China’s e-commerce market has the potential to further expand in the next few years amid improved penetration by internet platform operators into key sectors, despite a slowdown in retail sales, according to a senior JPMorgan analyst.
“I feel relatively positive about the outlook for e-commerce growth over the next few years,” Alex Yao, co-head of Asia technology, media and telecommunications research at JPMorgan, said in an interview with the South China Morning Post on Thursday. “Even if offline retail [activity] remains moderate, online [sales] could see double-digit growth just by taking market share from [bricks-and-mortar stores].”
“There is ample room for [e-commerce platform operators] to take market share if they are able to continuously improve their value proposition to stakeholders, particularly consumers,” Yao said.
That upbeat forecast reflects the better-than-expected financial results of Chinese Big Tech companies in the March quarter, despite increased market competition, weak consumer confidence and trade uncertainties brought by geopolitical tensions.
Various Chinese e-commerce apps, promoting the Singles’ Day shopping festival in mainland China, seen on a smartphone screen. These include Tmall, JD.com, Pinduoduo, Taobao, Vipshop, Diantao, Douyin, Kuaishou, Suning and Taote. Photo: Shutterstock
“In general, the sector’s revenue is above our expectations,” Yao said. He added that there has been “a very robust improvement in online penetration across many key verticals”, which means consumer and enterprise activities continue to migrate from offline to online.
“Looking into the rest of 2024, this online penetration will most likely continue to drive the sector’s revenue growth,” Yao said.
Express workers sort out parcels on an assembly line at an e-commerce logistics industrial estate in Lianyungang, a city in eastern Jiangsu province, on February 16, 2024. Photo: NurPhoto via Getty Images
China’s e-commerce sector achieved a 12 per cent overall growth in the first three months of the year, according to data from JPMorgan. By comparison, total domestic retail sales grew 3.1 per cent in March and 5.5 per cent in the combined January-to-February period.
“The gap between online growth rates and total industry growth rates is widening,” Yao said, as he predicted domestic e-commerce competition to remain at a high level in the next few years.
“E-commerce is probably the most intensively-competitive market in China’s internet space,” he said.
Domestic e-commerce pioneers Alibaba and JD.com currently face increased pressure from younger online retail services providers, including PDD Holding’s Pinduoduo and ByteDance-owned Douyin.
Online retail platforms AliExpress and Temu ranked as the two fastest-growing apps in South Korea in 2023, according to market research firm WiseApp. Photos: Shutterstock
Weak consumer spending and greater domestic competition has prompted Chinese e-commerce firms to seek new growth opportunities overseas.
Cross-border e-commerce, according to Yao, could provide a “big structural growth opportunity” for China’s e-commerce platform operators over the next three to five years.
Yao, however, cautioned that it is “critically important” for Chinese companies to manage geopolitical risks in different markets, which is one of the biggest challenges facing the internet industry as a whole.
The progress of artificial intelligence development efforts in mainland China are being hampered by rigid technology trade restrictions imposed by the United States government. Image: Shutterstock
Beyond e-commerce, Yao said the efforts by Chinese companies – from start-ups to Big Tech firms such as Alibaba and Baidu – in the fast-growing artificial intelligence (AI) arena ultimately depend on having the talent and semiconductors to drive forward these endeavours.
Advanced chips, such as the graphics processing units from Nvidia, are highly sought after on the mainland for data centres used in various generative AI development projects.
Yao suggested that Chinese companies with in-house chip-design capabilities and foreign semiconductor manufacturing partners “are relatively better positioned” at present.
Existing US tech trade restrictions, however, continue to make things difficult for AI development to progress more quickly on the mainland.
