Chinese Youth behind Country's E-Commerce Boom
Online shopping continues to grow in China, driven by the relatively affluent younger generation. The Chinese youth turns to the web for convenience's sake and due to the lack of shops in rural areas.
The shopping habits of the Chinese have radically changed over the past decades, as incomes have risen and new products have entered the market. Shopping habits are continuing to evolve, triggered by the voracious appetite for smartphones. The country's smartphone penetration rate currently stands at 37 percent and continues its upward trajectory. Chinese 15 to 25-year-olds on average spend more than 3 hours online through their smartphone every day. "About half of the Chinese born in the '90s check their cellphone every 15 minutes and handle more of their daily tasks through the apps downloaded onto their phones: job searching, information about leisure activities, chatting, shopping, gaming, planning holidays and much more. They also extensively shop online," said Dick Wei, Credit Suisse's Hong Kong-based Regional Head of internet Research.
Higher internet Use Leads to More Commercial Transactions
The role of e-commerce in emerging economies should not be underestimated, even though internet penetration is far from being saturated. In China, 71 percent of those polled in Credit Suisse's latest Emerging Consumer Survey – where nearly 2,600 Chinese consumers aged between 18 and 65 were interviewed – responded they had access to the internet. Extrapolated to the entire age group, this amounts to nearly 650 million Chinese. Assuming that internet usage rises to the levels recorded in the developed world, an additional 258 million Chinese will soon be surfing the web. "As internet usage becomes more accepted and widespread, the mix of activities changes away from gaming and instant messaging toward more commercial transactions, such as (online) shopping, banking and travel. In the case of China, this has been taking place for quite a few years," explained Wei. Last year, nearly two thirds of the Chinese polled claimed they had made a purchase online over the past six months. This proportion is sharply higher than the other eight emerging economies part of the Emerging Consumer Survey: Brazil, India, Indonesia, Mexico, Russia, Saudi Arabia, Turkey and South Africa. It is worth noting that the share of rural Chinese purchasing products online has almost doubled over the past four years to 64 percent.
Avid Online Shoppers
Chinese e-commerce sales increased by 50 percent in 2014 compared to the previous year, with a penetration rate of 10.7 percent last year. This figure is higher than those recorded in developed markets such as the US (7.6 percent) and Japan (3-5 percent) and demand seems to continue unabated. When asked about their intentions to buy online during the next 6 months around 35 percent of the Chinese consumers polled in the Emerging Consumer Survey responded positively. "The Chinese e-commerce penetration rate is likely to exceed 20 percent by 2020," forecast Wei. The Chinese demand for online shopping is largely driven by the generation born between 1985 and 1995. They make half of the online shoppers, with young men being in a slight majority. "This generation is better educated than their parents and often hold higher level jobs. They do not yet have to support a family, so can afford to spend," Wei said. The average (young) Chinese shops online 28 times a year for a total annual amount of 5,374 renminbi (846 US dollars), according to a study by the China internet Network Information Centre (CNNIC).
Convenience, Lack of Shops in Rural Areas Attracts
There are several reasons behind the strong demand for online shopping in China. Generally lower "prices, the lack of retail infrastructure in rural areas, the quality of the products offered online, the possibility to buy customized products and convenience are just some of the factors behind the success of e-commerce," Wei underlined. "An increasing number of Chinese shoppers also turn toward services offered online. They increasingly make taxi, flight, hotel and tour bookings online, order movie and show tickets and also carry out part of their banking online," he added. Online retail banking is an area, which is gaining ground, with a rising number of Chinese now making their payment online.
Buying Clothes, Electronics and Groceries
Chinese online shoppers mostly buy clothes and shoes, PC and mobiles, household goods as well as groceries online. Among those aged 20-30 years, 41 percent of the purchases of electronic goods were made through a smartphone, a tablet or a notebook PC last year. This figure is more than double that recorded in the other eight emerging markets examined in the Emerging Consumer Survey. Brands, the reputation of the website or vendor and price are the three most cited determining factors for shopping online, ahead of the speed of delivery. This may change in the near future. "There is more and more focus on the quality of service, that the products or services ordered online are delivered fast and on time," Wei said. The Chinese online retail sector is on track to generate long-term revenues of approximately 1.1 trillion dollars compared to 300 billion dollars in 2013. "This estimate is not too aggressive, given Credit Suisse estimates that online shopping volumes will reach around 728 billion by 2016 and increase 2.5 times over the next three years," Wei concluded.