China Underground > Essential guide to China > Why China has the fastest e-commerce growth in the world

Why China has the fastest e-commerce growth in the world

It’s home to over 50% of all online retail transactions and already boasts the biggest e-commerce market in the world, yet it shows no signs of slowing down.

China’s internet retail has seen the quickest growth in the world since 2016, with a buoyant social media market and some of the largest technology companies in the world contributing heavily to the second biggest economy on the planet.

As the world economy attempts to get back on track following the Covid-19 outbreak, e-commerce is playing a more important role than ever. In this article, we’re going to assess the factors behind China’s internet retail boom and whether the trend is likely to continue.

China’s domestic market

It’s easy to put any online boom down to the Covid-19 outbreak, especially after shares in Amazon and Zoom rocketed in mid-2020 thanks to changing consumer habits. Yet China’s e-commerce market already generated revenue of $869 billion in 2019, so how did it grow so quickly during the pandemic?

Well, a big reason is that online retail is already deeply rooted into the fabric of Chinese society. Even before the pandemic, customers, particularly in big cities, flocked to online stores in much greater numbers than other countries: commercial events such as AliBaba Day generated an incredible $38 billion in sales in 2019, over six times bigger than Amazon Prime Day’s biggest-ever haul. What makes it even more remarkable is that China imposes several major restrictions on internet spending activity: users are unable to spend money on online casinos, for example, and many major Western social media sites like Facebook are banned.

Another factor is the growing number of internet users outside of big cities. China’s population is vast, with almost 40% living in rural areas. Much of this rural population didn’t shop online a few years ago, but more and more country users are waking up to the benefits of online shopping. The country’s logistics network is rapidly improving, too, so firms like AliBaba can ship products out to rural towns quicker than ever before. What’s more, bricks-and-mortar shops and mall in small villages simply can’t keep up, if they even exist at all, so demand for online services has raced ahead.

A Chinese eye on international markets

The Chinese appetite for commercial growth hasn’t just been confined to their shores, either. As well as seeing a domestic surge in online retail, China is playing a part in the growth of e-commerce in developing countries, too. Initiatives such as the Africa-China tech alliance has seen large Chinese firms pump billions of US dollars of investment into African nations with the expectancy of long-term growth in the continent.

It’s not just Africa that is the target of Chinese firms, of course. Several Latin American countries have important trade deals that work in a similar way; however, these tend to be more infrastructure-related than Africa’s tech-focused trade. With the pandemic worsening the economic situation in these nations, foreign investment is more important than ever to them.

International projects like these work in a cycle. Chinese companies supply developing nations with funding and receive a profit in return. The profit goes towards new technologies in China, which further aid e-commerce growth. As well as boosting recent economic activity, it’s likely that these projects will help to expand the commercial sector over the next few years, too.

The Covid effect

Despite China’s culture and business practices being geared towards online selling for some time now, it would be foolish to ignore the serious impact the Covid-19 pandemic has had on the country’s retail sector. After all, the country was the first to impose lockdown measures back at the start of 2020, and traditional retail outlets continue to feel the fiscal effect of a dramatic drop in in-store shopping.

Changing consumer habits, an effect seen all over the world, has been keenly felt in China. Fear of the virus has led to many people more likely to cook at home than eat out, buy clothes and try them on at home rather than in store, and meet virtually instead of having a drink in a bar. Even when people do decide to venture out to a shop or store, their visits tend to be shorter, meaning they spend less money.

Despite the bad news for physical outlets, it might not turn out to be bad news for consumers in the long run. There’s much more choice online: instead of having just two or three supermarkets in a neighbourhood to choose from, for example, shoppers now have dozens of internet options available. Wider choice means companies cut prices and offer special promotions to compete with their rivals and, of course, they’d better make sure their service is of the highest quality if they want to keep their customers.

Yet the result is still the same. Bricks-and-mortar businesses will see that their only long-term option is to go digital: if you can’t beat ‘em, join ‘em, as the saying goes — and it looks like China’s e-commerce sector will continue to beat its traditional rivals for a long time to come.

Photo by Nuno Alberto on Unsplash

Post Author

Enjoyed this post? Never miss out on future posts by following us

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.