Chinese companies are competing in the US e-commerce market in a way that is not true in reverse, a new report shows.
GlobalData’s Thematic Intelligence: E-commerce report analyses the sector at a global level, valuing it at $5.9trn in 2022 and projecting a value of $9.3trn by 2027.
The report finds China the world’s largest e-commerce market, with revenue of $2trn in 2022 and a transactions value share of 34%, while the US is not far behind with a share of 30%.
However, that gap is expected to widen between 2022 and 2027, with China expected to see a compound annual growth rate of 11% over that period compared with the US at 7%. A ten-percentage-point gap in market share is expected by 2027.
E-commerce encompasses all online commercial activity, ranging from virtual purchases like video games or streaming services to real-world goods like food delivery or clothing.
Currently, the largest companies in the market are split between the US and China. General retailers Amazon, Walmart, Alibaba and JD.com lead in retail while Alphabet (Google parent company) and Tencent (creator of WeChat) lead on software platforms.
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Beyond these major platforms, direct comparisons between China and the US are difficult due to the differing nature of the online landscape in the two countries. In China, super-apps dominate the market and WeChat offers not only a social media network but also payment mechanisms, food delivery and online retail services. Tencent is also one of the largest global video game publishers by revenue.
In the US, these functions are decentralised, with key players including Uber in ridesharing, Deliveroo and Uber Eats in food delivery and Epic Games in online gaming. This is perhaps unsurprising, given that the US has stricter antitrust legislation as well as much looser government control over the internet, making it easier for new players to enter markets and harder for any one company to gain control over so many functions.
What may be more unexpected, however, is that Chinese apps are able to thrive not only in their home market but abroad as well. The most obvious example of this is TikTok, the short-form video app developed by Chinese company ByteDance. It boasts over 1 billion active users across the globe and over 150 million in the US alone – almost half the population of the country.
Chinese-founded (though now Singapore-based) fast fashion company Shein also has high penetration into the US market, with an estimated revenue of $30bn in 2022 and behind only NIKE and Old Navy in online sales value. Despite the headquarters move, the company still manufactures and houses its clothing in China.
In contrast, China has banned US-based social media apps including Instagram, Facebook and Twitter. This doesn’t mean that there are no users in the country, as many citizens use VPNs to get around restrictions, but it severely limits the penetration of the apps and the investment they can get in the Chinese market.
Other US apps have struggled in China despite being allowed to enter the market. When Uber expanded into China in 2014, it hoped to utilise a similar strategy to the one it had pursued elsewhere and compete on price, undercutting competitors in order to gain market share and then leverage that into profitability. This strategy proved untenable, however, and in 2016 the company announced the sale of its assets to local rival Didi. Airbnb followed a similar pattern, pulling out in 2022 after five years in the market.
Part of the difficulty comes from the large amounts of investment that China’s sovereign wealth fund, China Investment Corporation (CIC), puts into Chinese companies. China is unapologetically protectionist and is willing to fund domestic competitors to Western companies to help secure dominance.
The CIC also controls distribution networks for e-commerce across Europe through its majority stake in Logicor, which it purchased in 2017. Logicor operates and manages distribution centres with a total value of over $16bn and is used by the likes of Amazon, DHL and PrettyLittleThing.
The US and other Western powers have retaliated, however. The playing field may skew towards China, but GlobalData analyst Aisha U-K explains: “As China and the US battle for e-commerce market share, the regions’ largest players continue to face hurdles when trying to cross into rival territory. Juggernauts such as Shein and ByteDance (TikTok) have had success in penetrating the US market, though they still face regulatory challenges, with the latter subject to multiple bans.
“US companies must overcome similarly stringent regulations when looking to tap into the Chinese market, and must adapt to the country’s e-commerce trends, such as the prominence of mobile commerce and livestream shopping.”