Chinese e-commerce refuses to give up the ghost

07 May, 2020 . 4 minutes

Chinese e-commerce adoption continues racing forward. After Covid-19 broke out, China combined its best private and public sectors to leverage commercial trade and sustain the market at home and cross-border. From reforming policies to fusing with social media, China’s e-commerce ecosystem is rapidly adapting to the pandemic and post-pandemic marketplace.

Since the outbreak began, China's trading companies and businesses have faced hard times in maintaining both domestic and foreign trade. The trials were far from over when the virus grew from a nationwide to a global pandemic, putting the brakes not just on the world’s second-largest economy but the rest of the world as demand shrunk, logistics systems called a halt and cash flow froze.

Over the past two months, exports from China fell 17.2 percent from a year ago while imports fell 4 percent. China’s trade surplus with the US narrowed from $25.37 billion in January and February to $15.32 billion in March.

That led to a call for a unified effort to revitalize China’s market segments and stabilize businesses, especially traditional and SMEs, which have suffered greatly. From the public sector came support in the form of interest-rate relief and stimulus. Over a hundred integrated pilot zones were set up at high-volume goods entry points to relieve retail export goods of obligations and help companies build solid overseas networks. Policy changes refined international freight and cargo channels, accelerating cross-border trade flow and investment to regional economies.

As a result, freight train runs and containers going from China to Europe are up 15 and 18 percent respectively in the first three months of this year, and the numbers in March set a record high.

The private sector has quickly followed suit. Alibaba is using its digital infrastructure to facilitate cross-border trade and reinforce export-driven enterprises. The company has extended the local commercial market to target overseas consumers and help expand SMEs globally via its subsidiaries Ali-Express, Lazada and Tmall Global.

AliExpress, a B2C company for the global market, has built a direct bridge between domestic manufacturers and overseas customers. The initiative is a tandem effort with local governments in China to seize opportunities overseas amidst the pandemic - by enhancing digital infrastructure, like livestreaming and e-commerce - and to attract global investors.

On the import side, China has opened more channels for international brands to enter its market. Tmall Global Store invited foreign retailers to open offline showcases in Shanghai, making cross-border e-commerce more accessible to outsiders.

Comebacks from local enterprises may help China gain back its power to influence merchants and consumers across the globe before too much ebbs away due to Covid-19 and before a potential backlash from other countries angry at China’s perceived responsibility for its spread. China has led global cross-border e-commerce for several years and does not want to relinquish this position. In 2018, the country recorded YoY growth of 49.3 percent in the sector.

A new way of the market

China has the most online shoppers and social media users. Social media is, in fact, often more effective in influencing Chinese e-commerce consumers than official brands and regular advertisements. The 25-34 age bracket represents the largest user segment of cross-border online shoppers with high education and income.

One new facet targets these users with livestreaming, influencer posts and viral content with a new social e-commerce, or social commerce, system. PinDuoDuo is among the first companies that uses social commerce with the unique appeal of group buying. Group buying allows people to buy an item in bulk. The bigger the group, the higher the discount - sometimes as high as 90 percent.

Founded in 2015, the e-commerce company grew in regional Chinese cities, attracting over 200 million users in just two years. In 2019, that number grew dramatically to 585.2 million active buyers with at least one purchase on the platform during the year. In the same year, had 362 million and Alibaba with 711 million annual active users on the respective Chinese e-commerce marketplaces, dominating major cities in China where price-conscious consumers are fewer than in small cities.

PDD mostly owes its growth to its integration with Tencent-owned messaging service WeChat, which has over a billion monthly users. WeChat is a super app of everything in China and allows in-app payments for many e-commerce marketplaces, including PDD. With Tencent as its principal shareholder, PDD’s revenue hit $1.55 billion in Q4 2019. Meanwhile, Taobao Live, Alibaba’s dedicated livestreaming channel, contributed around $2.86 billion gross merchandise volume, or about 7.5 percent of the company’s total sales during Chinese shopping holidays last year.

The social commerce market has enjoyed a surge of 220 percent or $63 billion in 2019. Around 25 percent of consumers are daily users, while 71 percent watch livestreaming for social commerce at least once a week. Recent evidence suggests the popularity of social commerce in China has increased during the pandemic with sales rates far higher than traditional content-driven platforms.

Alibaba announced that it had to waive normal requirements and operational charges for offline stores to join Taobao Live. In February, the platform claimed an eight-fold increase in new streamer growth from the previous month and orders surged by an average of 20 percent each week.

Staying strong

The pandemic may have created a downturn in China’s economy but several industries - like cosmetics, luxury brands and hardware - have come back strong thanks to social commerce. Shanghai-based skincare Lin Qingxuan’s performance rebounded within 15 days to a 45 percent increase over the same period last year after livestreaming sessions on Taobao Live, saving it from bankruptcy. Livestreaming allowed shoe retailer Red Dragonfly to attract over 435,300 views and boost YoY sales 114 percent.

Industrial products could be next in line for China's e-commerce sector, according to Alibaba in January. The market value of industrial e-commerce is projected to increase from $99.1 billion to $333 billion in 2024, an increase of 336 percent.

The cross-border e-commerce market in China is still on course to reach $200 billion by 2022. The prospect is buttressed by the efforts of Chinese e-commerce titans like Alibaba and JD Worldwide to tighten their grip on the market. With Alibaba's $2 billion acquisition to integrate Kaola into Tmall Global, it looks to be the standard bearer of this achievement. The ability to combine state and private efforts, with a dose of healthy competition (at least internally), will likely keep China the major player in cross-border e-commerce, unless it faces a Herculean effort from elsewhere.

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