Save us from the demons?
This year, the Alliance of Technology Companies QazTech urgently requested to protect local businesses from the invasion of "Chinese" and other foreigners (Alibaba, AliExpress, Pinduoduo, Taobao, Amazon). Kazakh companies comply with standards, pay taxes, and certify products, while foreign competitors often evade taxes, bypass certification, and do not follow regulatory requirements. This creates unfair competition, threatening not only competitiveness but also the very existence of domestic businesses, as entrepreneurs expressed in the summer. In the fall, another wave of reports emerged: the expansion of Chinese marketplaces is killing local businesses. Trade occupies a special place in the country's economy: the market accounts for 18.2% of the total GDP, which is the highest figure compared to other sectors.
"Secondly, the trade sector also leads in terms of employment — over 16.7% of all employed in the country work in this sector. Thirdly, one of Kazakhstan's main tasks is to move away from a raw material economy in favor of manufacturing. In these conditions, if no measures are taken, small industrial production, which is emerging in Kazakhstan, will simply disappear. Fourthly, uncontrolled foreign marketplaces carry the highest risks in terms of low-quality and counterfeit products. This ultimately not only hits the pockets of the population, instead of delighting them with low prices, but also poses a high risk to the quality of life and health," analysts noted.
They added that this is a global problem. In October, the Indonesian government ruled to remove Temu from app stores. This measure was intended to protect small businesses. Vietnam did not grant a business license to Temu and the Chinese fast fashion store Shein, reported The Guardian.
Non-competitive position
Ivan Fedyakov, CEO of the INFOLine group of companies, believes that criticism of foreign marketplaces is justified.
"The banal logic makes one think about the current system of market regulation. Goods imported into Kazakhstan and the EAEU territory worth up to 200 euros per month per person are not subject to duties and additional payments. This puts goods on the domestic market, which are subject to all taxes — VAT, excise duties on customs clearance, and so on, in a non-competitive position. If there is a father, mother, and one child in the family, purchases can be split, allowing for a good buy of 600 euros. And for EAEU residents, this amount is substantial, covering 99% of purchases when counted in units," the analyst says.
He states: against the backdrop of weak protection of the domestic market, foreign experience demonstrates stricter restrictions on cross-border purchases - in some European countries, the limit for duty-free purchases is limited to 30-50 euros per person per month.
"But let's be realistic: an amount of up to 30 euros hardly implies the purchase of goods within the framework of cross-border trade. And 200 euros allow for satisfying a large number of needs in the EAEU space. Just recently, the ceiling for duty-free imports in the EAEU was 1,000 euros; in 2020, it was changed as part of Russia's attempt to combat the exit of foreign companies from the Russian market, but all EAEU countries were affected. And at the beginning of 2024, the amount was returned to 200 euros. We have a situation where goods on the domestic market are subject to all taxes and fees, while goods imported from abroad are not. Moreover, in a number of countries, there are rules, for example, in China, where part of the taxes, including VAT, can be refunded when exporting goods. At most, there is a system that subsidizes export activities — additional payments, bonuses for exporting one's products," the expert continues.
Thus, the market has a strong imbalance primarily in prices: in one case, goods are sold at significantly lower prices, while in the other — at full prices.
"However, the problem arose earlier but has intensified in the last 5-7 years. Earlier, the situation was not so dramatic for two reasons: the level of penetration of electronic commerce was significantly lower, measured in single percentages, and the problem, from the perspective of retailers selling mainly through physical stores, could be ignored. In some cases, the price difference was offset by logistics costs: goods from China or another country were cheaper, but since you paid for transportation, it balanced out," Ivan Fedyakov notes.
Economies of scale
In 2023, the share of online sales in Kazakhstan accounted for 12% of retail turnover, and this year it is 15%. In the categories of household appliances and electronics, clothing, the share of sales already accounts for 30-40% of total sales.
"On the other hand, logistics costs are rapidly falling due to the economies of scale, which provide good value for cost optimization. If earlier logistics accounted for 10-15% of the product price, now logistics costs can be in single percentages because containers, trains, and planes are now running on schedule. Projects are emerging, for example, a Chinese marketplace that sells goods priced up to 10 euros. It's like a Fix price online. And the model has proven to be so popular that Amazon has sharply moved towards it, creating a separate online store based on this model — selling very cheap goods," the analyst emphasizes.
Ivan Fedyakov - CEO of the INFOLine group of companies
The situation with online platforms dictates issues of unfair competition, and if we extrapolate the situation for the next 3-5 years, according to Fedyakov, it is clear that we can expect a shift of consumers to online channels. The prevailing factor will be price, meaning consumers will vote with their wallets, sometimes sacrificing delivery times and service components.
"And cheaper products will be found in Chinese online stores. In this regard, the market needs balance, and it is fair that retailers are calling on the regulator to find a solution that takes into account the interests of all participants — consumers, businesses, and, broadly speaking, the state. It is obvious that goods that are not subject to any fees are unprofitable for the state in terms of sales — you cannot collect taxes. And the market becomes a place for gray supplies that bypass the budget of a given country," emphasizes the head of INFOLine.
He reported that in 2023, China ranked first in trade turnover with Central Asian countries for the first time in history. This concerns not only consumer goods but the entire nomenclature, including energy products. As for the leaders in electronic commerce, due to the existing duty-free import, tracking statistics is currently not possible, the expert added.
The burden of a single market
The problem of changing the status quo is that the EAEU is burdened by a unified system of market regulation, especially regarding foreign trade activities.
"Apparently, it is not in Russia's interest to lower the threshold for duty-free imports for personal needs — this would cause certain discomfort among consumers in Russia. If in Kazakhstan there is a choice between buying branded clothing abroad or within the country, in Russia such a choice is often absent. Therefore, it will be difficult to solve the problem considering Russia's interests in the near future, but it is clear that it will need to be addressed. It is better to start discussing this now than to postpone it," said the interlocutor of TAJ.report.
Earlier, in one of the materials on e-com, market participants raised the issue of the sale of counterfeit products through marketplaces. According to Ivan Fedyakov, there is no more counterfeiting on Chinese platforms than on Russian or any other.
"Sellers sell non-original products, but on marketplaces, consumers can leave reviews. And this mechanism, which online platforms complain about, reveals two problems: comparing the average number of purchases on AliExpress or Amazon will show a bias towards the former, and thus the review system here will be more relevant. The second point is that sellers bring to resell in the EAEU the most marginable goods. This is a flea market where traders operate on the principle of buying cheap and selling dear. And the cheaper you buy, the lower quality you will get. And the mass-produced goods sold, for example, in Russia, are incomparably worse than the mass-produced goods sold in China," says the analyst.
In China, there have long been local brands, for example, Xiaomi, which built its entire business on brand management. The company does not engage in development and production; all their activities revolve around selling the logo.
"In general, this is a separate story, a unique business model of Xiaomi, which has no parallel in scale in the USA or Europe. This brand is a quality standard; you can buy a Chinese smartphone and tablet, and immediately socks and underwear from Xiaomi, and all these products are confirmed by the quality of this brand. Returning to the topic of our conversation, I note: on the Chinese market, high-quality goods are often sold that are oriented towards a long-term strategy — to engage the consumer. For this, companies invest in production quality, marketing, and promotion. All of this does not need to be done in the EAEU space. And on Chinese marketplaces in China, you can find much more quality local products than in Russia," Fedyakov states.
He was in China, where he liked the positioning in the minds of the Chinese that Chinese goods are about high quality. But unfortunately, this did not go further, and products that are not in demand by the Chinese themselves are brought from China. Mass-produced goods from China are often unknown to the Chinese themselves.
"The average salary level in China is higher than in the EAEU countries, which allows them to choose goods not only by low price, although they also like to save. And in this sense, we see an abundance of Chinese no-name products in our markets," says Fedyakov.
In China, many local brands have developed marketing strategies and operate in low, medium, and high price segments.
“The Chinese automotive industry is not only about cheap cars, but also about heavy luxury. This means there is demand. This can be extrapolated to any market - electronics, clothing, and especially occupying the luxury segment in the automotive industry is more challenging than in clothing, where production technologies are simpler. Chinese goods are highly competitive, affordable due to economies of scale, and without a market leveling system in the domestic niche, there is nothing good and cannot be. When you have subsidized imported goods and domestically produced goods subject to all taxes, it is not surprising that they will lose due to the imbalance. And then the question arises: what can domestic products use to compete with the Chinese? Probably, Kazakh horse meat is unmatched and will be a local brand. In general, that’s it - there is nothing else competitive compared to Chinese goods. And there won’t be, if the market is not leveled,” believes the analyst.
Vote with your wallet
Goods from China are available but not cheap; they correspond to an optimal price-quality ratio, which is why they are actively occupying the global market.
"The same can be said about Russian goods supplied through Ozon, Wildberries to EAEU countries — there is no protection for the domestic market. Here, competitiveness may be weaker compared to Chinese goods, not to mention re-export from Russia. But if we talk about goods produced in Russia, they are not limited in terms of imports to Kazakhstan — due to the common trade market. On the one hand, this seems like an opportunity for Kazakh goods to enter the Russian market, but the latter is ten times larger than Kazakhstan's, and any economic rule speaks of the effect of scale, which gives a competitive advantage. Therefore, goods produced in a large market are more accessible than those produced in small ones," the interlocutor notes.
In this regard, we also have problems with uncontrolled supplies from Russia to Kazakhstan, he noted. In the last two years, strong fluctuations in national currencies have also significantly influenced the situation.
“The National Bank of Kazakhstan tried to keep the tenge below 500 tenge per dollar, and for two years it succeeded. At that moment, the ruble went beyond 110 per dollar, making Russian goods significantly cheaper. In 2023, the Russian ruble depreciated by 25%, and this year - by another 20%. The Russian currency was actively depreciating, while the Kazakh tenge remained strong, and even under equal conditions, goods from Russia are now cheaper in the Kazakh market due to exchange rate differences, which also leads to a shift of buyers from marketplaces,” - describes the situation Fedyakov.
Russian and international brands that are traded in both Russia and Kazakhstan are 30% more expensive in Kazakhstan than in Russia. It is more interesting to buy goods on the Russian marketplace than on the Kazakh one.
"Look at how much a Sony Play Station costs on the Russian platform — significantly cheaper. Why overpay if you can buy in Russia? And this also makes domestic trade unprofitable. Those goods that should be officially regulated in terms of prices (not about state regulation, but about the marketing policy of the manufacturer, like Apple, Sony, which regulate prices), due to the influx of products, are deregulated, and due to the weakening of the ruble over the past two years, this makes imports from Russia much more profitable than buying domestically," says the analyst.
And although the tenge weakened to 520-530 tenge, this is incomparably less than the ruble's depreciation against the dollar. Therefore, it is now profitable to flood the Kazakh market with goods from Russia, which are sold here with higher margins. And this is also a big problem for domestic retailers, especially those with their own stores, staff, and rent.
"Imagine the costs for companies, while the consumer goes, chooses a product offline, and orders it online with a price difference of 30%. It is clear why many will choose marketplaces. Therefore, we have what we have, and there are no other ways to level the market except for government intervention. And here the issue is not control, but rather regulation. Because all control will end up terrorizing legitimate businesses, controlling networks, not servers," Ivan Fedyakov is convinced.
He notes that the large batches of gray imports from China and Russia, as well as other countries, can be easily controlled.
"In the near future, an initiative will be implemented to register smartphones in Kazakhstan by code, as is already done in Uzbekistan and Turkey. Without such a regulatory system, the market will be flooded with tax-free goods. There should be a regulatory system that allows for fair operation. Secondly, a much more challenging solution is related to lowering the threshold for duty-free imports for domestic use. The current criterion of 200 euros is too much. In fact, consumers choose to buy abroad, and the regulatory system should level the market. Either let’s introduce 200 euros of duty-free purchases for the domestic market as well. I am not in favor of raising taxes or increasing duties on imported goods. But level the market within the country, eliminate unfair competition, and create uniform rules for domestic and foreign players. Otherwise, we will continue to destroy the domestic market," the expert emphasized.
Look for who benefits
Sinologist Adil Kaukenov sees the attack on Chinese marketplaces as another attempt to dig into the pockets of Kazakhs.
"Nothing that Kazakhs buy on marketplaces is produced in Kazakhstan, and there is no prospect of creating such production. Claims that supposedly items from Chinese marketplaces are especially dangerous are simply ridiculous because all Kazakh stores are filled with them. Especially in the cheap segment. In fact, this is the crux of the matter. Over many years of the 'Old Kazakhstan', some elites have developed a true knack for building a business to be a 'conduit' between the producer and the consumer. That is, to produce nothing useful but to charge a fee just for intermediary services. And this fee is usually exorbitant. A margin of less than 100% is considered simply laughable. Therefore, there is now an information campaign to ensure that Kazakhs cannot buy directly, but only through intermediaries, who will naturally be monopolists with insane markups," the expert believes.
This will fuel inflation and hit the poorest segments of the population. Another point about taxes.
Adil Kaukenov - Sinologist
"Nothing that Kazakhs buy on marketplaces is produced in Kazakhstan, and there is no prospect of creating such production. Claims that supposedly items from Chinese marketplaces are especially dangerous are simply ridiculous because all Kazakh stores are filled with them. Especially in the cheap segment. In fact, this is the crux of the matter. Over many years of the 'Old Kazakhstan', some elites have developed a true knack for building a business to be a 'conduit' between the producer and the consumer. That is, to produce nothing useful but to charge a fee just for intermediary services. And this fee is usually exorbitant. A margin of less than 100% is considered simply laughable. Therefore, there is now an information campaign to ensure that Kazakhs cannot buy directly, but only through intermediaries, who will naturally be monopolists with insane markups," the expert believes.
In search of balance
Timur Zharkenov, Deputy Chairman of the Board of the National Chamber of Entrepreneurs "Atameken", links the criticism of Chinese marketplaces to changes in the trade market.
"They provide consumers with a wide choice, competitive prices, and accessibility, which enhances competition. Some representatives of entrepreneurship may perceive this as a threat to their business. However, it is important to understand that this is not about killing businesses but about transforming the trading environment, where those who adapt to new conditions win," he emphasized in a conversation with TAJ.report.
The focus on Chinese platforms is due to their popularity among the population, he continues.
"Chinese marketplaces, such as AliExpress or Temu, have become symbols of the globalization of e-commerce worldwide. They offer goods at low prices due to production volumes, developed logistics, and technological solutions. They are highlighted because they occupy a significant share of cross-border trade in Kazakhstan, attracting the attention of both consumers and businesses. Discussing this topic can be beneficial for various parties facing competition from Chinese marketplaces, including participants in traditional trade. For all of them, protecting their market positions is important. Government structures may seek to strengthen regulation to protect the domestic market or increase tax revenues. Our task is to find a balance between the interests of all parties," Zharkenov says.
Initiating such discussions may signal that local businesses are trying to protect themselves in this way, and the state may, in this case, enhance tax revenue collection and simplify administration.
"We support these goals, but it is important not to forget about the rights and needs of individuals who, thanks to marketplaces, have access to goods at acceptable prices. Government control is important, but it should be balanced. We support the fight against counterfeiting, consumer protection, and tax transparency; however, excessive tightening of regulation may limit individuals' access to affordable goods and generally slow down the development of e-commerce. This could lead to a decrease in their purchasing activity, which, in the current economic conditions, could slow down the overall development of the economy," the deputy chairman of the NPP "Atameken" clarified.
According to the chamber's estimates, Chinese marketplaces account for about 30-40% of cross-border e-commerce in the country. However, the share of local platforms continues to grow thanks to technological solutions and logistics. Zharkenov himself uses both local platforms and international ones, including Chinese marketplaces.
Timur Zharkenov - Deputy Chairman of the Board of the NPP "Atameken"
"I would like to note that international platforms provide access to a greater selection of goods, which is especially important for households looking to save. The quality in most cases meets expectations, especially when it comes to verified sellers. It is important to understand that a consumer looking for quality goods can always find them on both foreign and international marketplaces; our consumer habits inevitably lead to an increase in the experience of purchasing goods online," the interlocutor says.
For the development of e-commerce in Kazakhstan, he considers it important to develop local platforms and encourage businesses to transition online, strengthen logistics infrastructure to reduce delivery times, and enhance the digital literacy of entrepreneurs so they can compete with cross-border players.
"Currently, the e-commerce market is regulated by tax, customs, and consumer legislation. The main problems are well-known and include, in some cases: counterfeiting, unfair competition, insufficient level of digital literacy among entrepreneurs, and inability to adapt to changing conditions. We see enormous potential in the development of e-commerce for both consumers and businesses. Our goal is to create conditions for fair competition and sustainable growth for all market participants," Zharkenov emphasizes.
At the same time, in his opinion, traditional trade will not completely disappear. We see examples of successful integration of online and offline formats: many entrepreneurs use marketplaces as an additional sales channel. The main trend is the mutual complementarity of trading formats rather than the displacement of one by another. The NPP also reported that currently, nearly 4 million people employed in the country's economy work in the small business sector, making its development a strategically important task for the country in terms of improving employment levels and income. The share of SMEs in Kazakhstan's gross domestic product (GDP) at the end of 2023 was 36.5%. The volume of products produced by SMEs in 2023 amounted to 68.7 trillion tenge, which is 16% more compared to 2022. Forecasts for 2024 suggest further growth in this indicator. According to official statistics, over the past 5 years, the dynamics of the number of SMEs has been positive. Thus, if in 2020 the total number of entities was 1.3 million (2021 – 1.4 million, 2022 – 1.8 million, 2023 – 2 million), by the end of the first half of this year, this figure has already exceeded 2 million. The largest number of entities operates in wholesale and retail trade — 723 thousand, providing other services — 298 thousand, in industry — 119 thousand, in real estate — 104 thousand. About 68-70% of the total number of registered entities are individual entrepreneurs, about 18% are small legal entities, and peasant and farm enterprises account for 13%.
"As for the e-com market, at the end of 2023, the share of sales through marketplaces accounted for 89% of the total volume of retail electronic commerce in Kazakhstan. In the first half of 2024, this share increased to 90%. The NPP "Atameken" does not calculate the share of each player in the e-com market. However, according to various sources, by the end of 2023, the share of Wildberries in the Kazakh market was about 15%. According to research by analytical agencies, local marketplaces account for about 66% of the total volume of retail electronic commerce in Kazakhstan," the NPP "Atameken" told TAJ.report.
Why the "Chinese" will not win
Askar Kysykov, Director of the TALAP Applied Research Center, believes that e-com in Kazakhstan is developing dynamically, although the share of online sales currently accounts for 15% of the total volume of retail sales. In China, this figure is 40%, in the USA - 50%.
"The trend is that the share of electronic commerce will grow. Currently, local marketplaces, specifically one, Kaspi, account for the main share of online sales. According to reports from the Competition Protection Agency, it holds more than 50% of the market share due to installment plans. The share of Wildberries and Ozon is growing; these are three major players in our market. The share of Chinese marketplaces is low. I don't know who is inflating the negative theme regarding them, but from the consumers' side, their arrival can only be welcomed. Kazakhs now have a choice due to competition between platforms. We have the option to buy goods directly from China or order from a Kazakh marketplace, but it will be more expensive. The question of the entry of Chinese platforms into our market is a matter of consumer convenience, reducing intermediaries between them and sellers (which lowers the price of goods), as the nomenclature of goods consumed through marketplaces and produced in Kazakhstan largely does not coincide," the economist notes.
The share of online sales will grow, and it is important that no company monopolizes market share, and oligopolies are not created, he emphasizes.
"Due to competition, prices will decrease. Currently, for many goods through marketplaces, seller margins exceed 100, 200, 300%. The price of the same product on one marketplace can be several times higher. An important point is that KazPost collaborates with the Chinese JD.com, which plans to invest in building logistics centers in Kazakhstan; Wildberries is also investing, which is a big plus for us," the expert believes.
In his opinion, it is a mistake to think that electronic flea markets from China will defeat all competitors in Kazakhstan.
"Our main share comes from local and Russian marketplaces. The share of Chinese platforms is unlikely to grow due to a key disadvantage — long delivery times. Secondly, the advantage of domestic marketplaces, which operate with banks and offer various financial instruments, such as installment plans, while goods from China must be paid for immediately. Electronic commerce will not kill traditional trade — there are categories we are used to buying offline, especially when it comes to clothing. Overall, the optimal share of online and offline trade is 50-50. So the potential for online trade in Kazakhstan is very high," Askar Kysykov is confident.
Askar Kysykov - Director of the TALAP Applied Research Center
He advises comparing prices across different marketplaces and choosing the optimal price-quality ratio. The economist does not consider it necessary to regulate marketplaces — they operate in the same environment as retail.
"And they must comply with the consumer protection law, provide the opportunity to return goods, and use warranties. This is just a different format, but it is subject to all other rules. What needs to be regulated is the conditions for the presence and operation of sellers in marketplaces. Often, sellers are imposed such conditions that make it difficult for businesses to earn (various commissions, acquiring); overall, trading on marketplaces has high costs. Plus, there is super high competition, and to occupy their share, businesses are forced to undercut prices. Therefore, it is necessary to ensure a balance of interests for marketplaces regarding their revenues and the interests of sellers. For the latter, there should not be predatory conditions," the economist believes.
New rules of the game
Meanwhile, it has recently become known that Kazakhstan plans to introduce mandatory declaration of parcels from online stores. The Ministry of National Economy has posted on the "Open NPA" portal a draft amendment to the Customs Code of Kazakhstan. The innovations affect the sphere of electronic commerce within the Eurasian Economic Union (EAEU). As the Ministry of National Economy reminded, currently, goods sent through international postal shipments (including purchases from foreign online platforms) are not accounted for in official trade statistics. They are considered personal goods and are subject to declaration only if they exceed the duty-free limit of 200 euros or 31 kg. According to the Bureau of National Statistics, in 2023, the share of electronic commerce in the total volume of retail trade was 12.7% (2.44 trillion tenge). Due to the significant growth in the volume of electronic commerce goods, the government intends to tighten control. In particular, it is planned to make the following amendments to the legislation: the entire volume of electronic commerce goods will have to be declared, regardless of cost and weight; a special declaration for electronic commerce goods will be introduced, which can be filled out by both marketplace operators and recipients themselves; for parcels exceeding the duty-free threshold, an import duty will apply (the proposed rate is 5%) and VAT according to the legislation of Kazakhstan. According to the initiators of the changes, such innovations will allow for the formation of complete statistics on goods purchased on foreign platforms, increase the transparency of the electronic commerce market, and increase tax revenues to the budget. The draft amendments to the Customs Code are open for public discussion until December 26, 2024. And Alibaba will already start paying VAT in Kazakhstan. Alibaba International, the owner of AliExpress, has agreed with the authorities of Kazakhstan to register in the country as a VAT payer. This decision could change the electronic commerce market in Kazakhstan and Russia.
"The Ministry of Finance of Kazakhstan has negotiated with representatives of Alibaba. Alibaba will register as a VAT payer in Kazakhstan. Why is this important? Changes for the market: until now, cross-border parcels were not subject to VAT, which gave AliExpress an advantage over local retailers. For buyers: this may mean a rise in prices on the popular platform. Key questions and risks: the base for VAT calculation. It is still unclear whether VAT will be calculated only on sales within Kazakhstan or will affect cross-border deliveries. This will determine how significantly prices will change for buyers. How will this affect the market? Local retailers have long complained about unequal conditions with AliExpress. Now their competitiveness will increase. Consumers: potential price increases may reduce the platform's popularity. Impact on logistics: AliExpress is one of KazPost's largest clients. A decrease in orders may hit the revenues of the national postal operator," comments Ivan Fedyakov, CEO of the INFOLine group of companies.
Among the opportunities for retailers, he notes that VAT creates more equal conditions for competition, and local players can regain some audience.
"Risks for buyers and AliExpress: price increases — VAT may make goods less accessible. Decreased demand: Buyers will look for cheaper alternatives. Kazakhstan's decision may create a precedent for other countries where AliExpress parcels from China are not subject to VAT. Duties — yes. For example, Russia may also want VAT on parcels," the analyst believes.
Additionally, a new agreement on electronic commerce is being prepared within the EAEU. The main task of the document is to ensure that member states do not impose restrictions on sellers or marketplaces, and that the marketplaces do not discriminate against sellers and buyers from other EAEU countries.
"At the Union level, a package of supranational rules is planned to be adopted, which will regulate purchases and ensure the return of goods and money. This will be beneficial for both consumers, who will receive a guaranteed level of service regardless of the country where they purchase goods, and for sellers," they believe in the EEC.
It can be predicted how representatives of various oligarchs, who would like to place their companies as "intermediaries" between EAEU buyers and manufacturers in China, will now try to torpedo this document, said sinologist Adil Kaukenov.