What is fuelling and boosting e-commerce in China?
Over the last two decades, according to the report of ECONOMISTES, “ China has experienced an extraordinary economic transformation". Chinese online retail sales increased 120% each year from 2003 to 2011 and reached 722 billion dollars in 2016. Chinese E-Commerce, therefore, attracts a lot of attention around the world. Today, China has the world’s largest E-Commerce market and many businessmen want to know what has fuelled and boosted E-Commerce development in China.
The development of E-Commerce is thanks to both the advantages of E-Commerce and the development of unique Chinese E-Commerce infrastructures.
Compared to old business models, E-Commerce offers a more flexible business trading process. Purchases can be made at night time, merchants and buyers do not need to be present at ‘a store’. Thanks to the accessibility and convenience of E-Commerce, the efficiency of E-Commerce transaction is four times faster than that of traditional business. Furthermore, buyers are asked to pay for the goods before they are delivered on E-Commerce platforms. It protects better merchants’ rights and reduces the current non-payment rate. Thirdly, there are less restricted market barriers on E-Commerce platforms. The less market barriers allow retailers to reduce the selling price without losing profits. Lower prices make online products more competitive and helps online retailers to get rid of their stocks.
But if advantages of E-Commerce are the same in any countries, why has boomed only Chinese E-commerce over the last twenty years ? Here, we should look at the development of unique Chinese E-Commerce infrastructures that can be categorised into four key points — sufficient supplies and demands, abundant capital investments, gradually improved Internet infrastructures and effective logistics systems.
Firstly, the Chinese government has increased employees’ wages by at least 10% annually since 2008. This policy rapidly boosted the purchasing power of the Chinese middle class. The new "rich" class made numerous online orders. Meanwhile, China still produces more than it consumes. Thus, the stock of chinese manufacturing could perfectly cope with the new demands for E-Commerce.
Secondly, thanks to the investment of Chinese businessmen and flexible governmental policies, E-Commerce sector has never encountered any financing problem during its development. On the one side, Chinese investors are willing to pour money into emerging sectors like E-Commerce. In 2014, about a quarter of Chinese capital investments were invested in E-Commerce and Internet projects. On the other side, Chinese government policy for E-commerce is flexible. The Chinese government is often criticised by the foreign press because of its over controlled policies and systems. But this time, E-Commerce has grown under a flexible political environment. Companies were allowed to pull money from overseas markets. The statistics can speak for themselves, two-thirds of China’s first fifty online retailer companies have oversea venture capital in their companies. Alibaba for example went to America and attracted 21.8 billion dollars investment.
Thirdly, Chinese internet infrastructures highly improved between 2005 to 2014. In 2014, the coverage of Chinese internet was 46% whereas that increased 39% compared to that in 2005. The higher internet coverage stimulated the use of the Internet in China. In 2014, there were 649 million citizens online and 360 million of them confirmed that they used internet for online shopping.
Fourthly, China’s logistics infrastructures are well evolved. With the development of E-Commerce, China's logistics sector has boomed. Many private logistics companies joined this sector. Delivery services were no longer monopolised by China Post. Many private logistics companies brought both new blood and high competition to the sector. So in order to survive, companies had to improve their customer service. Today, China’s logistics system can be seen as the world’s most effective. All online orders can be delivered within 3 or 4 days in China’s mainland territory which includes the most remote rural areas. Some logistics companies are creatively offering a one-day-delivery service so as to enlarge their market.
To sum up, the success of China’s E-Commerce is partly related to the advantages of E-Commerce, but is more closely related to the development of unique Chinese E-Commerce infrastructures. Its success is hard to repeat in any other countries.
Weiqi WANG
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Dear Weiqi, thinks for your post.
ReplyDeleteThanks to the beneficial infrastructure conditions, e-commerce in China has had a rapid development, which has been conspicuous these years.
I wonder that do you think the Chinese E-commerce development will stagnate in few years or not? And what are the main disadvantages of E-commerce in your opinion?
Danzhuo.N