Wednesday 16 October 2019

Mobile payments drive ecommerce explosion in China's economy

Ellie Donnelly

Ellie Donnelly

While there may be fears of a global trade war between the US and China, with tariffs on goods being imposed by both sides in the dispute, the latter is continuing to develop its share of the global ecommerce market at pace.

About 10 years ago China accounted for less than 1pc of the global ecommerce market, however today its share is 42pc, according to a report, 'Digital China: Powering the Economy to Global Competitiveness', from McKinsey Global Institute (McKinsey).

Ecommerce is the buying and selling of products and services through an electronic medium as opposed to a physical transaction.

Such is the vast growth in China's ecommerce sector that the current values of China's ecommerce transactions is estimated to be larger than the current values of ecommerce transactions in France, Germany, Japan, the UK, and the US combined.

The impressive growth is being driven by the explosion in the use of mobile payments among China's internet users, which has grown to 68pc of the global total, from 25pc in 2013, the report has found.

Put into monetary terms, and in 2016, the value of mobile payments related to individuals' consumption in China was $790bn, 11 times that of the US.

In tandem with the explosion of the Chinese ecommerce market, China's venture capital industry is becoming increasingly focused on digital companies.

Overall, China's venture capital sector has grown rapidly to 19pc ($77bn) of the worldwide venture capital total in 2014-16, from 6pc ($12bn) of the global total in 2011-2013, according to the McKinsey report.

The majority of venture capital investment in China is in digital technologies such as big data, artificial intelligence companies, and financial technology companies, with the Asian powerhouse now ranked in the top three in the world for venture capital investment in key types of digital technology including virtual reality, autonomous vehicles, 3-D printing, robotics, drones, and AI, according to McKinsey.

And, the signs are that the growth of the digital economy in China is set to continue.

In coming to this conclusion, the report cites the large, and young, Chinese market, which it says is enabling rapid commercialisation of digital business models on a larger scale.

In addition, McKinsey said that three of China's internet giants - Baidu, Alibaba, and Tencent - were continuing to build a "rich" digital ecosystem, while the Chinese government has both given players in the digital economy the space to experiment, and is becoming an active investor and consumer in the digital economy space.

As the impact of digitalisation on the Chinese economy increases, the report notes that there will be winners and losers. "Digital is causing creative destruction around the world," McKinsey said.

"But this phenomenon is on a relatively larger scale in China due to a combination of the rapid pace of economic growth and changes in the economy, the prevalence of inefficiencies across sectors, and massive potential for commercialisation at scale."

From an analysis of the consumer and retail, auto and mobility, health care, and freight and logistics sector, the report predicts that digitalisation can potentially shift, and create, value equivalent to 10pc to 45pc of the revenue pools in the four sectors.

Irish Independent

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