By Lai Youwei, Li Guangqian & Shi Guang, Research Team on "Development Characteristics, Problems and Countermeasures of China's E-commerce Service Industry", General Office of DRC

Research Report, No. 81 2014 (Total 4580)

I．Fast Growing Transaction Volume of China's E-commerce

Over recent years, the transaction volume of China's e-commerce saw continuous growth, bringing good economic and social effects. According to statistics of the Ministry of Industry and Information Technology of China, the transaction volume of China's e-commerce reached approximately RMB10 trillion yuan in 2013, up 25% over the same period of the previous year. As calculated by iResearch, the size of China's online retail market reached RMB1.85 trillion yuan in 2013. China has surpassed the United States to become the world's largest online retail market. E-commerce has become a major means of expanding domestic demand as well as a new source for China's economic growth.

The rapid growth of China's e-commerce can be attributed to the following factors.

First, with the increasing acceptance of e-commerce and online shopping by corporate users and consumers, traditional companies are marching into the e-commerce industry with a growing number of online sales activities, which has resulted in the wide application of e-commerce. Besides absorbing consumer demand from traditional marketing channels, e-commerce has explored new market space. A study by McKinsey Global Institute found that in 2013 about 61% of China's online consumption represented a switch from offline, while the remaining 39% was new demand exclusively generated by online retail. According to this ratio, China's online shopping generated an added consumption volume worth RMB720 billion yuan in 2013, a clear manifestation of how the development of e-commerce significantly boosted consumption.

Second, online shoppers in China continue to grow rapidly, making it possible for scale effect and internet effect to play their role. At the end of 2012, there were 242 million online shoppers in China. By the end of 2013, that number had risen to 302 million, up 24.7% year on year.

Third, China's e-commerce industry is actively involved in pursuing technological innovation as well as innovation in business model, product and service. E-commerce is expanding fast in some new sectors such as mobile phones, social media and WeChat. China e-Business Research Center predicts that by 2015 the size of China's mobile e-commerce market will exceed RMB300 billion yuan, with an average yearly growth of 70%.

Fourth, the development environment for China's e-commerce continues to improve. Since the implementation of the 12th Five-Year Plan, China's e-commerce has enjoyed a better development environment with the perfection of relevant laws and regulations as well as the improved infrastructure and technical standards, and will undoubtedly embrace an even brighter future with the establishment of a sound state supervision system, stronger policy support, further improved infrastructure, and more mature e-commerce companies and consumers.

II. Gradually Growing E-commerce Services in China

E-commerce services can be divided into three types, namely, transactional services, supporting services, and derivative service. Representing companies and platforms of transactional services include Alibaba Group, JD.com, Amazon.cn, buy.qq.com, suning.com, dangdang.com, yixun.com, hc360.com, globalsources.com, dhgate.com, etc. Supporting services includes the third party payment, logistics and delivery, and data operation, etc. Derivative services includes internet financing, e-commerce operation and online modeling, etc. While supporting the rapid development of e-commerce, e-commerce services are expanding themselves, with an annual revenue of over RMB500 billion yuan in 2013. Huge in number, China's e-commerce service providers have enormous potentials in today's information-based, market-oriented, highly connected, and internationalized world. As the major means of resource allocation, they are playing a role far beyond business itself.

1. Transactional services

Over recent years, China has seen faster integration of the Business to Business (B2B) model and the Business to Customer (B2C) model as well as the transformation from information platforms to transactional platforms. Although Customer to Customer (C2C) commerce still dominates the online retail market, occupying over 70% of market shares, its proportion is dropping with the market share of B2C commerce slowly rising. With better platforms, China's e-commerce transactional services are gradually gaining momentum and becoming more centralized. The advantages of Taobao.com, tmall.com, and other large-scale comprehensive e-commerce companies with their well-built platforms are becoming more and more obvious. JD.com, dangdang.com, yhd.com, Amazon.cn, and other B2C companies are transforming from stores to platforms by allowing third party companies to register and do business on their online platforms. Vertical companies generally face issues of low brand awareness and lack of brand reputation. Some of them are confronted with predicament for further development in recent years.

(1) Alibaba Group. As the world's largest online and mobile e-commerce company, Alibaba Group operates e-commerce transactional platforms to provide services for the third parties. It does not get directly involved in sales activities on its platform nor does it hold inventory. At present, Alibaba Group provides three types of platform services, namely, B2B, C2C, and B2C. taobao.com, an affiliate of Alibaba Group and one of China's most popular C2C platform, had approximately 500 million registered users in 2012 and over 60 million steady visitors every day. In the same year, the number of third party service providers on the open platform of taobao.com reached 490,999 and the turnover of derivative services were about RMB15.2 billion yuan. With the expanding scale and a growing number of users, taobao.com has developed from a single C2C online marketplace into a comprehensive retail business community that covers C2C, group buying, distribution, auction, and many other forms of e-commerce business models. Founded by taobao.com in April 2008, tmall.com began its independent operation in June 2011. As the country's leading B2C online shopping website, tmall.com provides its platform for about 70,000 registered corporate users. Judged by monthly active user numbers, Alibaba Group's juhuasuan.com has become the most popular group buying website in China. In 2013, the total commodity transaction volume of taobao.com, tmall.com, and juhuasuan.com combined reached RMB1.542 trillion yuan, thanks to 231 million active buyers and 8 million active sellers. Moreover, Alibaba Group operates the global wholesale platform Alibaba.com, China's wholesale marketplace 1688.com, and the global retail platform aliexpress.com. It also provides cloud computing services. Revenues from its transactional platforms mainly include fees from sellers for online marketing, transaction commissions, and online service fees. Alibaba Group's revenue for the fiscal year 2010, 2011, 2012, and 2013 was RMB6.67 trillion, RMB11.903 trillion, RMB20.025 trillion, and RMB34.517 trillion yuan respectively. The Group's net loss for fiscal year 2010 was RMB503 million yuan and the net profit for the fiscal year 2011, 2012, 2013 was RMB1.608 trillion, RMB4.665 trillion, and RMB8.649 trillion yuan respectively.

(2) JD.com. In its early years, JD.com was specialized in the online retail of computers, communications products, consumer electronics, and other 3C products. It gradually became a comprehensive online retailer and its online sales involve 13 categories of products. As the largest direct sales e-commerce company in China, it also provides a series of value-add services for the third-party vendors such as online sales platforms and logistics, etc. In 2012, the platform turnover of JD.com reached RMB 60 billion yuan, of which RMB10 billion came from mobile-phone-based sales. In 2013, its platform turnover exceeded RMB100 billion yuan.

(3) The third-party e-commerce platforms in Guangdong Province, Zhejiang Province, Fujian Province and other local areas. The past few years have seen the emergence of a number of competitive third-party e-commerce platforms in Guangdong Province, Zhejiang Province, Fujian Province and other local areas, thanks to the advantages of industrial clustering. In Guangdong Province, e-commerce platforms with an annual turnover of over RMB10 billion yuan, such as opsteel.cn and shentop.com, mainly come from the steel industry, the petrochemical industry, the grain industry, and the electronics industry, etc. In Zhejiang Province, a number of professional e-commerce platforms are playing an increasingly important role in promoting regional economic development. The outstanding ones include tnc.com.cn, cnele.com, yiwu2.com, esilk.net, china.chemnet.com, and gjmsc.com. In Fujian Province, shoes.net.cn and ssfzc.com have become e-commerce platforms with global awareness thanks to the shoe-making cluster in Jinjiang City and Putian City and the clothing and textile cluster in Quanzhou City.

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