Growing E-commerce Market in China

Exactly a year ago on November 11th, the Singles’ Day- an entertaining festival widespread among young Chinese people, to celebrate the fact that they are proud of being single -Alibaba, the Chinese e-commerce giant made $14.3 billion, largely through its online shopping platforms such as Taobao.com and Tmall.com. This was more than double the total e-commerce sales of Thanksgiving, Black Friday, and Cyber Monday combined in the U.S. In 2015, China racked up almost $630 billion in online sales, which is a 30 percent increase from previous year. This makes it the largest e-commerce market in the world.

We are living in a period where the world’s economical and technological center of gravity is shifting to Asia. 19th century was subjugated by Europe, the 20th century was dominated by the United States, and today, we have emerging powers such as China, India and Brazil. Among them China’s economic performance has been extraordinary. In the last three decades, China has pulled 600 million people out of poverty and expanded its middle class. In 2010 it became the second largest economy while the U.S. and European Union were barely recovering from the global financial crisis. Today, with the population number of 1.3 billion, China’s growing domestic consumption is increasingly becoming shaped by cutting-edge technologies and innovative ideas especially in the online world. This year, the country is expected to surpass the U.S. to become the world’s largest retail market. The rationale behind this lies in China’s booming e-commerce market backed up by a growing number of Internet users, and smartphone holders.   

China’s economic model that has lasted about 37 years has ceased to function lately as a result of rising labor costs and the strengthening of RMB. In the last couple of years, China’s gross domestic product (GDP) growth rate has slowed down, reaching 6.7 percent in the past three quarters of 2016. Despite some concerns over economic growth, Chinese people do not seem to be doing too badly. It’s the increasing usage of smartphone and what Chinese people can do with it that may astonish anybody. Currently, China has the largest number of Internet users, 721 million as of June 2016, up from 22 million in year 2000. More than 90 percent of the Internet users access Internet via smartphones. First smartphones were mainly used for the purpose of communication and entertainment and now it has whole meaning to it. Because of mobile services like mobile payment, not only the way Chinese people spend their money, but also the way they purchase products and services have changed.

In China, good bargains and quality products are mostly manifested by a large number of followers, thumbs ups, and traffic generating websites. A lot of the purchases are made via mobile phone devices with an access to the Internet. Mobile penetration has been the leading tool of online growth in China. Even in rural areas, smartphone became a mobile mall especially where shopping centers and retail markets are nowhere close by. This has contributed to rural development in China in many ways. As more and more Chinese people seek more balanced life, where health, family and experiences are prioritized, the Internet and mobile phones are enabling them to do most of the day-to-day activities on their phone. Moreover, spending is shifting from products to services and from mass to premium segments, as identified by the McKinsey 2016 Consumer Report. According to the World Bank Data, services now account for 50% of China’s GDP, up from 42%, 10 years ago. Growth driven by consumption and services can in fact drive China to become a high-income nation.

What is the secret behind this staggering growth in the e-commerce market? First of all, there are three mega tech companies in Chinese Internet Industry known as BAT: Baidu, Alibaba and Tencent. Baidu, sometimes called the ‘Google of China’, holds the commanding market share over search engine for websites, audio files and images. Alibaba holds a similar power over e-commerce by connecting suppliers to buyers. Tencent is the dominant player in social media and the owner of WeChat.

Known as a super app, WeChat was first developed as a cross-platform instant messaging service in 2011. It became one of the largest messaging apps by the number of monthly active users. As of May 2016, there were 700 million active users and more than 70 million of those accounts were created outside of China. That is partly because WeChat is constantly developing features that go beyond social media purposes. For example, features like QR code scanning was added immediately, allowing users to pay bills and order goods and services including taxi, food and groceries. Furthermore, users can now send money to other users and pay with a mobile phone in stores. Basically, everything we know in the West including Facebook, Twitter, Digital Wallet, E-Banking, Uber, Yelp, and many more are included in one super app.

If you are in bigger cities like Beijing, Shanghai or Shenzhen, you can stay inside the app all day and get almost everything delivered to your office or home. In addition to WeChat, there are now many more apps that deliver meals, coffee, fresh fruits, or desserts. This gives much more convenience and saves so much time for middle-class Chinese people that it became an integral part of their daily lives. In the 2016 WTO Public Forum, trade policy expert Quan Zhao indicated that on a recent survey in which individuals were asked what they would miss the most if they left China, online shopping came in second after food. Just from these small examples, one can apprehend how big the Chinese e-commerce market is growing. As this year’s Singles’ Day is almost over in China, there is no doubt that China will break the last year’s record sales.

Tsendnyam Enkhchimeg is intern at DiploFoundation