By Shaoming Yang
In November 2019, a cluster of mysterious, suspected pneumonia cases manifested in Wuhan, China. The viral outbreak would become known as coronavirus disease 2019, or COVID-19. What started as an epidemic in China has developed into a worldwide pandemic with severe global health implications leading to containment measures that have massive economic impacts at a scale bigger than the 2008 financial crisis.
Soon after the World Health Organization (WHO) declared COVID-19 a pandemic, The Economist revised its growth forecasts for countries around the world, stating that the global economy would contract by 4.2 per cent, with most countries likely entering a recession in 2020. The study estimated that the United States and European economies would shrink by around 4 to 10 per cent, whereas China was one of the only two countries that could expect economic growth, with a GDP increase of 1 per cent this year.
As COVID-19 gained momentum, the Chinese government deployed draconian policies, such as full-scale lockdown in Wuhan and semi-lockdowns across the country, in an effort to curb the spread of the virus. The policies might have reduced infection rate three months into the pandemic, as Wuhan – the city where the virus is believed to have originated – reopened in April.
Impact on Consumption in China
Consumption in China had seen a sharp decline since the start of the pandemic. For the first quarter of 2020, China’s domestic accommodation and restaurant industries experienced decrease in revenue by around 44 per cent compared to the previous quarter, while its wholesale and retail industry saw its revenue contracting by around 30 per cent during the same period, according to the National Bureau of Statistics of China.
In terms of e-commerce, certain goods have benefitted while others suffered in the China market as a result of the pandemic. The high-involvement goods, luxury goods, online ticketing and travel purchases declined heavily in revenue. Meanwhile, health and hygiene products, fresh food and groceries, surgical gloves and face masks saw a surge in demand.
The pandemic also changed consumer behaviours after prolonged stay-at-home policies. During this period, Chinese consumers reported that they spent up to 90 per cent more time on cooking, housework, childcare, relaxation and consuming news, according to a report published by Chinese tech giant NetEase. The report also showed that more than 70 per cent of the people interviewed said they would continue this behaviour after the outbreak ends.
The international travel bans that ensued since the outbreak have severely disrupted China’s daigou market – an industry where individuals or groups of overseas exporters purchase commodities for consumers in China – by forcing it to come to a halt.
The daigou market, which some might consider as part of the e-commerce ecosystem, is estimated to have around 90 million Chinese consumers in 2018, according to Zhiyan, a research and consulting firm based in Beijing.
Predictions for the Post-COVID-19 Recovery
Looking to the past, China’s annual GDP was able to grow continuously in the aftermath of the last major pandemic, namely the SARS outbreak of 2003. As a result, it is not devoid of reasons to hypothesize the Chinese economy might avert the economic devastation some are speculating by the end of 2020.
On February 28, the Chinese government announced a series of measures to increase imports of high-quality foreign products, to encourage overseas brands to launch new stores and new products in major Chinese cities and optimise cross-border e-commerce channels (CBEC). Additionally, lower duties and taxes are expected to be implemented for foreign products.
China E-Commerce Outlook
By 2019, China’s e-commerce market sales would have reached US$1.9 trillion, which is more than three times greater than that of the United States’ at US$586 billion, according to a 2019 report published by eMarketer, a subscription-based market research company in America.
“On its own, China represents 54.7 per cent of the global e-commerce market, a share nearly twice that of the next five countries combined. As China goes, so goes the global e-commerce market,” said the report, adding that while the global e-commerce market is expected to reach US$5 trillion by 2021, the overall growth rate would decline simultaneously.
In the aftermath of the 2003 SARS outbreak, China’s retail sector expanded with a compound annual growth rate of around 15 to 20 per cent up until 2015, according to the National Bureau of Statistics of China. It is possible that COVID-19 might have a similar effect on the e-commerce sector after 2020.
Meanwhile, Alibaba – one of the biggest e-commerce platforms in China – has been setting an internal growth target for food sector this year, specifically, 50 per cent increase in beverages, 40 per cent increase in beauty and skincare products, and 35 per cent increase for apparel and fashion sector, according to my source inside the company.
Whereas North American and European countries have been at the lower end of global e-commerce penetration, and the sudden spike in demand due to COVID-19 may disrupt the e-commerce ecosystem. One might argue that the Chinese market would be able to withstand the disruption, as it was built for scale.
The Chinese e-commerce market is tested with extreme demand every year, especially during the Singles’ Day shopping festival, where the gross merchandise volume (GMV) of Alibaba’s e-commerce platform Tmall reached US$38.3 billion within 24 hours in 2019.
Brands and retailers who are facing difficulties in home markets might find new opportunities in China amidst COVID-19. Those that enter the market through cross-border e-commerce channels such as Alibaba’s Tmall may benefit from favourable regulations and – under China’s cross border e-commerce channels policy – an onboarding process that is as fast as three months.
About the author:
Shaoming Yang is the founder of ChinaHow Club, an online community for global merchants who want to sell their products in the Chinese e-commerce market. Yang is an industry veteran with over 20 years of experience in e-commerce and online retail. Previously, he served as the Vice General Manager of Tmall Global and AliExpress, two major e-commerce platforms operated by Alibaba Group.
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