Chinese cross-border e-commerce companies Temu and Shein have shaken up the markets in Europe and America with their low-price products, swiftly expanding their user base. However, these e-commerces also face accusations of exploiting trade loopholes, flooding markets with cheap goods, and raising concerns about data security.
US and European governments have begun implementing measures to counter these Chinese e-commerce giants. The Taiwanese government and private sector must also recognize and address the growing influence of Chinese cross-border e-commerce.
The rapid growth of Chinese e-commerce
China’s cross-border e-commerce platforms have become immensely popular in Europe and America with its low pricing and savvy marketing strategies. “Shop like a billionaire,” the slogan of Temu, has become a mantra for its consumers, with their affordable Chinese-made products. Its cheap pricing is based on the direct B2C model, in which Temu ships products straight from Chinese factories to consumers, cutting out warehousing costs to reduce expenses. Temu also mirrored the growth strategy of its parent company Pinduoduo (PDD) to enter new markets through aggressive pricing and subsidy tactics. Temu rolls out enticing promotions such as discounts, cashbacks, and user referral programs, leveraging viral marketing to drive rapid membership growth. In 2023, Temu was the most downloaded free app on the US Apple App Store, with user engagement surpassing Amazon. According to a Wall Street Journal report, TEMU currently plans to shift its focus to Europe in search of new growth opportunities, aiming to mitigate risks in the US market.
Similarly, with low-priced clothing and accessories often costing just a few dollars, Shein has successfully captivated younger generations and built a strong reputation in the fast fashion market. Behind Shein’s epic success is using the power of data analytics to predict customer demands and fashion trends, and its small-batch production model to gauge product popularity before proceeding with large-scale production. This supply chain strategy has propelled Shein to dominate the global fast fashion market, achieving revenues of US$30 billion in 2023 and accounting for 18% of the global fast fashion market, officially surpassing established brands like Zara and H&M.
Concerns of Chinese e-commerce companies
While consumers enjoy their services, Chinese cross-border e-commerce companies have raised multiple concerns globally. The sustainability of their products, potential violations of intellectual property rights, and poor labor conditions have all raised concerns around the world. However, among these concerns, the exploitation of consumer personal data and the impact of low-priced dumping are particularly critical for Taiwan due to its impact on the society’s resilience. It is imperative for the government and civil society to take proactive measures to address these challenges.
Firstly, Chinese e-commerce companies have a spotty track record in handling personal data and information security. The data obtained by these cross-border e-commerce platforms include extensive algorithmic data on consumer shopping preferences as well as sensitive information provided by consumers at checkout, such as home addresses, phone numbers, personal IDs, and credit card numbers.
In the United States, the Better Business Bureau (BBB) has issued a warning after receiving numerous consumer complaints about Temu, expressing concerns that the app collects extensive consumer information, including social media accounts and banking details.
Countries have responded to the rise of Chinese e-commerce with regulatory measures. In the EU, the European Union’s Digital Services Act (DSA) took effect in February 2024, targeting e-commerce platforms with over 45 million monthly active users. Meanwhile, the South Korean government has mandated that Chinese cross-border e-commerce platforms like AliExpress and Temu adhere to South Korea’s Personal Information Protection Act to safeguard personal data.
Under current Taiwanese law, e-commerce and third-party payment providers are required to establish security maintenance plans that include personal data management and incident reporting mechanisms. However, Taiwanese regulations are generally aimed at industries broadly handling personal data, such as e-commerce, software publishing, and information services, rather than specifically targeting e-commerce providers, as seen in Europe and South Korea.
The Taiwanese government should similarly accelerate the formulation of relevant regulations and release guidelines for e-commerce operators to enhance their personal data protection measures and ensure user safety.
Additionally, Chinese cross-border e-commerce platforms have expanded their market share by offering low-priced products and exploiting tariff loopholes for profit. For instance, parcels valued at less than $800 USD sent from abroad to the United States are exempt from tariffs, as US regulations allow parcels with low declared values sent directly to US consumers to avoid tariffs and enter the US market with minimal scrutiny. In 2023, an estimated 1 billion duty-free parcels made their way into the US, primarily from platforms like Temu and Shein. This record-breaking figure has raised concerns, prompting the US government to consider cracking down on these platforms for exploiting such loopholes to gain undue profits.
In Europe, a number of civil organizations in Austria have also accused Chinese cross-border e-commerce of exploiting EU loopholes in the customs and tax systems to avoid tariffs. This practice has resulted in a flood of cheap and low-quality products entering the European market. These organizations not only call on government agencies to take action to address the trade imbalance between the EU and China but also advise consumers to protect their rights and interests.
In Taiwan, while some Chinese e-commerce platforms like Temu have not yet entered the market, others have made efforts to reach consumers through various channels, sometimes discreetly. Shopee, an online shopping platform with suspected Chinese affiliations, operates as a Singaporean entity doing business in Taiwan. Shein, promoted extensively on social media platforms, has captured considerable attention from Gen Z consumers.
Taiwan as the leader confronting Chinese dumping
In fact, this isn’t the first time Taiwan has grappled with concerns related to Chinese e-commerce. Back in 2019, legislators uncovered that Taobao, China’s largest online shopping platform, raked in approximately NT$180 billion in annual revenue from the Taiwanese market. Exploiting a loophole in Taiwan’s import parcel tax exemption limit of NT$2000, Taobao evaded import duties, posing challenges for the Ministry of Finance. However, through intensified random inspections and the implementation of parcel registration, the Ministry managed to alleviate the situation of tax evasion. Drawing from this previous case, the Taiwanese government must ramp up inspections of parcels imported from China and leverage artificial intelligence to monitor potential tax evasion by cross-border e-commerce to safeguard the national treasury system.
However, national security should be taken into account as well. Taiwanese consumers’ data could be used for data analysis, allowing access to information about Taiwan’s financial and logistical activities. This use of data could pose a heightened risk, particularly when the data processor has a Chinese background. In addition to government regulations, fostering public awareness of national security and cybersecurity, as well as understanding the potential risks associated with Chinese applications, is essential.
The Taiwanese government should consider the actions taken by the EU and the United States and approach the challenges posed by Chinese e-commerce platforms with caution. While Taiwan already has numerous regulations regarding Chinese enterprises due to its unique relationship with China, there is still room and a pressing need for further action and legislation. These measures are necessary to address concerns over unlawful access to user information, personal data leaks, suspicious financial flows, and even malicious apps.
A whole-of-society approach shall also be adopted, involving collaboration between the Taiwanese government, experts, scholars, and civil society to formulate effective response measures. These efforts will not only protect Taiwanese consumers, the retail ecosystem, and information security but also serve as a model for other countries to reference.
- Fast, Cheap, and Risky: Chinese E-Commerce in Taiwan - June 6, 2024