Ecommerce companies in China are struggling as the economy deteriorates after COVID-19 lockdowns and other rigid control policies in the country caused disruptions in supply chains. The country’s ecommerce giant, Alibaba Group Holding Ltd., reported a decline in revenue by 0.1% YoY in the April-June 2022 quarter, the first-ever decline since its listing in 2014. Alibaba’s rival, JD.com, also reported its slowest increase in revenue of 5.4% YoY in the second quarter of 2022 since it went public in 2014.
The only exception was the new entrant, Pinduoduo Inc., which is favored by consumers with low income due to its offering of discounted products. Pinduoduo’s revenue increased 36% YoY in the second quarter of 2022, with consumers increasingly looking for bargains in a sluggish economy. The company is focusing on global expansion, with a cross-border ecommerce platform set for launch initially in the US in 2022.
China’s Online Retail Market Overview
According to GlobalData, the market value of China’s Online Retail sector stood at $793.9 billion in 2021, which increased 21.6% over that in 2020, and is expected to reach $941.8 billion by 2022. The growth could be due to the closure of physical stores during the COVID-19 lockdown. The COVID-19 pandemic also accelerated the expansion of ecommerce with increase in supply, aiding the creation of new ecommerce businesses and the digital transformation of existing businesses, especially at the level of small and medium enterprises (SMEs). This enabled retailers to continue to operate during the lockdown periods and increased the supply of products. Although the pandemic accelerated the growth of the industry, the momentum slowed down.
China’s Sluggish Economy
Consumers in China are struggling with sluggish growth in wages, increasing unemployment, and inflation as the economy grew at its slowest rate in two years from April–June 2022. The current real estate crisis also weakened household confidence in the economy. The COVID-19 restrictions had a major impact on consumer spending in China. Consumers are reducing discretionary spending and becoming more frugal as the country’s economic slump persists, which is hampering the expansion of the ecommerce companies in China.
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