Will China's economic woes affect its e-commerce market?
In the third quarter of 2015 China’s economy did something unexpected: economic growth slowed down to 6.9% (Al Jazeera), worrying government policymakers and foreign investors alike. As the once all-powerful Chinese economy continues to struggle, not helped by disastrous government policies that have lead to the decreased value of the yuan, Monrah Consulting investigates how the economic downturn will affect China’s booming e-commerce market.
e-Commerce market still bright
In spite of China’s economic woes, the e-commerce market has been seen as a ‘bright spot’, with its share of the total retail sales in China being estimated to increase by 3% in 2016 to 10.9% (eMarketer). As the Chinese economy shifts from an industrial base to a more consumer-driven one, e-commerce is seen one way to help the economy get back on its feet. November last year saw increased spending on Singles Day (the Chinese equivalent of Valentine’s Day), with Alibaba reporting a sales record of 91.2bn yuan ($14.3bn; £9.4bn), a 60% increase from 2014’s Singles Day (BBC).
Chinese government intervention - will it work?
The Chinese government has begun to support the e-commerce market more in a bid to boost the country’s lagging economy. On the 30th January, the Chinese State Council decided to enact policies that would further expand China’s international e-commerce operations. The creation of new e-commerce pilot zones within China’s larger cities (including Hangzhou, Tianjin and Shanghai) will encourage more businesses and foreign trade in a country that already has the world’s largest ecommerce market (Ecns/ China Daily).
However, in spite of all of this, the breakdown of the wider economy has begun to negatively affect e-commerce giant Alibaba. Increased consumer spending online occurs not just on online marketplaces like Tmall and JD.com but also directly on brand websites too. This, combined with Alibaba’s over-reliance on the Chinese market and its failure to expand into foreign markets (MCM/ Gulf Times) has led to panic amongst investors with its share price falling 0.9% to $69.74 on the New York Stock exchange on the 11th January (Bloomberg).
What does this mean for e-commerce?
So, will China’s economic woes affect e-commerce? The short answer is no. E-commerce is the government’s most effective tool to minimise China’s economic problems and in spite of Alibaba’s recent issues, this is a sentiment shared by Alibaba’s CEO, Jack Ma (RT); the recent economic decline is just growing pains as it dramatically changes from being manufacturing-focused to services and consumption-reliant. In order for Alibaba and its competitors to weather this change, they will need to build upon the growing consumer base in China AND increase their operations overseas.
