Growing competition, weaker consumer spending, and stringent Covid-19 measures are having an impact on the Chinese e-commerce market

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The 12-month period in 2022 has been a difficult time for many leading e-commerce firms globally. From Amazon to major food delivery providers, all have been reeling under the pressure of reduced consumer spending and other macroeconomic factors. However, things have been much worse in China, where several e-commerce businesses were forced to close down their operations in 2022. Along with weaker consumer spending, growing competition and stringent Covid-19 measures were the other factors behind the struggling e-commerce industry in China.

From social commerce firms to community group-buying platforms, many ceased operations over the last 12 months. Notably, some of these e-commerce platforms were backed and funded by e-commerce giants such as Alibaba Group and JD.com.

• Shihui Technology, the Beijing-based online grocery platform that ceased operations in March 2022, raised a multi-million-dollar investment from Alibaba Group and DST Global in March 2021. Dongxiaodian, the social commerce platform, another firm that ceased operations in 2022 had raised a funding round from JD.com. For these firms, the Covid-19-induced lockdown measures have been the major factor behind the closure.

Furthermore, in addition to the various macroeconomic factors, mounting consumer complaints over online fraud and counterfeit products, and poor after-sales services also resulted in the demise of many cross-border e-commerce platforms in China over the last 12 months.

The fall down of the Chinese e-commerce sector also reflects the brutal competition in the online retail segment in the country, where the market has reported strong growth over the last decade. Even industry giants such as Alibaba and JD.com have been reeling under the uncertain economic conditions in China. For instance,

• Both Alibaba Group and JD.com have not disclosed the November 2022 Singles Day gross merchandise value for the first time in their operational history. Eachnet.com, formerly a leading goods auction platform in China and acquired by eBay, also ceased operations in 2022.
• Mia.com, a well-known firm for shopping baby-and-mom merchandise, closed its operations due to weaker consumer spending in September 2022. The decline in the birth rate is also one of the factors that affected the revenue growth for Mia.com. In 2022, Mainland China’s population declined by 850,000, according to the National Bureau of Statistics.  

Regulatory proceedings have also affected the operations of e-commerce businesses significantly. For Alibaba and JD.com, earnings growth fell to record lows in 2022. Furthermore, the emergence of new players such as Pinduoduo, the discount retailer, is also affecting the growth rate of Alibaba and JD.com.

With Chinese consumers becoming price-conscious, discount retailers such as Pinduoduo have recorded strong growth in 2022. In the third quarter, Pinduoduo posted the biggest industry growth, due to its focus on discounted daily essential products. During the quarter, the firm reported revenue growth of 65% to reach US$5 billion. With low prices becoming the key differentiator, both Alibaba and JD.com are expected to adopt the same strategy to regain market share in 2023.

As competition in the domestic e-commerce market is growing significantly, some players are also targeting growth in the global markets. Pinduoduo, for instance, launched its e-commerce platform Temu in the United States in September 2022. To compete with giants such as Amazon and Walmart, Pinduoduo has positioned itself as an affordable e-commerce provider by adopting a low-price marketing strategy in the United States, similar to its strategy in the Chinese market.

Besides Pinduoduo, Kuaishou, the TikTok-like short video platform, also stepped up its effort to build a strong presence in the international markets. The firm failed to garner traction in Europe and the United States. In Latin America, the firm adopted a localization strategy to drive the adoption of its global product Kwai. Like Kuaishou, TikTok is also expanding its global footprint, with the launch of e-commerce operations in the United States in 2022. While these firms are expanding their presence rapidly, compliance in the international market is a steep challenge for these e-commerce players.

In 2023, Chinese e-commerce firms are expected to shift their focus from the stagnant urban market to rural areas in China, which offer higher growth opportunities. Both Pinduoduo and JD.com have been increasing their investment in the agricultural e-commerce sector, and the trend is projected to further continue in 2023. While these firms are experimenting with new strategies to revive their growth, the outlook in the Chinese e-commerce market remains bleak from the short to medium-term perspective.

To know more and gain a deeper understanding of the B2C E-Commerce market in China, click here.