Bright Spot in China’s Economy:Online Retailing

Massive Growth

On the back of strong growth in household income and wealth， as well as the growing popularity of Internet and smart phones， online retail spending has been one of the bright spots for China recently， though the worlds secondlargest economy is losing its steam.

Over the past year， the total amount spent by Chinese reached 30 trillion Yuan， or US$4.6 trillion， an more than six-fold increase from 2000， implying a compound average growth rate （CAGR） of 13.8% since 2000， according to Xinyu Liao and Yunyun Hu， equity analysts at UBS.

Despite a continuous deceleration in the pace of growth since 2008， retail sales of consumer goods， let alone services， is still growing at a rate of around 10% per annum. Breaking down the retail sales figure further， theres one component that stands head and shoulder above the rest when it comes to annual growth： online retail sales.

Chinas online retail spending grew by an astonishing 33% last year， accounting for more than 10% of total retail sales， dwarfing comparable online spending figures from the US and Japan.

The boom in online retailing is mainly due to the growing popularity of Internet and smart phones， and other mobile devices.

According g a research report from the China Internet Network Information Center （CINIC）， Chinese Internet traffic through mobile devices surged by 36.79 million people in the first six months of 2015， taking the total number accessing the web through smart phones to 594 million.

With mobile usage in China exploding， so too is retail spending on mobile devices. It grew by over 100% in 2015， continuing the trend seen since late 2013.

On the other hand， Chinas overall online shopping population saw modest growth. According to data， 81% of online adults report having shopped online in 2015， up from 80% in 2014

Of Chinas more than 1.3 billion people， 43% are aged between 10-39 years. Nearly 80% of Chinas Internet users come from this age group， presenting an enormous opportunity for retailers as their numbers， and wealth， increase.

“With younger people set to become Chinas most influential group of consumers in the next few years， we expect growth in online and mobile consumption to continue， say Liao and Hu. “Equally importantly， their consumption habits are likely to influence the next generation， as more of these younger consumers go on to become parents. Thus， we believe the shift from offline to online channels could have far-reaching implications for the spending habits of Chinese consumers.”endprint

In view of the massive growth and Chinese demographics， online spending via mobile devices is expected to skyrocket even further in the years ahead.

Big Jump in Global Buying

2015 was the year Chinese online shoppers went beyond the border.

About 35% of Chinese online consumers claim to have shopped cross-border in 2015， a practice known as ‘haitao， representing a whopping increase compared with 26% in 2014， according to the second annual global cross-border commerce report released by online payment systems provider PayPal and Ipsos， a global independent market research company ranking third worldwide among research firms.

The United States is the most popular destination for Chinese crossborder online shopping， followed closely by Japan and South Korea. In 2014， only 14% of shoppers purchased from US-based sites， but this number rose to 22% in 2015. Meanwhile， for South Korea and Japan， the number has increased steadily at a rate of 10% every year.

The report reveals that Chinese cross-border online consumers are among the most mobile savvy in the world with data showing that 37.8% of cross-border online spend was conducted via smart phone in China last year， just second to Nigeria.

The top two motivations for Chinese consumers to purchase from foreign websites are： safe way to pay and proof of product authenticity. Availability of Chinese language customer support and favorable buyer protection are also important factors that motivate them.

59% of Chinese consumers reported purchasing clothing and footwear， and 57% reported purchasing cosmetics or beauty products in 2015.

47% of cross-border online consumers surveyed go directly to websites they have used in the past and 43% search for foreign websites when they know there will be promotions.

38% of Chinese cross-border online consumers surveyed report their top concerns about shopping overseas are counterfeit goods. 37% are concerned about difficult return process and 35% are worried about not receiving sufficient help should they encounter a problem.

High shipping charges and long delivery time are the top two reasons Chinese cross-border consumers abandon online shopping carts.

“Advancements in technology are helping to give merchants the right tools to open up commerce opportunities across borders， anytime and via any device，” said Melissa OMalley， director， global merchant and cross-border trade initiatives at PayPal.endprint

“Made in China” Goes Global Online

“Made in China” is carrying sway around the world.

According to the report， the United States remains the top shopping online destination for consumers， but China is now a close second and fast catching up.

Data shows that s full 25% of online consumers surveyed across 29 countries purchased from US-based websites last year. The next most popular countries are China， with data showing that 19% of online consumers have purchased from Chinese sites.

PayPal said that true to it being one of the worlds largest markets， China experienced not just a huge growth in the number of online cross-border consumers in 2015， but the country also came in second out of all 29 markets tested in terms of estimated overall online spend. The UK and Japan closely follow.

Cross-border e-Commerce is expanding worldwide. It is projected to see accelerating growth rates until 2017 and then decline slightly， while still maintaining double-digit growth figures.

Global online shoppers are motivated to buy directly from foreign online merchants due to better product availability and prices， while among the major hindrances to cross-border purchases are customs charges， higher shipping costs and longer delivery times. Clothing and footwear succeeded as the product category most purchased by cross-border online shoppers across all global regions last year.

Asia-Pacific is predicted to become the largest region in global cross-border online retail， reaching a share of approximately 40% of all cross-border sales in the next years.

According to the PayPal and Ipsos report， online shoppers in the AsiaPacific region were responsible for US$594 billion in spending throughout 2015. In detail， 69% of consumers in Singapore facilitated online orders from merchants outside of their country， just as 65% of Australians and 38% of Indians did the same.

While Asia-Pacific may already be showing a big appetite for online international shopping， the PayPal/Ipsos report projected massive growth for the region in the near future. By 2017， the firms estimated that India would experience a 53% spike in online shopping， while already-booming China would see a 28% boost. Singapore， too， should enjoy a modest 16% increase in digital cross-border commerce.

Hamish Moline， vice president of regional merchant services for Asia-Pacific at PayPal， explained in a statement， quoted by ZDNet， that the rise of the cross-border consumer outside of the Western world presents innumerable opportunities for retailers.

“As both the Internet and usage of mobile phones and tablets transform the face and form of retail， online borderless shopping continues to grow rapidly， presenting a clear opportunity for businesses to embrace their export potential，” said Moline.

“With the transformation of consumer demand for online and crossborder goods， as well as the platforms now available， any business can become a competitive player in the global marketplace. The data from the PayPal research underscores an opportunity for businesses in APAC to extend their reach to the global market without the exorbitant cost from traditional geoexpansion，” he added.

As an important country for both cross-border online imports and exports， China is gaining ground in the region.endprint