- MAP Asia Pacific Ltd
China e-commerce: is it time to look beyond regulatory pressures?
Nothing showcases China’s love of e-commerce better than Singles’ Day, or 11.11. This unofficial holiday, initially founded as an anti-Valentine’s Day for singletons, is held annually on the 11 November. In 2009, an e-commerce company CEO seized on the idea of turning the day into a 24-hour shopping extravaganza, and it has now become the largest online shopping day in the world.
Last year, two of the largest e-commerce companies in China, Alibaba and JD, reached a new Singles’ Day sales record of Rmb889 billion, equivalent to around US$133 billion. This was despite a weak macroeconomic backdrop and a regulatory push towards “Common Prosperity”, both of which discourage excessive consumption.
Singles’ Day is illustrative of how large China’s e-commerce market has become. Given this scale, it is worth examining why it developed as it did, and where it might go from here.
How did China’s e-commerce market become the biggest in the world?
China is now a clear global leader in e-commerce, having overtaken the North American market in 2016.
One might be forgiven for attributing this to China’s size; its population is now over 1.4 billion and almost four times the size of North America. However, this is not the full story. China is on average much poorer than North America, with per capita national income less than a fifth of the size.
Rather, the size of China’s e-commerce reflects the enthusiasm with which China’s population has moved online. E-commerce penetration has reached close to 30% of retail sales, and 6% of GDP. This is much higher than North America where penetration has only recently exceeded 20% of retail sales, and 3% of GDP [Source: IMF / Euromonitor, 2021].
Why did the Chinese e-commerce market grow so rapidly?
The success of e-commerce in China was not always this visible. Until 2010, e-commerce activity barely registered, despite growing adoption elsewhere in the world. China’s lack of fixed telecommunications networks and low PC penetration prevented the market from developing.
After 2010, the availability of smartphones using 3G and 4G cellular networks allowed for the rapid expansion of online activity. There are a number of reasons why China was particularly susceptible to e-commerce, once broad internet access across the population was available.
Read More at https://www.schroders.com/en/bm/asset-management/insights/equities/china-e-commerce-is-it-time-to-look-beyond-regulatory-pressures/