before opening a space.

If you’re a more established company, choose

carefully which region to establish headquarters in

as China has built cities around specific industries –

fostering everything from universities for research

to modern infrastructure and roads for stable trade

routes and distribution. In some cases, local

communities offer incentives to specific industries

to establish businesses nearby.

Chinese Free-Trade Zones are growing in

popularity in several major cities such as

Shanghai and Tianjin, and are physical locations

where the government is testing fewer regulations

on certain industries to promote foreign

investment. The program is still developing and

should be considered as an option as it becomes

more prevalent and officials define goals.

Consult the 2015 Chinese Foreign Investment

Catalogue to ensure your company’s industry is not

restricted. The catalogue differentiates foreign

investment projects by encouraged, restricted and

prohibited categories, and assigns mild to severe

penalties for foreign investments in violation of

trade agreements.

Be aware of industry-specific governmental agencies

relevant to your brand as they have roles in drafting

laws relevant to your company and approving the

timeline of your entry into the market.

Intellectual property infringement occurs often,

therefore it is essential to consult intellectual

property rights lawyers and specialists to devise a

plan in advance. China has a “first-to-file” patent

policy, so be sure to file trademarks before officially

entering the market.

Regulation and LegalPhysical Location and Distribution

Become familiar with the value of the yuan and its

historical currency fluctuation, since the cost

involved in entering this market can increase due to

the time it takes to complete requirements and get

approvals processed.

Financing and the economy

“We’ve had great success with PayPal-specific deals and offers. Recently, we ran a promotion campaign for our Wuta Kamille hand cream, and saw a 20% uplift in sales compared to the prior week. It drove new Chinese shoppers to our site and doubled our weekly volume.”

- Qiongwen Zhang, Country Manager, China,

Allyouneed Fresh (HQ: Berlin)

“My one piece of advice for businesses looking to break into the market? Recognize that your competitive advantage won’t be price, but rather quality. Chinese buyers what to buy quality stuff from the US they can’t get in China.”

- Chris Ko, owner, ReviveIT (HQ: Mesa, Arizona)

Merchant Checklist

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Make sure your website is localized to the market,

meaning you are displaying the cost of goods in

RMB and well as displaying the fully-landed cost

before checkout to eliminate unexpected fees and

duties charged at delivery,

Work with your PayPal relationship manager to take

advantage of the Paypal China Connect direct

marketing campaigns to Chinese consumers

through UnionPay, China Construction Bank and

other Bank partnerships. With China Connect,

merchants across the globe can craft unique brand

stories to drive viral interest through industry

leaders and specialists in Haitao.

As part of your marketing, advertising, and

communication strategy it’s important to

understand how Chinese consumers digest media.

Newspapers, magazines and news agencies are

government owned so make sure your

communication across channels is consistent and

leverage your “on the ground” advocates (i.e.

bloggers) to ensure you reach your target audience.

To further drive conversion for Chinese shoppers,

make sure you have an IP detection that allows the

display of China-specific ad banners and

promotional messages.

Optimize your website for the market

Acquire data and statistics on the each sub-market

of Chinese consumers because their consumer

spending habits and interests vary widely based on

geography, income, literacy, and population density.

For example, married couples with children are the

leading drivers of foreign purchases and make up

72% of the market.

If you’re a more established company, you may be

ready to have a team on the ground or leverage

trade offices from your country that can be the

cultural liaison (everything from email etiquette,to

speaking Cantonese or Mandarin, to conducting

market research). Lastly, conduct due diligence and

research if any competitors have entered China,

what their strategy was, and how it applies to

your company.

Understand the market

“When we launched our China shop, of course, Paypal was immediately put to use. As one of the largest online payment processors across the world, it’s known as a safe and comfortable payment. It boasts a good reputation among not only customers but also merchants.”

- Qiongwen Zhang, Country Manager, China,

Allyouneed Fresh (HQ: Berlin)

“My advice to any business that wants to reach Chinese consumers would be to do your research before entering the market. Make sure you go through every scenario. For example, have astrategy for return shipping in case item is defective or incorrect.”

- Osher Karnowsky, GM, Jomashop

(HQ: New York City)

Source: National Law ReviewSource: B2B InternationalSource: Forbes

When it comes to payment, UnionPay is the

dominant card (debit or credit) consumers use in

China. Every Chinese consumer who has money in

the bank has at least one card – that’s a total of

about 4.7 billion UnionPay cards. PayPal’s

partnership with UnionPay is already helping 10

million global merchants connect with the Chinese

Haitao online buyer, enabling them to significantly

scale sales to China withoutadditional payment or

logistics investments. If you’re a PayPal merchant

using the PayPal wallet, you already have this

capability. Just be sure to display the UnionPay logo

alongside other payment logos on your website.

Secure and seamless payment transactions

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Source: National Law ReviewSource: B2B InternationalSource: Forbes

International Shipping and Customs:A Need-to-Know Guide for Merchants Selling Into ChinaYou’ve identified the market opportunity for selling into China – now comes the hard part: getting your product in the

hands of its haitao shoppers (Chinese consumers who buy online overseas). Shipping costs are one of the most

important drivers of an online shopper’s decision to complete an international purchase – and for China’s haitao

shoppers, that sentiment is no different.

Additionally, make sure your delivery and return policy is clear and accessible. Companies like DHL, UPS, and FedEx have

offerings that include handling, customs and excise documentation, and shipping calculators.

Lastly, make sure customer support is a top priority. If a shopper wants to contact you by telephone or email, specify

the telephone helpline and whether help is available in the local language or in English. If it fits your budget, a 24-hour

local-language customer helpline is ideal.

52% of Chinese online adults who’ve shopped

online overseas in the past 12 months report

that delivery fees prevent them from making

purchases from another country more often.

47% say that concerns about importfees – customs duties, and/or taxes – are also

a key barrier to making cross-border purchases

more frequently.

43% of China’s online shoppers say that free

shipping would make them "more likely to buy"

from another country.

50% that free return shipping or postage for

returns is a "must have" when considering a

cross-border purchase.

32% fear the lack of buyer protection or

insurance when purchasing goods from

overseas websites.

27% are concerned about receiving counterfeit

goods.

According to research from PayPal and Ipsos released in November 2014 :4

%TAXES

FREE FAKE

“Shipping and fraud prevention are our biggest challenges in China. We are still working on solving for logistics issues, but we happily use PayPal for their sellerprotection offering, and work with Forte to handle our credit card fraud.”

- Osher Karnowsky, GM, Jomashop (HQ: New York City)

Source: IpsosMORI (September - October, 2014)

Shipping and Logistics

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Key challenges – and solutions –to selling into China:The research is clear: protecting customers from unexpected taxes, duties, and import

costs is of paramount importance. But “China is not a simple or small market, and

there is no single piece of advice that will enable you to sell and ship to that country,”

says Elizabeth Marshall, VP of Supply Chain Innovations at global logistics solutions

provider Borderlinx. “You need to understand the market; be completely transparent

and compliant with all customs requirements, and mandate that your product comply

with all regulatory requirements.”

In response to the Ipsos research findings that shipping concerns were discouraging

repeat purchases from over half of the Chinese online shoppers surveyed, PayPal

recently announced the launch of Refunded Returns and expanded Buyer Protection in

China, providing haitao consumers greater confidence and freedom when making

purchases from anywhere around the world.

Other shipping advice for small business owners interested in expanding into the

Chinese market? “China requires products to be compliant with China Compulsory

Certification (CCC) regulations for many products being sold, imported or used in the

Chinese market,” says Borderlinx’s Elizabeth Marshall. “CCC is a mechanism to ensure

product quality and to safeguard consumers. Make sure that the product you are

selling complies with Chinese regulations. China's customs clearance of certain

products may require recipients to obtaincertificates, permits and/or licenses from

authorities.”

Those who put the work in to make international shipping simple and hassle-free for

their customers will reap the benefits: “Be prepared to see a sudden increase in

orders,” says Marshall. “China is one of our fastest-growing markets at present and is

expected to maintain the same trajectory.”

Key international shipping resources to consider: Calculate customs tax with Export.gov’s Tariff Calculator

Calculate tax and duties using the Borderlinx Shipping Calculator

International shipping and logistics carriers

“China is a very big country. We are primarily shipping from Germany, nearly 8000 km away. Our biggest pain points are transportation – both the time it takes, but alsopotential damage. We are still working hard on it. We are always researching more efficientmethods to improve ourpackaging.”

Qiongwen Zhang, Country

Manager, China, Allyouneed Fresh (HQ: Berlin)

“Twelve percent of ourinternational sales come from Chinese buyers – and we plan on continuing sales growth in the region. That said, when it comes to selling into China, the biggest pain point for my business is the low de minimis level that China has – so everything we sell gets taxed heavily.”

- Chris Ko, owner, ReviveIT (HQ:

Mesa, Arizona)

“As the only German online grocery that directly ships parcels to China, we have more than 1,000 orders per week from the region. Without question, our China team is getting larger and larger – we already have nearly 10 colleagues based there. Our focus for growth will be continually concentrated on Chinese market. It is still the center of our plan for next year.”

- Qiongwen Zhang, Country

Manager, China, Allyouneed Fresh

(HQ: Berlin)

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Unless otherwise noted, all data cited herein is sourced from IpsosMORI (September - October, 2014) Source: Forrester (February 2015)

over $1 trillion (estimated)

$440 billion

$307 billion

2019

2014

2013

China online retail market’s rapid growth :5

2%

2%

2%

3%

3%

3%

6%

6%

9%

14%USA

HONG KONG

UK/GB

FRANCE

JAPAN

GERMANY

SINGAPORE

SWITZERLAND

OTHER ASIAN/OCEAN COUNTRIES

AUSTRALIA/NZ

Key online cross-border shopping market corridors:

of internet users shopped online

domestic only

both domestic and cross-border

80%

74%

23%

3%

Chinese online cross-border shopping trends:

In the past 12 months:

cross-border only

no change in cross-border shopping habits

plan to shop cross-border more often

will start shopping cross-border

40%

35%

17%

8%

In the next 12 months:

will shop cross-border less

Clothing/apparel, footwear and accessories

Cosmetics/beauty products

Consumer electronics computers/tablets/mobiles & peripherals

Jewelry/watches

Baby/children’s supplies, equipmentand accessories (excluding clothes/footwear)

45%

38%

31%

23%

23%

Top five product categories:

Safe way to pay

Customer support in my language

Free shipping

Website available in my language ortranslation available

Free return shipping

53%

45%

43%

42%

42%

Top five drivers for online cross-border shopping:

Concerns about customs duties/fees and/or taxes

May not receive sufficient help if I encounterproblems

Delivery shipping costs

Different language of websites, productdescriptions and customer support

Difficult process for returning products

51%

47%

46%

45%

46%

Top five barriers for online cross-border shopping:

Concerns about counterfeit goods45%

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Here are the key metrics and statistics that reveal what makes the Chinese consumer click“buy”.

China’s Cross-BorderShopping: By the Numbers

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Married With Children 72% of China’s haitaoshoppersBusy with raising a family, this haitao shopper is concerned with product safety – quality, health and safety are paramount. With the highest annual income and online spend of all haitao shoppers, this group is willing to pay more for good quality products and services.

Reaching these shoppers: They crave convenience and expect authenticity in the products they buy, so refresh your product descriptions to highlight ease, authenticity and value.

Highlight in your marketing and social media materials how your products provide intangible benefits: such as an easier time making dinner, more time with their children instead of in the car, etc.

With children 6 years old oryounger (47%):31 years old (mean age)$64,020 avg. household income$161 avg. online spendTop items bought overseas:

With children 7 to 18 years old (25%)38 years old (mean age)$58,758 avg. household income$166 avg. online spendTop items bought overseas:

Married Without Children10% of China’s haitaoshoppersFrom apparel to electronics, married couples without children enjoy spending their discretionary income on high-quality goods and services. They appreciate the convenience of online shopping but are willing to search for the best option available. With the second-highest annual income and online spend of all haitao shoppers, this group is willing to pay premiums for higher-end products.

Reaching these shoppers: Personal style is a key purchase driver for this group – ensure your product descriptions convey luxury and exclusivity.

Fast Facts:31 years old (mean age)$45,196 avg. household income$136 avg. online spendTop items bought overseas:

Singles17% of China’s haitaoshoppersAs this group enters the workforce and dating scene, they’re looking for opportunities to build their personal image. They buy luxury products often fueled by an emotional desire rather than a practical need.

Reaching these shoppers: More image-conscious and willing to spend more on luxury products and brand names – marketing efforts should emphasize emotional “wants,” not practical “needs”.

Stress how products can be used for building a personal brand at work or in social settings.

Not in a relationship (8%):26 years old (mean age)$42,267 avg. household income$98 avg. online spendTop items bought overseas:

In a relationship (9%)27 years old (mean age)$54,983 avg. household income$106 avg. online spendTop items bought overseas:

Source: All data cited herein is found in “Ipsos Survey: PayPal China Import\Consumers Profiling 2015” This survey was conducted online within China between February 10-17, 2015 among 1,500 adults (ages 18-50) by Ipsos on behalf of PayPal via an online survey. Key customer types (“Married With Children,” “Single,” and “Married Without Children”) comprise 99% of China’s haitao shopper group.

CosmeticsApparel Household Art Jewelry HobbiesBaby Items Electronics Groceries

Meet Your Customer:China’s Haitao Shoppers

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Ready to dig deeper into what it takes to successfully sell into China?Here’s a handy guide to key government agencies, organizations and other resources to consult for information on

expanding international sales.

World Customs OrganizationRepresenting almost 180 markets around the world; a global, intergovernmental organization that provides leadership,

guidance and support to customs administrations, including China’s.

China Business Review The official magazine of the US-China Business Council, a non-profit and non-partisan trade association representing nearly

230 American companies doing business in China.

Export.gov’s Guide to ChinaSupported by the expertise of trade specialists throughout the region, this guide offers valuable assistance to American

businesses looking to export goods and services to China.

Department of Commerce (DOC)

Provides information on global market research, trade events, trade leads, and information on how to export. Visit the DOC’s

Bureau of Industry and Security to learn more about export controls and treaty compliances.

DHL Express “Get to Know China”

Stay up-to-date on shipping solutions in the region, including news and developments in import/trade regulations.

PayPal PassPort

A free website designed to educate and empower small businesses to expand global sales by exploring new international

sales opportunities – including China – by learning about sales peaks and holidays beyond their borders, understanding gift

giving traditions country by country, and tapping into new or additional commerce cycles and sales trends.

PayPal/Nielsen Research on Chinese Cross-Border Shoppers Released in July 2015, this new research reveals new opportunities for U.S. merchants to reach Chinese online consumers and

dramatically expand their overseas sales. Insights include product preferences, purchase drivers, spending thresholds, and

device(s) used to make online purchases.

Resource Guide