25 October 2016
Alibaba chairman Jack Ma (center) and other executives launch Tmall's 11.11 Global Shopping Festival. Photo: Reuters
Alibaba chairman Jack Ma (center) and other executives launch Tmall's 11.11 Global Shopping Festival. Photo: Reuters

Why online shopping will continue to outperform in China

Regarding the origins of the “Double 11” in mainland China, it is claimed that more than 20 years ago, four male students at Nanjing University discussed each night before going to sleep how they could get a girlfriend and agreed that Nov. 11 would be the day would celebrate and say goodbye to their days of being single.

In 2009, turned it into a shopping festival. Retailers on its e-commerce platform agreed to give big discounts on that day so that sales would reach a record every year. 

That day eventually became the world’s largest online shopping festival.

Last year, the event generated sales of US$9.3 billion, and I think it will easily break the US$10 billion ceiling. (Transactions for this year’s Singles’ Day festival reached US$14.3 billion, Alibaba said.)

But, is the rapid growth of e-commerce good or bad for China’s overall economy?

The sector’s performance is far better than the total retail sales picture in the first nine months.

In the third quarter, total transaction value on Alibaba’s platforms rose 713 billion yuan (US$112 billion), up nearly 28 percent from a year ago and accounted for almost 10 percent of China’s total retail sales.

Rival reported faster growth: sales surged 82 percent to 114.5 billion yuan in the second quarter.

But the offline channels recorded a slight decrease in sales, which I think have yet to bottom out.

E-commerce’s rapid growth coincided with China’s shift from inflation toward deflation.

While the latest Producers Price Index continues to decline, the Consumer Price Index is still positive. Whether the data is trustworthy is … You know what I mean.

China’s trend towards deflation is not only about having a great M2 supply.

The increasing popularity of online shopping will help cut overall costs.

But for investors, they should not undervalue the depth and length of deflation.

In short, the new economy will continue to erode the share of traditional sectors in the overall economy until an equilibrium is achieved.

This article appeared in the Hong Kong Economic Journal on Nov. 11.

Translation by Myssie You

[Chinese version中文版]

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Columnist at the Hong Kong Economic Journal

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