E-commerce in China | all news

Is it time to look beyond regulatory pressures?

Regulatory pressures have dominated Chinese e-commerce news for the past 12 months. We believe that the priority now lies elsewhere.

No other event better reflects China’s passion for e-commerce than Singles Day, or 11.11. This unofficial holiday, originally designed to be Valentine’s Day for singles, is celebrated annually on November 11th. In 2009, the CEO of an e-commerce company came up with the idea of ​​turning the day into a 24-hour shopping festival, and that’s how it became the biggest online shopping day in the world.

Last year, two of China’s biggest e-commerce companies, Alibaba and JD, set a new sales record during Singles’ Day with 889 billion renminbi, or about $133 billion. However, the context was inappropriate for overconsumption, given weak macroeconomic conditions and regulatory pressures to achieve the “Common Prosperity” goals.

Singles Day illustrates the extent of growth in the Chinese e-commerce market. Given its size, it might be interesting to consider why it has grown so much and what its future prospects are.

How did the Chinese e-commerce market become the biggest in the world?

China is now the undisputed world leader in e-commerce, having overtaken the North American market in 2016.

One might think that this first place naturally goes to China given the size of its population, which, with more than 1.4 billion individuals, is almost four times that of North America. However, this does not explain everything. China is, on average, much poorer and its national income per capita is less than one-fifth that of North America.

The size of the Chinese e-commerce market reflects the Chinese population’s enthusiasm for online shopping. E-commerce penetration has reached almost 30% of retail sales and represents 6% of GDP. This level is significantly higher than in North America, where penetration has surpassed just 20% of retail sales and represents 3% of GDP. [Source: FMI / Euromonitor, 2021].

Why did the Chinese e-commerce market grow so quickly?

The success of e-commerce in China has not always been so visible. Until 2010, e-commerce activity was practically nil, despite increasing adoption in other countries. The insufficiency of fixed telecom networks in China and the low penetration of PCs have hampered the development of the market.

After 2010, the arrival of smartphones using 3G and 4G cellular networks allowed a rapid expansion of online activity. There are several reasons why China was particularly receptive to e-commerce, as people had widespread access to the Internet.

Will the growth of the e-commerce sector continue?

Although China leads the world in e-commerce penetration, analysts have a limited number of benchmarks at their disposal to predict future performance. One thing is certain, however: it will be harder to surpass penetration rates already achieved. The growth of e-commerce in China must therefore stop in the future.

Chinese national statistics suggest that online retail sales grew at a compound rate of 22% between 2014 and 2021. While e-commerce penetration is expected to continue to increase, the 14and China’s five-year plan, which runs from 2020 to 2025, predicts a slowdown in this growth in online retail sales to 7.5%. Although this estimate remains cautious, while Euromonitor predicts, for example, a growth of 12% in the same period, everything indicates that the golden age of the sector is really over.

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