The total value of direct purchases from China reached $2.359 billion last year, up 58.5% from the previous year, according to the Korea Customs Service on Mar. 28, 2024. / News1

A South Korean company specializing in toys for babies recently cut production by half in response to a steep decline in sales. The company’s sales have been hit hard by an influx of ultra-cheap toys on Chinese e-commerce sites such as AliExpress and Temu. “We can’t compete with products priced at less than half of our products,” said the company’s CEO. He voiced concerns that toys sold on Chinese e-commerce platforms may look identical to those made in Korea, but their material composition and safety standards are unclear, posing a potential hazard to babies.

“The government says they’re going to take measures, but we fear that the local manufacturing base will collapse before these regulations are implemented.”

A survey by the Korea Federation of Small and Medium Business (KBIZ), involving 320 small and medium-sized enterprises (SMEs) affected by Chinese e-commerce, revealed that 80.7% of businesses experienced a decline in sales or feared a potential decrease in sales. “If the government fails to respond to China exporting deflation through e-commerce in a timely manner, we risk starting a domino effect of collapse beginning with producers of everyday consumer goods who have limited capital and sales capacity, eventually affecting all SMEs,” said Choo Moon-gab, head of the Economic Policy Department at KBIZ.

The total value of direct purchases from China reached $2.359 billion last year, up 58.5% from the previous year, according to the Korea Customs Service on Mar. 28. The volume of imported goods jumped 70.3% year-on-year to 88.85 million items. Most of this surge is from ultra-cheap home appliances and household goods from Chinese e-commerce, which threaten local SMEs.

Illustrated by Lee Chul-won / The Chosunilbo

In terms of pricing, local businesses have a hard time competing with Chinese products. Unlike traditionally imported goods that undergo the standard taxation process, direct purchases from China to consumers through e-commerce within the country are often not taxed. The Customs Law exempts direct goods valued at less than $150 from customs and value-added taxes, a category into which a large portion of purchases from Chinese e-commerce platforms fall.

In the past, protective measures such as import and export regulations and tariffs served as a barrier against the influx of cheap products. But the rise of the direct-to-consumer business model has effectively bypassed these traditional safeguards, leaving domestic manufacturers at a disadvantage.

Korean companies spend thousands of dollars per product to comply with domestic safety certification regulations such as the KC certification, but Chinese direct-to-consumer products do not have to adhere to these regulations. “The cost of complying with safety certifications and environmental fees is something local businesses can’t avoid, whereas our Chinese competitors bypass these expenses and are thus able to sell uncertified products at lower prices,” said a representative of a Korean company that sells electric tools. “They sell shoddy products at cheap prices by exploiting the regulation loophole related to direct purchases.”

“No business is willing to operate at a loss, but competing with ultra-cheap products sold on Chinese e-commerce means just that,” said another industry insider. A growing number of businesses have resorted to buying low-priced products in bulk through direct purchases and reselling them at marginally higher prices. While this approach might seem like a bargain for consumers, this practice undermines the competitiveness of domestic SMEs by potentially saturating the market with low-quality products in the long run.

“The government should also take measures such as platform regulations to protect the industry as a whole,” said Choo.