Amazon’s China Crackdown: A Costly Lesson for Cross-Border E-Commerce Sellers

The China Guys
8 min readOct 14, 2021


Since May 2021, Amazon has banned thousands of stores owned by Chinese companies from its retail platform due to fake reviews incentivized by the stores’ operators. According to Cindy Cai, Amazon’s Vice President for Asia Global Selling, the company had closed about 3,000 merchant accounts backed by about 600 Chinese brands by mid-September. However, some insiders of the industry said the figure still does not include stores closed between June and August.

A report from the Shenzhen Cross-Border E-Commerce Association shows that over 50,000 Chinese merchant accounts had been banned and more than CN¥100 billion (US$15.4 billion) in expected revenues had been lost by July. The crackdown has seriously hit major Chinese cross-border online merchants such as Youkeshu, Aukey, and Mpow. For example, Youkeshu, which owns over 1,000 stores on Amazon, has seen 340 stores closed and over CN¥130 million (US$20 million) frozen, resulting in losses of up to 40% to 50% of its H1 2021 revenues.

Amazon’s crackdown casts uncertainties over China’s once quickly growing cross-border e-commerce industry as over 40% of Chinese cross-border online merchants have a presence on the platform, which has resulted in the “made in China, sold on Amazon” industry slogan. Considering the enormous influence of Amazon on Chinese cross-border e-commerce, most companies may opt to comply with the rules of the platform and continue to conduct most of their business on it, despite the existence of emerging but less established alternatives.

China’s Cross-Border E-Commerce: A Rising Star of Foreign Trade

Having grown almost tenfold in the past five years, cross-border e-commerce is one of the most vibrant sectors of China’s foreign trade. Thanks to China’s swift recovery from COVID-19, cross-border e-commerce made its greatest leap forward amid the pandemic. In 2020, industry volume reached CN¥1.69 trillion (US$260 billion), a 31.1% surge from the year prior, whereas the total amount of Chinese imports and exports during the same period was CN¥32.16 trillion (US$5 trillion), or 1.9% growth from 2019. Nationwide, the industry includes about 30,000 companies, over 6,000 of which were registered in 2020. By H1 2021, cross-border e-commerce kept its rising momentum and culminating in a 28.6% increase in sales to a tune of CN¥886.7 billion (US$137 billion).

As the dominant business of China’s cross-border e-commerce, exports accounted for almost 70% of the industry’s total volume. In 2020, exports through e-commerce rose by 40%, and in Q1 2021 its growth rate approached 70%. A large number of exporters engage in a business model known as “made in China, sold on Amazon,” where merchants profit from lower manufacturing costs in China and higher retail prices overseas, relying on the platform’s Fulfillment by Amazon scheme that allows third-party merchants to store their goods in its warehouses and handle order logistics for them. Chinese sellers now make up 63% of all third-party merchants on Amazon’s online US store, a surge from 28% two years ago. Marketplace Pulse, an e-commerce intelligence advisory, estimates that Chinese-based sellers contribute 30% to 40% of Amazon’s Gross Merchandise Volume (GMV), dwarfing merchants from all other foreign countries. According to the same advisory, in January 2021, Amazon had approximately 76,000 new Chinese-based vendors that accounted for 75% of all new sellers for the month.

Why Did Amazon Ban Thousands of Chinese Online Stores?

Offering customers rewards for positive reviews is a common practice in China’s online retail industry, though this has been regarded as an abuse of the review system by Amazon since 2016. Many Chinese vendors ignored the policy and continued to reward customers with freebies and even cash for favorable and often fabricated reviews. The platform’s algorithm is heavily weighted to promote items with good reviews, and thus a single negative comment may lead to a plunge in the store’s ranking and visibility.

Though Amazon had previously carried out four crackdowns on Chinese-based merchants over quality and IP issues, it previously turned a blind eye to the “pay for praise” problem as the company was eager to attract and maintain Chinese sellers that listed cheaper goods. However, the e-commerce giant suddenly changed course and got tough on the issue in Q2 2020. Amazon started to suspend retailers and freeze their inventory after a report from The Wall Street Journal about the pay-for-praise scheme hit the headlines. Pressure from public opinion and regulatory agencies for better data security protection has since pushed Amazon to take more stringent action against risky practices such as fake reviews, which are sometimes also gamed via click farming. In its public statement and letter to global sellers, Amazon reiterated its stance against review abuse and claimed that the crackdown was not meant to target vendors from any specific locations.

In spite of Amazon’s insistence that the shutdowns are due to fake reviews, some e-commerce practitioners believe that the company’s tough measures may also be incentivized by the strategy to promote goods under its own brand, Amazon Basics. In November 2020, the European Commission issued a statement of objection to Amazon, accusing the platform of “systematically relying on non-public business data of independent sellers who sell on its marketplace to the benefit of Amazon’s own retail business, which directly competes with those third party sellers.” Moreover, crackdowns on Chinese-based merchants have coincidentally preceeded important promotional events, such as the Primary Day, Black Friday, and Christmas, giving Amazon’s brands a significant advantage over the shuttered stores.

Regardless, the unprecedented crackdown was facilitated by recent developments within the company. First, Amazon’s new CEO, Andy Jassy, was the former CEO of the conglomerate’s cloud computing business, Amazon Web Services. He therefore has a stronger background in data than e-commerce. With its new head as a data industry veteran, Amazon may attach more importance to the accuracy and authenticity of its data. Second, recent algorithmic upgrades contrive more accurate identification of fake reviews by automated machines. Meanwhile, identification of review abuse is now conducted on a brand basis, which may lead to shutdowns of all the stores under a single brand and thus makes the scale of shutdowns much larger than before.

How Have Chinese Companies and Officials Responded?

The crackdown has devastated the foreign operations of many e-commerce companies as their supply chains and cash flows are snarled up by Amazon’s frozen inventories and payments. According to Amazon’s policy, suspended retailers can appeal against the company’s decision if they can prove either Amazon’s judgement is wrong or that any fake reviews were an unintended mistake and offer compliance plans to avoid such mistakes in the future. Acquiescence to the ban and failed appeals will result in up to 90 days’ inventory and funding freeze. Appeals used to be an effective method for the Chinese merchants to restore their stores and fetch their money after rectifying their practices and paying fines. However, this time, the chance of a successful appeal is significantly lower due to Amazon’s hardened approach to fake reviews.

More than 20 medium- and large-sized Chinese cross-border e-commerce companies affected by the crackdown have attempted to jointly file a class action lawsuit against Amazon’s freezing of their inventory and funding but aborted the plan in late July after failing to reach an agreement on their strategies and demands. Even if the merchants had achieved a consensus, another obstacle would still be ahead of them: Amazon only processes disputes on an individual basis and thus does not allow class actions by sellers. Apart from appeals and lawsuits, merchants may also resort to arbitration, a “costly way with a slim chance of success,” according to a lawyer based in Shenzhen.

As no major stores have been unblocked by Amazon, many started to pin their faith on the Chinese government solving the problem for them. However, despite its strategic support for cross-border e-commerce, Beijing has been overall quiet on the Amazon shutdown saga. The official position on the crackdown was only been expressed once at a late July press conference where director of the Foreign Trade Department of the Ministry of Commerce Li Xingqian said the challenges that China’s cross-border e-commerce industry faced were “some growing pains of a new form of trade” due to “temporary inadaptability.” Li called on the merchants to comply with the rules of the platforms where they operate, for which the government would aid, and said China would support the merchants to safeguard their legal rights and interests.

In fact, Amazon’s crackdown on review abuse aligns with China’s recent measures to discipline the platform economy and strengthen private businesses’ credibility, making it quite unlikely for the central government to intervene in the Amazon dispute. Rectifying dishonest business practices, regardless of Amazon’s real motivations behind the crackdown, is long-term beneficial for Chinese enterprises’ development at home and abroad. Regardless, at the local level, governments have dispensed relief to support the companies; Shenzhen, the biggest concentration of cross-border e-commerce enterprises in China, announced in August that the city would award companies of the industry up to CN¥3 million (US$466 thousand) if they established their own independent retail platforms.

Implications of the Crackdown: An Exodus from Amazon?

Amazon’s crackdown teaches Chinese cross-border e-commerce a tough lesson: enterprises should not take common practices at home for granted when entering new markets. Yet, a tougher question still remains for Chinese online cross-border sellers: should they retain their main business on Amazon, move onto other platforms, or set up their own online retail channel?

An option — particularly for ambitious large companies — may be to establish independent an online retail platform. Half of Chinese cross-border e-commerce companies now own independent online outlets or plan to set up one. Advantages of independent platforms are clear: safer data, higher flexibility, more efficient branding, and more accurate marketing. The successful story of SHEIN, whose mobile application once overtook Amazon’s as the most popular in America, inspired many peer companies from China. Recently, many enterprise resource planning (ERP) companies that provide marketing and operations services to assist e-commerce enterprises in establishing their own overseas platform have emerged and pooled over CN¥2.5 billion (US$388 million) in H1 2021 — though the cost of establishing an independent platform from scratch is unrealistic for most small and medium-sized enterprises.

Putting all your eggs into one basket is never a smart business practice, but Amazon’s huge market share and potent logistics networks are still attractive for most cross-border merchants in China, especially for small and medium-sized sellers without sufficient resources to spend on marketing and distribution. Meanwhile, other platforms also have their own problems. For example, Walmart, the second largest e-commerce platform in the US, set a much higher threshold for third-party retailers by requiring prior operational experience on other platforms and monthly revenues of at least US$1 million to qualify for listing. Still, sales and operational diversification is a defensive measure that will help safeguard sellers from sudden changes to platform policies. While cross-border e-commerce companies may begin to consider other channels, it is unlikely that Amazon, the dominant platform of North America and Chinese cross-border e-commerce’s biggest market, will see an exodus of sellers anytime soon..

Originally published at on October 14, 2021.



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