Blue Book of China’s Commercial Sector (2016-17)

by Fung Business Intelligence and the National Academy of Economic Strategy (NAES)

Published every two years, the Blue Book tracks the fast-evolving – and expanding – role of the domestic commercial sector as China shifts its growth model under the 13th Five-Year Plan (2016-20) to one that is focused more on quality rather than growth. The book draws on in-depth research from the private sector and academia into China’s retail and distribution sector, logistics sector, and business districts development. Of note, the Blue Book designation is assigned by the Chinese Government only to the most authoritative publications by the highest-ranked research institutes.

The latest edition of the Blue Book confirms that growth in China’s “new normal” economy is being driven increasingly by rising domestic consumption and private entrepreneurship focused on mobile e-commerce, social e-commerce, rural e-commerce, and cross-border e-commerce. The current trends signal more than just a “new normal” for China; they mark the start of more sustainable growth that provides fertile ground for new economy innovations with far-reaching possibilities.

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China’s domestic commercial sector is assuming greater importance

  • China’s new normal economy is increasingly being fuelled by domestic consumption and private entrepreneurship.
  • Domestic consumption, which now makes up over 60% of GDP, will continue to grow its share of total GDP over the next five years.
  • China’s new era of more sustainable growth is a fertile ground for innovations that will have far-reaching implications for business in China and beyond.

Internet “disruption” is driving economic transformation

  • China’s Internet population grew from 253 million in 2008 to 710 million as of June 2016.
  • The Internet is now integrated in the daily lives and consumption behaviour of most Chinese, a phenomenon encouraged by China’s “Internet Plus” national strategy to foster new industries and business development.
  • Retail sales of consumer goods are expected to increase from 30 trillion RMB in 2015 to over 50 trillion RMB by 2020, while online retail sales are expected to rise from 3.88 trillion RMB in 2015 to more than 20 trillion RMB in 2020, accounting for over 40% of total retail sales.

M-commerce and s-commerce are on the rise

  • E-commerce has given way to m-commerce as smartphones and tablets penetrate deeper into Chinese society. More retailers are investing in m-commerce because it is expected to play an even more important role in further e-commerce development. Transactions via mobile devices are estimated to account for 73.8% of total online sales by 2018, up from 55% in 2015.
  • Social networks, such as WeChat, have evolved into key selling tools that are increasingly leveraged by big-name retailers. Many of these micro-stores adopt a “B2C2C” model, where a purchase is recommended by a friend.

Rural e-commerce is a new growth engine

  • The Internet has provided a new and convenient channel for distributing agricultural produce and this has greatly increased farmers’ incomes.
  • As China’s urban e-commerce market nears saturation, e-commerce in rural areas has also become a new growth engine for online retail sales. Many leading retailers and e-commerce players are adopting “going rural” strategies and introducing rural e-commerce initiatives.
  • The number of rural Internet users was 195 million at the end of last year, accounting for 28.4% of the total Internet population, compared with 125 million just five years earlier. The number of rural online shoppers reached 92.5 million. The transaction value of rural e-commerce is estimated to reach 600 billion RMB this year.
  • The rise of rural e-commerce has seen the development of “Taobao Villages”; clusters of rural online entrepreneurs who have opened virtual shops on the Taobao platform. At the end of 2015 there were 780 Taobao Villages in China.

CBEC is changing China’s import trade

  • Cross-border e-commerce (CBEC) has seen rapid expansion since 2012, when China started implementing and expanding policies to support and regulate it. Total sales from CBEC in 2015 reached 5.2 trillion RMB, or 17.6% of China’s total trade. The figures are expected to grow to 8.0 trillion RMB in 2017, or 23.1% of China's total trade.
  • CBEC import business, in particular, has expanded rapidly as more Chinese consumers are buying foreign products via approved CBEC platforms. Total CBEC imports sales are forecast to increase by 67% from 900 billion RMB in 2015 to 1.5 trillion RMB in 2017.

New business models and business practices are proliferating

  • China’s phenomenal e-commerce growth in recent years has also led to the emergence of transformative new business models and business practices, including omni-channel distribution, O2O integration and the development of a service-based e-commerce sector.
  • Retailers are responding to the changing behaviours of Chinese consumers by opening small-format physical stores that offer more “experiential” elements, and by improving logistics solutions for those who prefer to buy online.
  • The transformation in China’s retail practices is being supported upstream by faster and more flexible supply chains.