26 October 2016
Sales of this year's Alibaba Singles' Day reached 91.2 billion yuan (US$14 billion). Yet the feat is achieved at the expense of numerous offline retailers who continue to lose customers. Photos: Smad, cnBeta
Sales of this year's Alibaba Singles' Day reached 91.2 billion yuan (US$14 billion). Yet the feat is achieved at the expense of numerous offline retailers who continue to lose customers. Photos: Smad, cnBeta

Boost or bust? State agency questions Alibaba model

Another Chinese state agency has joined the long-running feud with the country’s freewheeling e-commerce sector, which is represented by Alibaba Group, hailed as the epitome of economic restructuring and a source of national pride.

The latest episode saw a report submitted to the top leadership by the National Development and Reform Commission (NDRC), dubbed the “mini-State Council” with its far-reaching powers over almost all aspects of the economy.

The document, containing a slew of policy recommendations, has found a new culprit for the subdued economic growth and rising unemployment: e-commerce.

In a nutshell, the NDRC thinks that more people are being laid off than the new jobs created by Alibaba and its peers.

“Impact on the traditional retailers cannot be offset by new jobs offered by online sales and downstream warehousing and delivery services,” the party mouthpiece Economic Daily quoted the document as saying.

The report, which has not been released to the public, was among the papers that served as a gauge of the country’s economic fundamentals when supreme leaders in Zhongnanhai convened an annual, three-day work conference on economy earlier this week.

“We’ve already seen a wave of staff layoffs and company closures… While others are struggling to stay afloat, numerous book, apparel and home appliance vendors as well as department stores and shopping malls in peripheral locations have wound up their business,” a researcher with the Chinese Academy of Social Sciences told state news agency Xinhua.

When Alibaba renewed its sales record – 91.2 billion yuan (US$14.08 billion) – in this year’s Singles Day carnival, observers pointed out that the e-shopping success meant doom for many individually-run, brick and mortar shops, along with their staff and their families.

This is more intimately felt in lower-tier cities and rural areas where the local economy fails to offer adequate jobs and many choose to run small shops or turn to hawking as their means of livelihood.

Some shop owners lack the skills to “digitalize” themselves and are unable to pursue careers in information technology, logistics or innovation sectors.

Latecomers, either individuals or small businesses, stand a slim chance to carve a niche in the e-marketplace, and only established brands bag most of the online sales.

Business-to-consumer platform Tmall has replaced the consumer-to-consumer marketplace Taobao as Alibaba’s biggest cash cow.

Reports have emerged that Tmall has squeezed out supermarkets and convenience stores in residential districts and landlords have few new tenants to choose from other than delivery firms which are penetrating almost every residential estate.

Convenience chain FamilyMart has closed some of its shops in Shanghai after housewives opted to buy their daily necessities from Tmall.

Even the Hailong Center in Beijing’s Zhongguancun, the largest electronics and clothing market in the capital city, closed its doors this month.

The wave of shop closures has spread to upmarket retailers, dimming the prospects of the commercial property sector, the key business of many state-owned enterprises and an ATM to local governments.

Offline retailers and malls in Hangzhou, Alibaba’s home base, is now in semi-hibernation with the flagship Hangzhou Tower sliding from the top spot to the fifth on a Ministry of Commerce list of top shopping centers nationwide by annual sales.

Retail conglomerate Intime’s (01833.HK) malls in this lower-tier city also booked sales losses of up to 15 percent in 2014. Plaza 66, Hang Lung Properties’ (00101.HK) signature asset in Shanghai, also suffered sharp dips in revenue and rental turnover last year.

In front of Xi Jinping, Jack Ma Yun bragged about his firm’s success when they met in last week’s World Internet Conference in Zhejiang.

He told the top leader that there are now 8.5 million active vendors on Tmall and Taobao and Alibaba has helped create 10 million jobs, although he didn’t bother citing the sources of his figures.

He also failed to come up with an answer as how to take care of the plethora of low-educated, low-skilled shopkeepers and assistants throughout the nation who are made redundant and ultimately laid off by his ubiquitous e-shopping channels.

Earlier this year China’s State Administration for Industry and Commerce also picked a fight with Alibaba concerning the jillions of knockoffs and counterfeit goods in the latter’s virtual marketplace.

As the highly publicized spat raged on, analysts said the watchdog, while trying to retain control over e-commerce, was tired of Alibaba’s challenging of its authority.

But this time around, the sternly worded report from the NDRC could be an indication that the government is becoming uneasy about the disruptions caused to some industries and regions.

It remains to be seen if there will be any policy shift, like taxing e-vendors to subsidize workers who have lost their jobs as a result of the e-commerce juggernaut.

Alibaba has yet to comment on the report. Its shares posted a 2.47 percent gain in New York on Tuesday.

Nonetheless, one thing to note is that Ma maintains close ties with Xi since Alibaba’s ascent was seen as a major achievement during Xi’s tenure as party boss of Zhejiang province from 2002 to 2007.

– Contact us at [email protected]


Employees at Alibaba’s corporate headquarters in Zhejiang. The e-commerce’s thriving business means sales losses to key retailers, including mall operators Intime and Wanda. Photo: Bloomberg

Alibaba chief Jack Ma tells Xi Jinping that his firm has helped create 10 million jobs nationwide. Photo: Xinhua

EJ Insight writer

EJI Weekly Newsletter