David BECK analyzes technological issues from a political, economic and societal perspective.

China, The new Battleground of the Big Techs

David BECK Academic - Geo economics & Tech

Eighteen years ago, when the first coronavirus emerged in China and caused an outbreak of Severe Acute Respiratory Syndrome (SARS), online commerce did not exist in China. The landscape was radically different in early 2020, when a new coronavirus epidemic, later named Covid-19, hit the country. Confined to their homes for fear of the epidemic, Chinese people rushed to their smartphones, clicking on their favorite applications to have their meals, fruits, vegetables, meats delivered quickly and avoid having to go to the supermarkets.

Over the past few years, online commerce has gone through an extremely rapid growth phase in China, leading to the emergence of mastodons such as Alibaba, JD.com and Meituan (supported by Tencent) with the support of the authorities who see it as a major growth driver for the economy. These various players have emerged even stronger from the health crisis, which has accelerated Internet consumption. According to the Nielsen Institute, the share of e-commerce in retail sales in China rose from 25% in the first half of 2019, to 32% in the first half of 2020 and to 40% last June.

At the peak of the health crisis, in the deserted streets of large megacities like Beijing and Shanghai, the Ele.me and Meituan delivery men were the only ones braving the cold to deliver meals to their homes. The online grocery sector also stood out as Chinese consumers avoided restaurants and physical stores. To the point where it has become the “new battleground” for the Chinese giants, HSBC analysts observe in a recent note. Accounting for only 3 percent of Internet retail sales in China last year, the market is expected to double by 2022 to more than $100 billion (690 billion yuan), according to iResearch.

Until recently, selling fresh produce online was not a priority for China’s Internet giants. “Margins were low, delivery was expensive, and they had other priorities,” says HSBC. But while the growth of Internet users is slowing down (904 million Internet users in China, +6% compared to June 2019), this sector now appears to be a growth driver. Selling fresh food online is “the best way for Internet giants to acquire new users to whom they can then sell other items in their vast ecosystems,” says HSBC.

But providing fresh food requires sophisticated warehousing, complex cold chain control and a highly efficient delivery system, which is extremely costly. Alibaba sought this expertise when it acquired a stake in Sun Art three years ago and bought out Auchan’s shares this fall.

Zeen is a next generation WordPress theme. It’s powerful, beautifully designed and comes with everything you need to engage your visitors and increase conversions.