An Analysis of China’s E-Commerce Industry
Applied Portfolio Management
Coursework for Extra Credit
Kenneth Ho Kai Yit
A little more than 10 years ago, China’s path to e-commerce leadership would have been difficult to foresee, even as the tech boom in the US and other markets saw the development of e-commerce as an important B2C and C2C channel.
In 2000, China had yet to develop any e-commerce applications, and had only 2.1 million total internet users. Payment systems and physical delivery mechanisms to facilitate the development of e-commerce transactions were well-developed in other markets, but were simply lacking in China.
Fast forward to the end of 2013: with Chinese internet users quickly approaching 600 million, China is on pace to pass the US and become the largest e-commerce market in the world.
China’s e-commerce industry
Online retailing in China, dubbed ‘e-tailing’, has doubled every year since 2003. By 2020 the size of China’s online retail market is predicted to reach up to US$650 billion, exceeding the combined value of online markets in the USA, UK, Japan, German and France. With over 590 million internet users, China boasts the world’s largest online population - more than the US and Japan combined – and still growing at almost 10 per cent per annum.
The boom in online retail is a key element of the government’s drive to re-balance China’s economy in a way that positions consumption to make a far more significant contribution to GDP growth. China’s new leadership team - Premier Li Keqiang in particular - is actively encouraging the expansion of so-called ‘digital consumption’ - xinxi xiaofei 信息消费.
In the first six months of 2013, e-commerce revenue in China reached almost RMB 5 trillion, a 45 per cent increase year on year. Payments through mobile devices reflect triple digit growth – transaction volumes have increased by over 270 per cent year on year, and the RMB value of e-commerce transactions has increased by over 360 per cent.
China's middle class is set to grow from 200 million to as many as 800 million over the next 20 years and will be dominated by internet-savvy consumers. Not confined to the biggest cities, approximately 75 per cent of wealth creation is expected to come from over 200 second and third tier cities across China. A recent McKinsey study indicated that shoppers in some Tier 4 cities spend up to 27 per cent of their disposable income through online retail channels.
The rise of an affluent and aspirational middle class, lower prices and simple convenience will continue to drive China’s online retail revolution. So too will the Chinese consumer’s appetite for quality products in which they can trust. Already a quarter of shoppers buy online because they can't get what they want at bricks-and-mortar stores – these traditional retail outlets simply don’t exist in many parts of China. Online shopping offers competitive pricing, the convenience of...