Why China’s E-commerce Market is Set to Soar

America may have been the birthplace of e-commerce, but China is the future. In the last few years, China has already surpassed their fellow giants in terms of the sheer magnitude of their e-commerce market.

In February this year, the China Bureau of Statistics reported that China’s e-commerce market has ballooned by 26.2% and already represents 15.5% of total retail sales in the country.

Compare this to America’s e-commerce growth rate of just 15.7% that represents only 9% of their total retail sales and we can see just how far China’s e-commerce industry has come.

In 2016, the total China market of 5.16 trillion yuan (US$776 billion) already dwarfs America’s total. One of the major drivers of growth is increasing demand for high-quality products that consumers are not able to obtain from traditional retail stores. Their only option is to go online to purchase these items from overseas.

Growth of overall economy

The future continues to look bright for China’s e-commerce scene. Analysts believe that in 2017, China’s e-commerce industry will exceed the trillion dollar mark.

Despite the deceleration of China’s overall economic growth, its gross domestic product is still set to expand at mid-single digits, far exceeding the growth of more mature economies.

Lower tier cities pulling their weight

It also seems that, contrary to popular belief, the e-commerce market in China is not just a first-world phenomena. Tier 3 and tier 4 cities in China are pulling their weight in this industry as well.

With a 50.1% share of gross market value and online shopper growth at 61%, lower-tier cities in China, have proven that the emerging middle-class population have also taken to online shopping.

Mobile driving growth

Furthermore, China’s mobile payment and shopping have grown at a rate that far exceeds the United States. China consumers use their mobile to pay for goods and services about 50 times more than their American counterparts.

Driven by the government’s support of cashless systems and the success of Alipay system, China is already one of the leading countries when it comes to mobile payments.

Favourable population demographics

Even with e-commerce penetration exceeding that of the United States, the China market growth is still set to expand at a faster rate than the traditional tech giants.

Not only does China, with its larger population, still have a larger untapped market than the United States but the population make-up also favours the switch to e-commerce.

Income in the top tier cities of China, such as Beijing and Shanghai, are accelerating at an even faster tick. Even US MBA graduates are attracted to China’s high paying jobs.

And as urbanisation continues in China, and tier 1 and 2 cities grow, the e-commerce industry will continue to reap the benefits.

The Foolish bottom line

If you are an investor who wishes to capitalise on the fast-growing industry of e-commerce, then companies that have a presence in China should not be overlooked. With so many catalysts in place, this may be a boom like no other in history.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.