China's Worldwide Free Shipping

If you have ever shopped on eBay or Alibaba (a Chinese alternative that sells bulks of anything you can possibly imagine), you may have noticed that many Chinese sellers offer free worldwide shipping. This made me wonder how they could possibly afford this service...

Of course they could be covering the shipping costs with the price charged for their products. However, when you can buy a wireless mouse (this was how I noticed this) for 4 dollars including shipping this seems impossible. If it costs more than a dollar and is not very heavy or bulky, there are high chances some Chinese person on eBay is offering free shipping. Just mailing a letter within the US costs around 50 cents. And if you have to mail a 4oz (around 110g if you don't believe in this ridiculous imperial system) package it is more than $2.5 (or above $6 to China). Then you need to add the cost of production, the postage within China, the overseas postage, the two customs offices. And assuming that the Chinese seller needs to eat something to survive, we'd better have some profit left. "Do packages even arrive?" you might wonder. Yes, this is not Argentina's mail service my friends. 

What is behind this low cost that worldwide buyers and Chinese sellers enjoy (but non-Chinese sellers hate!)? A few things came up after some research. First, lower living costs can account for lower prices. Secondly, the Chinese government subsidizes the shipping cost (although apparently it somehow still does break even). Finally, particularly for shipping to the US, the most important reason behind seems to be an agreement between eBay, USPS and China Post called ePacket. This gives the Chinese sellers bulk shipping rates (to individual packages as well) at a rate far below imaginable. According to an EcommerceBytes article, in 2011 almost 40% of them used this service with over 80% of items delivered in 5 to 10 days. Here is a list of the shipping prices the sellers pay.

From SellerTools

Well, taking into account that the mouse I bought was around $4. The package was at least 4oz, so mailing costs were above $1.7. This leaves at most $2.3 to distribute between all the ones involved in the production and the seller (take into account a wireless mouse on Amazon is around $10 without shipping). Well, (as so often among economists) maybe my first assumption that Chinese people need to eat to survive is wrong...