Online spending in China has increased by 32 percent per year in the last five years, reaching $967 billion in 2016, according to a new report by the Boston Consulting Group (BCG), which explores what makes China's rapid internet growth unique - and how foreign companies can crack vibrant digital markets.
The report says the Chinese online market has joined the United States as one of the two engines driving the global internet economy. The number of Chinese internet users has grown at 25 percent per year over the past 15 years, to reach 710 million in 2016 which is 20 percent of the entire world. Still, only 52 percent of China's population uses the internet, leaving significant room for growth.
Chinese e-commerce platform Alibaba has become the world's largest retailer, and mobile payments in China have reached $8.5 trillion - 70 times more than in the US. In addition, in April 2017, Yu'ebao, a money market fund under China's Ant Financial, became the world's largest money market fund, with $165.6 billion in assets under management.
In January this year, Alibaba reported strong revenue growth, as demand for online shopping in China grows. The company said its revenues leapt 54 percent year-on-year for the quarter ended in December last year. Alibaba's revenue reached 53.25 billion yuan ($7.7 billion) in the quarter, the company said in a statement.
Alibaba's revenue is seen as a benchmark for China's increasingly important consumer sector. The company's net income attributable to ordinary shareholders was 17.9 billion yuan ($2.57 billion) in the quarter, up 43 percent over the same period the previous year, AFP reported.
Often compared to eBay and Amazon, Alibaba has moved beyond its core e-commerce platform and into sectors ranging from sports to entertainment. Revenue from digital media and entertainment soared 273 percent to $585 million due to increasing earnings from mobile services such as news feeds and game publishing and consolidating its management team, Alibaba said.
Although China lags behind the US in terms of total connectivity, the BCG report says, more Chinese go online using mobile phones (90 percent versus 78 percent). What's more, mobile internet users in China are more eager to try new apps, but lose interest quickly - the typical user has 38 apps, 43 percent of which are used only once.
"Both the economic environment and a high degree of transparency within the internet industry have propelled China's internet boom, but the most important force is the leapfrog growth of underdeveloped sectors that the internet enabled," said BCG partner and co-author of the report, Shu Li.
Francois Candelon, a BCG senior partner and co-author of the report, noted, "China's internet landscape is fast-changing and volatile. Ongoing innovation in business models, applications, and content leads to intense competition." This is especially the case when a trend is peaking, after which many companies are unlikely to survive.
Looking ahead, BCG expects that China will be able to maintain its online growth and momentum. The country has a massive supply of available capital, 850 million people under the age of 40, a low-cost talent pool of science and engineering grads, and ongoing investments by the Chinese government in infrastructure - in areas such as broadband, mobile internet, and cloud computing.
In addition, China's major internet players are pioneering new internet development models, according to the report, which should also drive growth. Hongbing Gao, vice president of Alibaba Group, says, "The new development models will create new opportunities for the Chinese internet market."