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January 16, 2017

Responding To: Tangible Cooperation in 2017

E-Commerce Offers New Opportunities as Chinese Consumers Get Richer and Wiser

Zhihang Du

Global growth cannot thrive without the contributions of China and the United States, the two largest economies in the world. Looking ahead at 2017, while it will take time to see the extent to which the new American president will go to do what he said to influence the U.S. economy, it’s much easier to predict the trends in China.

In 2017, China will continue its economic reforms and move towards a service economy. With Chinese consumers getting richer and wiser, American companies will benefit from China’s growing appetite for quality goods and services through channels like online shopping. Meanwhile, China is also picking up the pace of “Made in China goes out” by supporting international e-commerce platforms.

“Real Black Friday”: Amazon Sees the Golden Age in China

Founded in Seattle in 1994, Amazon entered China in 2004, and it waited almost a decade to finally shine. In the past, Amazon kept a low profile. It had few advertisements, and its market share in China was far behind native competitors such as Tianmao (founded by Alibaba) and Jingdong.

In 2014, Amazon turned “Black Friday” into reality in China. On the second day of Thanksgiving in 2014, Chinese consumers could buy American products at almost the same low price as in the United States from Amazon’s U.S. site. “海外购”(Purchase Overseas) became a new fashion.

According to Amazon’s press release, in 2015, foreign goods bought by Chinese consumers on Amazon’s overseas sites rose by six times, and the sales volume from January to October 2015 was equal to the total volume of the past 20 years.

In 2016, the company introduced Amazon Prime in China and opened up the UK site, which meant that on Black Friday, Chinese consumers could enjoy the same quality goods at the same price (or even lower with export rebates) as U.S. and U.K. consumers do. The selection of goods increased from 8,000 in 2014 to several million in 2016. Footwear, personal care and outdoor products are among the most popular.

Chinese Consumers Get Richer but also Wiser

Amazon’s report showed that among those who buy from overseas, 80 percent are under the age of 35, and 90 percent have a bachelor’s degree or above. Young and highly educated, Chinese consumers put price and quality as first concern when buying foreign goods.

China’s consumption growth …is not just a road of increasing the quantity, but also a road to upgrade the quality,” said Fang Fuqian, economic professor at Renmin University. He proposed three consumer upgrades since the reform and opening up. In the 1980s, owning a bicycle, a sewing machine, a watch, and a radio was the priority for a middle-class family in China; in the 1990s, a refrigerator, a washing machine, and a color TV; after the new millennium, it became houses and cars.

“And now, there comes the fourth consumption upgrade, as people are moving on to pursue a healthier life and self-actualization,” said Fang. Indeed, this change is reflected by the sharp increase in purchases of foreign products through online platforms. China’s overseas online shopping market is estimated to account for 16 percent of the whole e-commerce market by 2018, and market size will reach billions of Chinese RMB then.

New Cooperation Opportunities in E-commerce

It is in both America’s and China’s interests to promote globalization of the online market. On the one side, American companies gain from China’s increasing demand for quality goods. On the other, Chinese manufacturers are also benefitting from online M2C (manufacturer to consumer) platforms. As early as 2010, Chinese manufacturers began to bypass retailers and sell directly to consumers through platforms like aliexpress. Recently, Amazon established the Chinese website, Amazon Business, building up the bridge between Chinese sellers and American business customers.

At the government level, e-commerce is regarded as one of the supporting factors in supply-side reform. Last month, the Chinese ministry of commerce released the 13th Five-Year Plan on E-commerce, which proposed two-way opening of the Chinese e-commerce market. Yet in America, concerns remain. Last month, Alibaba’s Taobao was once again put on the 2016 blacklist of "notorious marketplaces" by the United States Trade Representative for selling counterfeit products, showing the need for bilateral talks and collaboration on the details of e-commerce regulation.

The global economy grows faster in a more connected world. E-commerce can be one of the bridges to strengthen this connection. If Trump really means what he said about placing high tariffs on Chinese imports, the U.S. economy will suffer whether China retaliates or not. 2017 might be another year full of challenges to globalization, but we still need to march on with our head held high. Time, I believe, will tell.

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