CNBC's The China Connection newsletter: Chinese exporters increasingly need to build brands to survive

Chinese cross-border e-commerce sellers are increasingly focused on brand building and marketing to compete in overseas markets, particularly the U.S., where competition is intensifying and tariffs are reshaping the landscape; this shift is evidenced by increased spending on advertising (up to 20% of transaction value) and demand for services like AI-powered market research and legal protection against lawsuits, with companies like FundPark providing financing to support these efforts. Despite a tepid trade truce, Chinese firms recognize the need for differentiation beyond price to ensure long-term success, mirroring trends in China's competitive electric-vehicle industry.

Analysis

Chinese cross-border e-commerce companies are undergoing a strategic pivot from price-centric competition to building distinct brands and investing heavily in sophisticated marketing, particularly for the U.S. market, as highlighted at the Shenzhen International Cross-Border E-Commerce Expo. This shift is driven by intensified domestic competition and the evolving U.S.-China trade landscape. Firms like AIGC Empower are emerging, offering AI-powered tools for market research and advertising content generation at approximately $1,390 per product annually, indicating a growing demand for services that enhance brand storytelling and consumer resonance. Supporting this trend, advertising expenditures have surged, with some businesses now allocating up to 20% of product transaction value to marketing, a significant increase from 3-5% in 2023. Fintech startups such as FundPark, backed by $750 million from Goldman Sachs (GS) and HSBC (HSBC), are facilitating this by providing increased financing for these marketing efforts and have established partnerships, for instance, as an official loan provider for certain Chinese sellers on Walmart (WMT). Despite these investments, establishing strong brand identity remains a significant hurdle, mirroring challenges seen in other competitive Chinese sectors like electric vehicles, where companies such as Xpeng (XPEV) face pressure to differentiate beyond features and price. Furthermore, Chinese merchants are exploring collective legal solutions, like low-cost insurance for litigation, to protect against market-entry barriers such as targeted lawsuits. The broader economic context includes strong May retail sales in China, boosted by e-commerce, but also softer growth in industrial output and fixed-asset investment. While the U.S.-China trade truce remains partial, with unresolved issues like rare-earth magnet exports, China has resumed deliveries of Boeing (BA) jets, a positive development. Nevertheless, geopolitical tensions continue to influence market sentiment, contributing to recent declines in Chinese and Hong Kong stock indices.

Key Decisions for Investors

• Investors should closely monitor Chinese cross-border e-commerce firms for tangible progress in brand development and effective marketing investment, as success in this strategic shift is critical for achieving sustainable, higher-margin growth in competitive international markets.
• Consider potential opportunities in the ecosystem supporting this e-commerce evolution, such as providers of AI-driven marketing technologies and specialized financing firms like FundPark, while also carefully assessing the execution risks and competitive intensity within these ancillary service sectors.
• Factor in China's mixed macroeconomic signals, including robust retail consumption alongside weaker industrial performance and persistent U.S.-China trade uncertainties, when evaluating exposure to Chinese equities, noting specific positive developments like Boeing's resumed aircraft deliveries.