Why eBay is returning to China

About a decade ago, eBay made a legendary retreat from the Chinese auction business in the face of growing local competition. It was a defeat so humiliating that it became a business-school case study. Since then, however, the Chinese e-commerce market has changed drastically - and so has eBay. As the company makes its return to the mainland, it may be at the forefront of an important trend in online trade.

eBay recently announced that it's partnering Ningbo, a major port and manufacturing hub, to help boost the city's e-commerce with the rest of the world. That's a far-sighted move. In 2016, Chinese shoppers made a whopping US$86 billion (S$120 billion) in online purchases from vendors in other countries. Globally, such trade was just as healthy, adding up to US$300 billion in 2015 and growing at nearly 25 per cent a year - faster than domestic e-commerce. At a time when globalisation otherwise seems to be in retreat, companies taking advantage of this kind of trade are looking like the future of retail.

As eBay has figured out, the phenomenon revolves around China. Ningbo's e-commerce pilot zone is one of more than a dozen recently established by the Chinese government. Companies operating in these areas can get several benefits, including expedited imports and tax breaks. More crucially, they can set up bonded warehouses to store imported goods for quick dispatch to customers - thereby reducing shipping times by as much as 80 per cent.

That's much appreciated by Chinese shoppers, who have long sought out foreign alternatives to unsafe local products. In the late 2000s, after repeated scandals over contaminated infant formula milk, Chinese parents bought up foreign brands in such quantities that they created shortages overseas. (If you've ever encountered tins of baby formula at a duty-free shop, it's thanks to those scandals.) Now e-commerce is making such products far more accessible: As of 2015, China's legal imported formula-milk market was worth US$2.5 billion annually.

A growing demand for luxury is also contributing to the trend. One recent survey from McKinsey found that 50 per cent of Chinese consumers "now seek the best and most expensive product" when they shop. Last year, those shoppers purchased US$5 billion worth of goods online from South Korea alone, with luxury items such as cosmetics, clothing and accessories topping the list. Although there's local competition in all those categories, foreign brands are still widely perceived to be superior - and cross-border e-commerce has become the easiest way to buy them.

Outside China, meanwhile, it's bargains - not luxuries - that are driving this trade. San Francisco-based Wish.com has built a multibillion-dollar business on the insight that US consumers will buy low-quality products directly from China - and then wait forever for them to ship - so long as the stuff is cheap. Wish's hugely popular app offers an endless stream of such goods. In the market for a pair of suede men's oxford shoes? If you don't mind waiting until the spring equinox, they're scrolling by for just US$6.95.

eBay shoppers aren't strangers to this kind of deal. They've long used the platform to snap up cheap foreign goods, from squirt guns to chrome-plated muffler silencers.

With the Ningbo partnership, eBay is hoping to improve this process by training local workers to help manufacturers meet the demands of overseas customers. It's a big bet that cross-border online commerce will keep growing in the years ahead - even as international trade stagnates and protectionism rises.

That trend won't benefit everyone, of course. It will surely take a toll on traditional retailers. And brick-and-mortar shops that target bargain-minded customers will probably be especially vulnerable. Wish, for one, has been upfront about its plans to compete with Walmart. For consumers, though, that kind of competition is a good thing. It means international borders are no longer an impediment to shopping - or to getting a good deal.

BLOOMBERG VIEW

A version of this article appeared in the print edition of The Straits Times on February 25, 2017, with the headline 'Why eBay is returning to China'. Print Edition | Subscribe