Discussing the Cross-border E-Commerce Market and Cross-border E-Commerce Financing

Cross-Border E-Commerce Market

With the rapid development of the global digital economy, cross-border e-commerce has become an important aspect of growing global trade. A premier example of this is Amazon. Amazon, as one of the largest e-commerce platforms globally, has always occupied an important position in the field of cross-border e-commerce. Amazon provides sellers with a global sales platform, allowing them to sell products to consumers all around the world. Amazon’s FBA (Fulfilment by Amazon) warehousing service and its open ecological cooperation system further help it in providing a better and more convenient platform for retail customers and e-commerce sellers around the world.

In 2021, Amazon’s total annual sales reached USD 470 billion, with the website receiving an average of over 2.7 billion visits monthly, with over 2 million small and medium-sized enterprises around the world selling goods on the platform (Data Source: JungleScout).

E-commerce sellers from China make up 45.66% of Amazon’s e-commerce sellers, and the institution predicts that in 2023, the Gross Merchandise Value (GMV) of Chinese sellers on the platform will reach USD 238 billion, accounting for 28% of Amazon’s total GMV (Data source: eCommerceDB). Therefore, it can clearly be seen that China’s cross-border e-commerce business has occupied a significant market share in the global e-commerce market.

According to data from China’s Ministry of Commerce, the annual cross-border e-commerce import and export volume (including B2B) reached 2.11 trillion Yuan in 2022, a year-on-year increase of 9.8%. Of these, exports were worth 1.55 trillion Yuan, which was a year-on-year increase of 11.7%. China’s cross-border export e-commerce industry has benefitted from the promotion of advantageous policies, which has contributed to its steady growth.

By the end of 2022, China’s State Council had established 165 comprehensive pilot zones for cross-border e-commerce across the country, covering 31 provinces, autonomous regions and municipalities, of which 21 comprehensive zones for cross-border e-commerce are in the Guangdong Province.

Market data shows that around 150,000 cross-border e-commerce sellers are from Shenzhen, and that among Chinese sellers on Amazon, around one-third are from Shenzhen. The cross-border e-commerce industry centred in Shenzhen has brought huge economic growth to Guangdong Province and is an important cornerstone for the future of Guangdong Province and the Greater Bay Area, in building the ‘Guangdong-Hong Kong-Macao Greater Bay Area Global Digital Trade Pilot Area’.

In the development of cross-border e-commerce trade in the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong, as a global trade centre and an economic hub in the Asia-Pacific region, is an important supply chain and capital management centre. Due to the superior geographical location and well-established financial system of Hong Kong, many cross-border e-commerce service providers, such as cross-border payment companies and fintech companies, have set up platforms in Hong Kong in order to provide services for cross-border e-commerce. At the same time, Hong Kong has also become increasingly attractive to e-commerce sellers. E-commerce enterprises establish their own supply chain and capital management centres in Hong Kong, to better manage their cash flow and supply chains.

The Government of the Hong Kong Special Administrative Region is actively promoting the development of cross-border e-commerce. In the Legislative Council’s ‘Facilitating Development of cross-border e-commerce’ meeting on April 19, 2023, Acting Secretary for Innovation, Technology and Industry, Ms Lillian Cheong responded to a question posed by LegCo member, Dr. Hon Kennedy Wong, stating that “The Government is committed to promoting the use of technology by SMEs to develop businesses including the adoption of e-commerce. The Government also assists enterprises to develop digital support facilities as well as carry out upgrade and transformation in order to enhance their competitiveness and develop more diversified markets”.

Cross-border E-Commerce Financing

One of the main problems that cross-border e-commerce sellers encounter is the difficulty in obtaining financing. Due to the unique nature of digital transactions in cross-border e-commerce business, traditional financing channels might find it difficult to meet the financing needs of all cross-border e-commerce sellers, and as a result, many sellers may not obtain sufficient financial support. One obstacle that cross-border e-commerce sellers encounter is the requirement from financial institutions for their clients to provide collateral for financing approval. Cross-border e-commerce sellers, however, often do not have enough collateral to pledge. Another issue is that, since the sales, logistical operations and payment of e-commerce enterprises are all completed online, financial institutions are unable to utilise the traditional methods to collect the transaction information of e-commerce sellers for conducting risk analysis, causing bottlenecks for the financial institutions in completing credit risk assessment. This issue is further exacerbated by the fact that most cross-border e-commerce sellers are SMEs. As the flow of goods, information flow and capital flow involve different borders, it is even more difficult for cross-border e-commerce sellers to obtain financial support when compared to traditional trading enterprises.

In order to resolve the problem above, fintech companies have started exploring new methods of assessing financing risk for cross-border e-commerce enterprises, as well as new cross-border e-commerce financing solutions. By analysing big data, new algorithms are developed to establish a risk control model suitable for cross-border e-commerce financing, creating an open data platform, opening new opportunities for cooperation with financial institutions and bringing more innovative cross-border e-commerce financing products to the market, these companies seek to aid more SMEs in the cross-border e-commerce industry in obtaining financial support from financial institutions.

The cross-border e-commerce business process is similar to traditional retail trade processes in some respects, but different in others. For instance, the supply chains of cross-border e-commerce trade and traditional trade do overlap. However, sales channels have shifted from offline to online sales platforms, accounts have become virtual accounts for receiving payments, and most records of trade and transactions have changed from traditional documents to their electronic data counterparts. Moreover, in the supply chain of cross-border e-commerce, the e-commerce sales platform also acts as the main platform for transactions, payment, procurement, and overseas warehouse goods management, with other e-commerce service providers acting as the auxiliary operating system. By integrating various platforms, fintech can be used to collect data from e-commerce sellers (store sales, account payment, goods warehouse, etc) in a complete, timely and effective manner. This data can be used to carry out intelligent risk control analysis and asset penetration according to innovative algorithm models. It also assists financial institutions in carrying out real-time risk control management in the pre-loan, in-loan, and post-loan processes of e-commerce sellers.

In the operation of cross-border e-commerce enterprises, sellers need to adopt the pre-payment model with upstream suppliers, and the post-payment model with the downstream e-commerce platform, thus creating an accounting period of 60-120 days. The high turnover and asset-light characteristics of cross-border e-commerce business has led to its large capital demands. Since the trade cycle of cross-border e-commerce businesses are generally within 120 days, the characteristics of short-term financing coincide with the general characteristics of trade finance products. As such, the earliest e-commerce financing products were developed based on the core elements of accounts receivable factoring business. The detailed development and growth of cross-border e-commerce financing products will be explored in more depth in a later article.

In the new era of the thriving digital economy, cross-border e-commerce business is bound to spark new technological innovation and stimulate economic growth, acting as a premier driving force for global trade.

The work described in this article was supported by InnoHK initiative, The Government of the HKSAR, and Laboratory for AI-Powered Financial Technologies.
(AIFT strives but cannot guarantee the accuracy and reliability of the content, and will not be responsible for any loss or damage caused by any inaccuracy or omission.)

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