China’s e-commerce sector has grown rapidly over the course of the past five years. By the end of the third quarter of 2012, the total transaction volume of China’s online retail market reached $125 billion (781 billion Chinese yuan), which accounted for 5.2 percent of China’s total retail sales for consumer goods. Moving forward into the new year, what can we expect from China’s e-commerce sector in 2013?
1. China could overtake the US to become the world’s largest online shopping market
China’s 12th five-year economic development plan listed e-commerce as one of the priority sectors to develop. Its Ministry of Commerce announced that China is going to become the world’s largest online retail market by 2013. Regardless of whether this occurs in 2013 or 2014, given the vast netizen base in China and its constantly improving e-commerce ecosystem, China will become the largest e-commerce market sooner or later. According to a recent study that was conducted by my company 1, in 2013, China’s online retail transactions are predicted to reach $251 billion – extremely close to $252 billion in the US. In terms of the number of online consumers, China has already surpassed all other nations, by possessing 228 million online shoppers – equivalent to approximately 73 percent of the entire US population. Whether or not China tops the world in 2013, the point is e-commerce has already significantly transformed the traditional retail landscape in China, and online shopping has become a central characteristic of Chinese consumers’ shopping habits.
2: Lower-tier cities will be more important in China’s online shopping landscape
According to data released from Alibaba Group, the e-commerce conglomerate had an annual turnover of $160 billion (1 trillion Chinese yuan) in 2012. Sales in China’s lower-tier cities increased over 60 percent while the growth rate in first-tier cities including Beijing, Shanghai and Guangzhou was less than 40 percent year on year.
China’s inland provinces possess the greatest number of potential online shoppers. These shoppers are migrating online for the first time, learning from their counterparts in China’s major metropolises.
More importantly, with the improving logistics capacity in remote areas and improvements in online shopping safety, online channels will become increasingly popular among Chinese consumers from rural areas. The internet enables lower-tier consumers to access more products and brands, which may not be available in their local stores. This is especially good news for Western brands that want to try to reach more Chinese consumers given that building brick-and-mortar outlets in China’s central and Western provinces is risky. E-commerce therefore is a more flexible and cost-efficient approach to reaching the majority of Chinese consumers.
3. Mobile commerce in China is set to thrive in 2013
While many declared 2012 as the beginning of the mobile commerce era in China, m-commerce is set to explode in 2013. In the first half of 2012, according to the China Internet Network Information Center (CNNIC), 37.5 million online shoppers in China purchased products via their smartphones, which increased 59.7 percent year on year. Turnover of mobile purchases accounted for roughly five percent of the total transaction volume of all online shopping, and this share is expected to reach 15 percent by 2015.
Mobile phones have replaced desktop computers to become the main devices for accessing internet in 2012 2. Due to the overall increase in usage of mobile devices including smartphones and tablets, mobile commerce will keep on gaining popularity and grow in significance. In addition, barriers that hold back the development of mobile commerce in China are diminishing, and improved 3G network capabilities will considerably advance user experience for shopping via mobile devices. Moreover, mobile payment in China is evolving rapidly as well. Market research company iResearch, predicts in the following three to five years that China’s mobile payment market will increase at a rate of over 40 percent year-on-year.
China’s e-commerce sector will only grow in strategic importance for Western and Asian firms alike. As we begin 2013, these three trends will undoubtedly be key drivers for its growth over the course of the year. Companies and entrepreneurs seeking to capitalize on the potential of China’s e-commerce sector should keep these trends in mind as they execute on their business plans for 2013.