1.
China
eCommerce Market
Analysis Report
2013
Chapter One Industry Review and Forecast
July 2013

2.
Table of Contents
1.1 Growth trend of the eCommerce market in China
1.2 Growth trend of online shoppers in China
1.3 New trend of the eCommerce market in China

3.
Table of Contents
1.1 Growth trend of the eCommerce market in China
1.2 Growth trend of online shoppers in China
1.3 New trend of the eCommerce market in China

4.
1.1.1 Key Note – China eCommerce Market
Largest online shopping
market in the world
Growing number of online shoppers and
more comprehensive peripheral services
- Market scale in 2012: RMB 1.2 trillion
- CAGR in 2003-2011: >100%
- Share of total retail volume: >6%
- 3G/4G coverage increases opportunities for consumers to
use mobile shopping via handset
- Spending from the affluent class increases and is shifting to
online channels
- Increases in credit card usage together with more developed
logistic facilities, both helping to lift the online shopper base
China – Emerging retail online
development for global brands
- The growth rate of online shopping market in China is faster
than any other country in the world.
- Retail e-channels in China outweigh any other country in the
world
- New market entrants can expect at least 3 times growth
according to the recent forecast about the market volume in
2020
－1－

5.
1.1.2 Growth Trend of the eCommerce Market in China
The size of online shopping transactions in China continues to grow rapidly, with 10 times the increase over 5 years.
In 2012, the online shopping transactions hit RMB 1,259.4 billion, with an annual growth rate of 66.5%.
2006-2012 Online shopping transaction amount and growth in China
12594
122.9%
110.1%
109.2%
Online shopping amount
(hundred million dollars)
Annual growth rate
107.0%
7566
64.0%
66.5%
5231
44.6%
2500
1208
258
542
2006
2007
2008
2009
2010
2011
Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”March 2013
,
2012
－2－

6.
1.1.3 Size Forecast of eCommerce Transactions in China
Putting aside inflation into consideration, the size of eCommerce transactions in China will reach a conservative
guess of RMB 2.5 trillion to 4 trillion by 2020, which is 3.5 times of the size in 2011.
Size of online shopping transactions in China, 2003-2020
397
RMB 10 billion
High Case
75
Base Case
Low Case
61
242
23
60
258
74
159
2011
20151
45
0.6
1.2
1.9
3
6.1
2003
2004
2005
2006
2007
13
2008
27
2009
2010
20201
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－3－

7.
1.1.4 Online Shopping in China vs International Markets
China will become the largest online shopping market in the world; its online shopping scale:
- Exceeded Japan’to rank world’No.2 in 2011
s
s
- Is even higher than the sum of UK, Germany and Korea combined
- Is predicted to exceed the United States’ 2015 and become the world’ largest online shopping market
by
s
Scale of online retail market in 2011
United States
119
China
74
Japan
66
United Kingdom
34
Germany
20
Korea
13
France
12
Brazil
7
Russia
6
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－4－

8.
1.1.5 Growth Rate of Online Shopping Scale in
China vs International Markets
The compound growth rate of online shopping in China in 2003-2011 exceeded 100%, with an expansion speed
that was faster than any other country in the world.
200
Online retail market in 2003-2011
RMB 10 billion
CAGR
03－11％
United States
27％
United Kingdom
18％
Germany
22％
Korea
19％
France
35％
Brazil
34％
Russia
39％
Canada
50
120％
Japan
100
17％
China
150
14％
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－5－

9.
1.1.6 Share of eCommerce in Total Retail Sales
China’eCommerce penetration has already surpassed the US:
s
- In 2012, China’eCommerce trade sales was 6.3% of total retail amount, while US’was only 5%.
s
s
- It is estimated that by 2020, China’eCommerce trade sales will be 10-16% of the total retail amount.
s
Share of China’ eCommerce in total retail amount in 2008-2013
s
7.4%
6.3%
4.4%
3.5%
2.1%
1.3%
2008
2009
2010
2011
2012
Data Source: CNNIC,“China Online Retail Market Data Analysis Report 2012”February 2013
,
2013e
－6－

10.
1.1.7 Major Factors Pushing the Growth of eCommerce
Factor 1: By 2020, the online spending per capita will reach RMB 1,500 – 2,400 per year, which is 3 to 5 times
the current size.
2011-2020 Online spending per capita
Online spending per capita
RMB / person
High case
Year 2011
Year 2020
Base case
441
Low case
441
2360
5.3x
441
1839
4.3x
1533
3.5x
Factor 2: Expanded 3G and 4G penetration helps boost the no. of online shopping users, while broadband
penetration drives the growth of PC-based online shoppers.
Factor 3: The use of credit cards is increasingly common, which further facilitates online shopping.
Factor 4: By 2020, the affluent class in China (with a minimum annual average household disposable income of
RMB 120,000) will reach 280 million, i.e. 20% of China’ total population. Spending will surpass Japan
s
to be world’ no. 2. 60% will choose online as their major spending channel as they shift to online
s
shopping from other spending channels.
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
BCG,“The Affluent Will Be a Major Driver of Consumption Growth in China”November 2012
,
－7－

11.
Table of Contents
1.1 Growth trend of the eCommerce market in China
1.2 Growth trend of online shoppers in China
1.3 New trend of the eCommerce market in China

12.
1.2.1 Key Note – Growth Trend of Online Shoppers
in China
Largest eCommerce population
- No. of eCommerce users in 2012: 240 million
in the world
Vast territory impacts online
shops’
development
Online shop: the best channel
to enter the China Market
- The vast territory and high prices of real estate are
beneficial to online shops’
development
- Consumers from third or fourth tier cities or from rural
areas tend to choose e-tailing as the coverage of actual
shops is inadequate
- Online shop guarantees that brands achieve maximum
penetration to target consumers
- High prices of real estate and increasing salaries eat up a
large proportion of profits of traditional retail business
－8－

13.
1.2.2 Population and Growth Trend of
eCommerce Consumers
Despite the fact that the growth rate of internet users has slowed down, the online shopping population is rapidly
growing. China’online shoppers have reached 242 million people, raising the proportion to 42.9%.
s
China’ online shopping population and penetration in 2006-2012
s
42.9%
37.8%
24202
35.1%
Online shopping population
(ten thousand people)
Online shopping penetration
19395
16051
28.1%
22.1%
24.8%
24.5%
10800
7400
3357
2006.12
4641
2007.12
2008.12
2009.12
2010.12
2011.12
2012.12
Data Source: CNNIC, “2012 Online Shopping Market in China Research Report”March 2013
,
－9－

14.
1.2.3 China’Online Shopping Population Penetration
s
vs Other Countries
In China’retail market, the internet coverage already surpassed the coverage of real retail shops. Due to the vast
s
territory and high prices of real estate, the coverage of real retail shops is limited. For the consumers from third and
fourth tier cities or rural areas who cannot access real retails shops, they will choose online shopping.
A unique factor in China is that internet coverage far exceeds coverage for top retail shops
Retail Consolidation
Internet Coverage
(Proportion of top 20
(Population Proportion, %)
retailers in total retail sales, %)
81
UK
52
76
France
Germany
80
Korea
51
78
30
26
51
China (Cities)
7
… while retail consolidation almost reaches
a developing country’ level.
s
27
33
Brazil
Indiat
44
81
Japan
almost reaches a country’level…
s
49
87
USA
The internet coverage within cities in China
13
China’e-commerce benefits consumers
s
with its ability to offer more products.
3
Data Source: BCG,“The World’Next E-Commerce Superpower: Navigating China’Unique Online-Shopping Ecosystem”
s
s
,
November 2011
－10－

15.
1.2.4 Key Driving Factor for Online Shopping
Population Growth
The penetration of broadband network helps to increase China’internet users, as well as the popularity of
s
online shopping. China had 129 million broadband accounts but broadband penetration only accounted for 30%.
As broadband’popularity and speed increases, we can expect a better online shopper base which will drive the
s
expansion of eCommerce in rural areas.
Broadband users and penetration in 2011
Residential broadband users
Broadband penetration
Million
Percentage
129
China
30
68
81
USA
55
27
Japan
Germany
France
21
UK
18
Russia
18
Korea
15
Brazil
14
Canada
11
Mexico
9
India
8
59
22
77
67
35
81
26
78
33
3
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－11－

16.
Table of Contents
1.1 Growth trend of the eCommerce market in China
1.2 Growth trend of online shoppers in China
1.3 New trend of the eCommerce market in China

17.
1.3.1 Key Note – New Trend of eCommerce Market
in China
Huge growth potential for
- The independent merchants proportion in eCommerce
is 70% in US, while China’is only 10-20%
s
independent merchants
The use of smartphones increase
the online shopper base
Independent merchants have an advantage
for future development
- More than 50% users are influenced by social media when
deciding to make a purchase
- The popularity of smartphones is only 1/4 of those in
developed countries, but mobile shopping penetration
rate is 1/2
- The advantages of independent merchants include high
quality products and brands, integrated after-sales service
and standardized logistic management
- Potential of shopping power driven from social media, as
well as increase in number of traffic and users driven from
smartphones.
－12－

18.
1.3.2 Structure of China eCommerce Market vs
Other Countries
Compared with the independent merchant proportion of 76% in US, there is a huge potential for independent
merchants in China. According to the statistics by McKinsey, independent merchants in China numbered 10% in
2011, while there was 76% in USA at the same period. As there is an increasing need, in addition to maturity of
new brands in the marketplaces, we foresee a great potential for independent merchants.
Comparison of eCommerce Platform and Independent Merchants
RMB billion
China
2
United States
5
16
27
56
128
263
461
774
eCommerce Platforms
24%
Independent Merchants
50%
80%
88%
89%
93%
93%
92%
93%
90%
76%
50%
20%
2003
2004
12%
11%
7%
7%
8%
7%
10%
2005
2006
2007
2008
2009
2010
2011
2011
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－13－

19.
1.3.3 The Growth Trend of Users Driven by SoLoMo
Sharing on social media drives users’
passion in online shopping. Half of its users were stimulated by social media
to shop or choose a brand. The development of social media drives some behaviors such as conformed purchasing,
conspicuous purchasing and advance purchasing – but mostly to help users have better choices in products and
brands.
Social media platforms mainly used by online shoppers
Weibo
62.2%
Mogujie
33.1%
1 - 3 times
Over 10 times
25.9%
Meilishuo
iGuang
Leho
10.1%
7%
6 - 10 times
15%
7.1%
55%
Duitang
5.7%
23%
4 - 5 times
No. of purchases influenced by social media on users over the past 6 months
Data Source: CNNIC,“2012 Online Shopping Market in China Research Report”March 2013
,
－14－

20.
1.3.4 The Growth Trend of Users Driven by SoLoMo
The popularity of smartphones helps the 3rd and 4th tier cities and rural areas to overcome the limitation of fixed
broadband to directly enter the mobile shopping era. Mobile shopping in China was less than 2% in 2011 but
grown to 4% in 2012, expecting an even higher jump in the future.
PC-based online shopping vs mobile shopping in 2010-2016
0.5%
1.5%
4.2%
99.5%
2010
98.5%
2011
95.8%
2012e
8.1%
91.9%
2013e
11.7%
88.3%
2014e
Data Source: iResearch,“China Online Shopping Research Report 2012”
15.1%
PC-based Online Shopping
percentage (%)
17.8%
84.9%
82.2%
2015e
Mobile Shopping percentage
(%)
2016e
－15－

21.
1.3.5 The Proportion of Users Driven by SoLoMo
vs Other Countries
As of 2011, mobile commerce accounted for only 2% of the eCommerce market, while China’smartphone
s
penetration rate was only 10%. Just a year later, China’mobile eCommerce represented about 4% of the total
s
eCommerce market. Research also showed that the smartphone penetration is likely to increase to 23% in 2015,
because of the higher tendency of average Chinese smartphone users to shop online, which brings much potential
to future development.
2011 mobile commerce and smartphone penetration in major eCommerce markets
Share of mobile commerce
Smartphone penetration
% of eCommerce
% of population
USA
5.4
42
UK
4.8
49
Germany
3.6
35
France
3.4
37
China
1.9
10
Korea
0.6
42
Data Source: McKinsey Global Institute, China’e-tail revolution: Online shopping as a catalyst for growth, March 2013
s
－16－

22.
Summary
- eCommerce development in China is yet saturated given the growing number of internet users,
broadband coverage, smartphone coverage, and the rising of average disposable income.
- The affluent consumers in China, especially for those from small cities, are looking for high quality
products and brands. The expansion rate of offline shops is far behind the expectations of these
consumers.
- For brands and retail merchants who want to enter China market, the best way to maximize contact
with target consumers is to set up online shops. This way they can also standardize service levels and
maintain the brand image.
- Compared with the United States’
market structure, and in addition to the users’
increased need
and maturity of new brands in the marketplaces, independent merchants will play an important role
in the future of China’market.
s
－17－

23.
Appendix – Definition of terms
- Internet users : Chinese citizens who have used the internet in the past 6 months
- eCommerce: The trade of products or service via internet, mainly referring to the B2C and C2C
trading. Users search for the product information on the internet, send a purchase request via the
e-order service, and then complete the purchase via online payment or COD. Online travel booking
and B2B trading are not included.
- eCommerce consumer: Internet users who have purchased products or services online in the past 6
months.
- Independent merchants: A sub-industry or mini-market which operates an e-trading platform, and
provides a complete e-commerce solution to the consumers. Independent merchants comprise of
a full range of services tailored to its consumers, providing a strong channel for sales and marketing
and branding promotions. Example: VANCL and Lefeng
- eCommerce Platform: A platform for corporations to provide online trading to individuals.
Corporations and merchants can make use of the shared resources such as basic infrastructure,
payment platform, security platform and management platform to operate their business activities in
a more efficient and low cost manner.
- Exchange rate: Based on USD and RMB rate of 6.13 in July 2013
－18－

24.
China eCommerce Market Analysis Report
Chapter One
Industry Review and Forecast
END
Stay tuned for
Chapter Two
Characteristics and evolution of China eCommerce users
www.i-click.asia
weibo.com/iclickasia
－19－