China is the largest e-commerce market worldwide, accounting for about 50% of global transactions, according to recent market research. The country’s vast population and high internet penetration rates provide fertile ground for online retail. Furthermore, digital payment systems and logistics infrastructure advancements have streamlined the online shopping experience, making it more accessible and convenient for consumers across various regions. At the same time, the Chinese consumer is increasingly tech-savvy, with a growing preference for online shopping due to its convenience, variety, and competitive pricing. The rise of social commerce, where social media platforms integrate with e-commerce capabilities, has also transformed traditional shopping habits, making online purchasing more interactive and personalized.
Even though the e-commerce market has not been in a very good position in recent years due to the huge impact of the pandemic on the Chinese economy, projections indicate that the market will continue to grow at a rate of 12.42% from 2023 to 2027, leading to a market volume of around $3 trillion by the end of this period.
In the post-epidemic era, digital lifestyles have taken root. Consumption through e-commerce, live-streaming, and short videos has become a new consumer habit. Social e-commerce is completely changing our consumption habits and shopping methods. Chinese consumers are inclined to discover new products through social networks. For example, they will choose products recommended by friends, KOLs, and trustworthy media sources. Furthermore, Chinese social media platforms are now promoting this shopping model. They wish to optimize the consumer experience, from social interaction to purchasing, with just one simple click. Live-streaming and short videos have successfully inspired a new form of consumption, triggering users’ demand for the use of goods.
Xiaomi’s CEO is live-streaming to sell their products
Chinese consumers are familiar with finding fulfillment beyond mere shopping through live-streaming and short videos. Anticipated is the adoption of these ‘sources of happiness’ in innovative forms by various international e-commerce platforms. Take, for example, Lionel Messi, who will lead Argentina to the World Cup at the end of 2022, and NBA stars James Harden and Jimmy Butler made appearances on Taobao live-streaming last summer, interacting with Chinese fans, which brought more exposure to their partner stores.
The Chinese e-commerce market has experienced unfavorable conditions in recent years due to the impact of the pandemic. In 2023, the growth rates of GMV, user scale, and merchant scale were moderate, with a big gap compared to the peak time. The GMV share of clothing, daily necessities, and home appliances ranked in the top three, but the growth rate varied quite a lot. Among them, the growth rate of daily necessities and clothing was only 8.5% and 9.6%, respectively, both lower than the overall growth level of the market. Tobacco, alcohol, pharmaceuticals, and jewelry have the highest growth rates, and major e-commerce platforms also increase their investment in related businesses.
The bankruptcy wave of vertical e-commerce platforms had already shown signs last year. Luxury goods e-commerce platform Secoo and maternal and child e-commerce platform Mia did not survive the harsh winter of 2022. Leading platforms like Taobao, Pinduoduo, and JD exert a strong platform effect in e-commerce, consolidating resources such as merchants, users, and capital, reinforcing their dominance. Nowadays, vertically integrated e-commerce platforms that are still doing well generally have strong community attributes and user stickiness, such as Deewoo.
Pinduoduo, Alibaba, and JD are China’s e-commerce giants, and Alibaba has been at the top of them for a long time. Pinduoduo surpassed Alibaba in market value, which is undoubtedly the most memorable historical event in the Chinese e-commerce market. At the same time, the rise of e-commerce live streaming has intensified the competition for users and traffic, and live streaming has become a new growth driver for e-commerce platforms and content platforms. TikTok, Kuaishou, and Xiaohongshu are rising stars of e-commerce, all benefiting from live-streaming e-commerce. The size of the live streaming e-commerce industry in the first half of the year was 1.99 trillion yuan (280 billion USD), and it is expected to reach 4.57 trillion yuan (640 billion USD) by the end of the year, an increase of 30.44% year-on-year.
The year 2023 witnessed a breakthrough development in generative AI technology globally. In early 2023, Alibaba unveiled a large language model, ‘Tongyi Qianwen,’ providing an opportunity for various industries to enhance business efficiency. The industry anticipates that generative AI will play a pivotal role in shaping future consumer behavior. E-commerce platforms, with their fully online and highly flexible nature, have an inherent advantage in introducing technology to meet the needs of both merchants and consumers: the combination of AI algorithms can improve the operational efficiency of e-commerce stores and assist in shopping decision-making to save the cost of searching for products.
Late in the year, Taobao launched the first generative AI application, ‘Taobao Wenwen,’ in the e-commerce industry in Mainland China to assist consumers in their shopping decisions. ‘Taobao Wenwen’ can be applied to different scenarios such as shopping, consumption, life and companionship, etc. The Q&A between consumers and AI can make consumers’ vague and complex shopping needs clear and assist them in making consumption decisions efficiently. On the biggest Chinese online shopping festival day (‘11.11’), ‘Taobao Wenwen’ introduced a big promotion mode. Addressing users’ special needs during the Double 11 promotion, such as ‘the most worthwhile mobile phone’ or ‘the most cost-effective lipstick,’ the AI application will integrate information on comprehensive discounts, additional reductions, and other promotion benefits. It generates and provides the most price-attractive purchasing suggestions, reducing users’ selection and decision-making costs.
Consumption recovery is the keyword for 2023 in China after the pandemic. Rational consumers, who only buy what they need and make the most of their possessions, take the lead in the market. In this case, 2023 is the year when e-commerce platforms return to price wars. Pinduoduo surpassed Alibaba with strategies like factory outlets, inventory clean-up, and free delivery. Determined to return to the low-priced market, JD launched a direct subsidy of billions, initiating a new round of price wars. It even internally emphasized the need to benchmark against Pinduoduo’s pricing. Taobao also introduced corresponding activities but did not consider them the sole pursuit of lower prices. This is because it takes “low prices” to a higher level, aiming not only for affordability but also for “good products at good prices,” ensuring a balance between quality and cost-effectiveness.
Attracting consumers at a low price isn’t a sustainable strategy. E-commerce giants are looking for the next incremental market to expand their businesses. Cross-border e-commerce is their target. AliExpress, Lazada (Alibaba), TEMU (Pinduoduo), Tiktok (Douyin/Tiktok), and SHEIN are rising worldwide. Alibaba has injected additional investments into Lazada, with investment amounts reaching $845 million and $634 million, respectively. TikTok Shop is focusing its efforts on the North American and Southeast Asian markets. Temu’s monthly gross merchandise value (GMV) has stabilized at $1 billion and consistently secured the top spot on download charts in various regions. SHEIN‘s download volume surpassed Amazon in the first three quarters of 2023. According to Bloomberg’s estimates, SHEIN’s revenue in the first three quarters of 2023 has grown significantly by 40% to $24 billion.
In 2024, China’s e-commerce sector will continue its dynamic evolution with a projected 12.42% growth from 2023 to 2027, reaching a $3 trillion market volume. Post-pandemic, consumer behavior transforms through e-commerce live-streaming and augmented reality experiences. The rise of e-commerce and live streaming intensifies competition. The bankruptcy wave among vertical platforms highlights the dominance of leaders like Taobao, Pinduoduo, and JD. Challenges include moderate growth rates influenced by the pandemic and a shift towards rational consumer behavior, triggering a return to price wars. Technological advancements, especially in generative AI, reshape the industry, as exemplified by Alibaba’s ‘Tongyi Qianwen’ and Taobao’s ‘Taobao Wenwen.’ E-commerce giants are expanding globally, targeting cross-border markets with investments in platforms like TEMU, TikTok Shop, and SHEIN, solidifying China’s role as a pivotal force shaping global retail trends.
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