China's e-commerce juggernaut

The deal signed with Shanghai Municipal authorities will allow Chinese consumers to buy bags and books from Amazon for the first time.

Amazon is also going to open a logistics warehouse in China to expand exports of goods from Chinese companies, giving it greater ability to make cross-border payments and enabling it to use the trade zone to experiment with financial innovation.

The move is significant for Amazon, which has been operating in China for a decade but is a distant also-ran to Alibaba, which accounts for 80 per cent of China’s US$300 billion (Bt9.6 trillion) online shopping market. 

However, even if Amazon fails to wrest market share from Alibaba and other Chinese competitors, the huge growth in the overall Chinese e-commerce market is likely to see the American company prosper.

It is estimated that e-commerce in China will be worth $540 billion by 2015, and by 2020 it will be worth more than e-commerce in the US, the UK, Japan, Germany and France combined. 

This is linked to the number of people connected to the internet in China, be it via computers or smartphones – around 630 million internet users and over 500 million mobile internet users.

The Chinese government’s goal is to connect 1.2 billion people (85 per cent of the population) to 3G or 4G mobile internet by 2020.

The rate of growth is truly staggering. Some five billion daily searches are made through Baidu, and hundreds of millions communicate via mobile messaging app WeChat.

This embrace of the internet is good news for China, and signifies a lot more than just convenient shopping. 

As McKinsey Global Institute has noted, Chinese internet use is also changing character, from consumer-focused to enterprise-driven. As companies embrace the new technologies, their operations become more efficient, which translates into productivity gains, new markets for innovative products and services, and increasing demand for workers with digital skills.

The heavy capital investment and labour force expansion that fuelled China’s rise over the past two decades cannot be sustained indefinitely. The internet, however, can enable gross domestic product growth that is based on productivity, innovation and consumption. 

It also intensifies competition, allowing the most efficient enterprises to win out more quickly, and creates information transparency that improves investment decisions so that capital can be better allocated.

The economy’s shift towards the internet will entail some risks and disruptions, but it can ultimately support China’s goal of creating a more sustainable model for economic growth. This can only be good for everyone, including China’s Asian neighbours.