Four Trends Shaping the Future of E-commerce in China

10/06/2019

China’s e-commerce trade volume reached $4.58 trillion in 2018. With over 50 billion packages delivered last year, Chinese cross-border e-commerce is a booming phenomenon. What’s next?

 

While the world is struggling to catch up with China’s technological innovations and the US is trying to contain Chinese hi-tech “Great Leap”, the Dragon’s e-commerce industry is achieving extraordinary results both at home and abroad.

According to a report released at the China International Big Data Industry Expo 2019 in Guiyang last May, China’s e-commerce trade volume reached $4.58 trillion in 2018. The report on the country’s digital commerce development in 2018 also revealed that online retail sales accounted for over $1.3 trillion while online payment exceeded $28 trillion with over 50 billion packages delivered.

These figures have been possible thanks to many factors such as the rising number of Chinese netizen and a mobile-driven society. Indeed, the country’s netizen already reached 900 million people, whose 98% is accessing the internet through smartphones.

Therefore, while China’s digital evolution is driving its own economic growth, both Chinese consumers and foreign brands are big fans of cross-border e-commerce. Here four future trends to look out for in China’s e-commerce landscape.

 

1. The Rise of Luxury E-Commerce Platforms

china's E-Commerce Platforms - farfetch - cifnews

 

Although, for the luxury industry, the approach to e-commerce has not been as immediate as for other sectors such as electronics or cosmetics, today, numerous Chinese high-end e-commerce platforms are rising as a result of an ever-growing tech-savvy middle-class.

Indeed, when it comes to luxury consumption, Chinese consumers have been ranking first for three years now, accounting for one-third of the global spending. Chinese younger generations account for 27% of luxury consumers. Therefore, although luxury brands were used to rely on offline sales rather than online ones, the digital world has become the one and most effective channel to talk to Chinese Millennials and Generation Z.

As a result, the Chinese large luxury market is currently witnessing the migration of customers from offline to online, especially in smaller cities, where high-end stores are rare and unaffordable. Moreover, if in the past luxury buyers used to travel to buy high-end products, today, an increasing percentage of consumers is buying directly from mainland China through its multiple luxury e-commerce platforms.

Among the Dragon’s preferred platforms there is Tmall Luxury Pavilion, through which Taobao aims to be a top-level player in the world of luxury, in addition to being a primary channel of access to the Chinese market for Chinese and international brands.

Then, Chinese social-commerce apps like Little Red Book 小红书 or Secoo provide luxury brands not only a technological mean to reach Chinese buyers but also a place to create interaction and effective marketing initiatives for their customers.

 

2. Fresh Food Delivery: a New E-Commerce Trend

Fresh food delivery - china's e-commerce - cifnews

 

Fresh-food delivery is the latest trend in the e-commerce industry, a trend that will surely have a huge impact on worldwide sales as well.

The Middle Kingdom has already witnessed a massive change in the food industry. But the People’s Republic has a new habit coming out that brings regular supermarkets closer to retirement. According to the China Household Table Consumption Trends Report, published by Alibaba in 2017, 60.5% of all fresh food available in China is indeed sold online. In the first and second-tier cities, 82% of Chinese consumers, at least occasionally, buy food and beverages online.

Actually, fresh food e-commerce developed rapidly in the Asian country in 2014 and 2015 but it experienced a massive upgrade since 2016 when digital giants such as Alibaba and JD.com reinvigorated the market by raising investments in supply chain and logistics. According to data, the revenue from this sector is expected to be at $22.7 billion in 2019, a 22.5% increase compared to the previous year.

There are a total of 37.9 million fresh food e-commerce app users in China, an increase of 99.6% from July 2017. Although Ele.me is China’s second largest food delivery application and Yiguo is currently the largest e-commerce fresh produce marketplace in China, with the number of orders exceeding 50,000 per day, JD Daojia, FreshHema, and RT-Mart Fresh also are among the list of top fresh food e-commerce apps.

 

3. China Is Exporting E-Commerce Culture

china's e-commerce - cross-border - cifnews

 

China not only sets the model for cross-border e-commerce but it is also exporting e-commerce culture abroad, helping foreign digital markets to boom. In particular, in continents like Africa, although e-commerce is far from the countries’ largest earner, the market is growing, and it is growing fast. Here, Chinese companies are still testing the waters while seeking collaborations with Western firms and players.

Chinese giants like Alibaba are investing a lot in those emerging countries an markets such as Turkey, Vietnam, Indonesia, India, and Africa, where the US players like Amazon have shown less or no interest and where they can emulate their successful model already tested at home. But the Dragon is doing more, it is exporting an e-commerce culture followed by its idea of “cashless society.”

Online platforms are helping the growing middle-class societies around the world to bypass traditional, often more costly, retail channels and they also ease access to global markets for local producers. The PRC, whose digital economy has experienced massive growth over the last decade, stands as a good model for continents like Africa or countries like India as they both move toward enhancing their engagement in e-commerce and the evolving digital economy.

 

4. Cross-Border Social-Commerce

china's E-Commerce Platforms - xiaohongshu - cifnews

 

PRC leads the world in e-commerce. Today, more than 40% of whole online transactions take place in China. One decade ago, the Dragon’s e-commerce transactions only count for 1%. However, even if there are many good local brands in China, Chinese people still have a kind of adoration for foreign goods. Especially when it concerns healthcare, baby products, food supplements or skin care products, Chinese people prefer to turn towards foreign companies. Furthermore, Chinese consumers are becoming more aware of international brands, which results in the increasing demand for overseas products on cross-border e-commerce platforms.

And while local Chinese tech giants such as Alibaba, Tencent, and JD.com dominate the rapidly growing e-commerce ecosystem, there are other e-commerce platforms that international brands can leverage in China. Among them, Kaola.com 考拉网 is China’s largest cross-border import retail e-commerce platform while Mia.com 蜜芽 is the country’s largest e-commerce platform for imported maternity and baby goods.

However, what we formerly knew as e-commerce, an act of purchase by the user who chose to buy through an online platform, in China it is now deeply changed into a social activity closely linked to social networks. Little Red Book and Pinduoduo are the main exponents of this brand-new social-commerce, a “hybrid” that comes from the combination of social networks, shopping platforms, and even messaging applications. Thanks to a series of whole digital ecosystems like WeChat, online shopping in China, is not just an act of purchase but rather a way of getting in touch with people who share the same interests, a way of doing social engagement.

 

So while China’s cross-border e-commerce is growing year after year at home and abroad, the future of Chinese digital commerce lies in lower-tier cities. In the not-so-distant future, more than half of the rich Chinese will live in Tier 2 cities, which are now considered “first-class opportunities” by both Chinese and foreign investors.

Third and fourth-tier cities will account for almost two-thirds of China’s annual consumption market, which is expected to reach $9.7 trillion by 2030. And this is the real future of Chinese cross-border e-commerce.

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